Debt Recovery: The Concept Of Indebtedness And Mortgage Under The Nigerian Law
1.1 Background to the Study
The Legal atmosphere in any given society affects business operation. Business strives well when business legislation are well defined and aimed at creating a favourable environment for business to thrive. These pieces of legislation will further national goals, stimulating the economy, conserving foreign exchange, enhancing competition among business entities, by prohibiting monopolistic tendencies and unfair method of competition by firms. It will also ensure that contracts are entered into and executed, with justice done to the parties and their right adequately protected.
In Nigeria, there is a plethora of business and commercial laws that govern different aspects of business environment for example, banking, insurance, capital market, etc. At this point, it is important to know what “law is”. For the purpose of this study, we shall adopt some definitions.
The definition by an eminent Nigerian jurist is that, “the law of a given society is the body of rules, which are recognized as obligatory by its members”
It is therefore the entire body of principles, norms or regulation that governs human conduct, the observance of which can be enforced.
Also “law” is defined by Cicero 1959 as, “the highest reason implanted in nature, which commands what ought to be done and forbids the opposite . . . what is right and that is also eternal, and does not begin or end with written
This means natural or moral laws which accord with our basic sense of justice of what is wrong and right in the state of nature, as opposed to or in contrast with legislative or man-made law.
Another definition is that, “law is a body of rules designed or formulated to guide human conduct or action which are enforced among members of a
given state or society.”
This refers to man-made law which exists to ensure legal order and due administration of justice in an organized society.
During the period of the state of nature, man and animals wondered about in the bush, forest, searching for food, a place to rest and eventually to lay head when it is night in order to sleep. Sleep at that time (state of nature) used to be at any place in the bush, like animals without shelter. This was prone to attack by animals, reptiles, birds and even stronger human beings. Later, the state was established or founded. This brought the nomadic lifestyle of the man of the state of nature to stagnation by way of shelter. By shelter, it means any enclosure used for resting or sleep built purposely by man for that purpose. This took the form of gathering of grass, sticks, and leaves. Later, with the advancement in technology of that time, mud, wood, stones were gathered to form enclosures and shelter . With further sophistication of technology, man developed skill to build houses, with wood, mud, stones, bricks, just like we have today, with all amenities for comfort and pleasure. Some people nowadays cannot have shelter without assistance from financial institution, though it is a right to have shelter in the Nigerian Constitution . This leads us to the need for mortgages as transaction to secure loan from banks with any given security. The Mortgage Institution Act provides for the establishment of mortgage institution in the country. S. 7 (a) provides that, “a mortgage institution shall not grant a loan or advance for the building, improvement of extension of dividing houses unless adequate securities have been taken on an existing property in respect of which the loan or advance is being granted”
The Bank and Other Financial Institution Act also provides for the establishment of loan by banks as follows:
a bank shall not without the prior approval in writing grant any advance, loan, credit facilities against the securities of its own share or any unsecured advances, loan, or credit facilities unless in accordance with the bank rules and regulations and where any such rules and regulations require adequate securities such securities shall be provided or, as the case may require deposited with the bank.
The securities are of diverse kinds, among which are land and other real estates, ships, debentures on assets of a company, life insurance policies, stocks and shares. “The general principles underlying these diverse forms of security are the same, regardless of the different modes of effecting them, as well as the fact that in some instance, the legal rules applicable vary from one kind of security to another” .
Landed property has been chosen as the security for loan for the purpose of this work for the following reasons. First, land is a more stable asset.
Secondly, the value of land is more likely to appreciate than other assets. Thirdly, arguably, it is easier for the banks to enforce their security in the case of landed properties than other assets such as debentures, insurance securities, guarantees, stock and shares, charge over fixed deposit account, trust receipts, bill of sale, letter of set off, trust deed8.Also physical control of the property is hardly necessary and its characteristic feature of immovability affords the creditor a reassuring grip on the security.
The banking industry is one of the major institutions involved in mortgage transactions and so there is need to ensure that it has the proper legal frame work for mortgage transactions to thrive. Alongside comes the Land Use Act, which is the single law that defines land rights, obligations and specific conditions precedent for any alienation or encumbrance of land rights in Nigeria. Inspite of this, title to land appears to be more insecure than the ever was. This research therefore seeks to unravel the problems and proffer plausible solutions considering the importance of mortgage transactions to the development of any nation.
1.2 Statement of Problems
As important as mortgage of landed property is to the economy of this nation Nigeria, it is beset with a lot of problems which has discouraged investors and bankers, making mortgage transactions difficult and unattractive. In view of which this research work has come up with the following research questions, that will eventually serve as an enablement to mortgage market development.
- The enactment of the Land Use Act has seriously eroded the relative security enjoyed by a creditor (the bank) in a mortgage transaction.
This is because of the provisions of some sections of the Act like Section 28 which deals with the power of the Governor to revoke rights of occupancy. The commercial banks are uncertain as to the value of a certificate of occupancy, which they are being asked to take as security for loan, bearing in mind that these certificates can be revoked at the
Whims and caprices of the Governors.
- The Land Use Act appears to hinder economic progress.
This is because of the unwillingness and inability of banks and other financial institutions to give out loan on mortgage due to the fact that if a right of occupancy is revoked, a mortgagee has no right to the compensation payable, as the definition of “holder” or “occupier” in section 51 of the Land Use Act does not include a mortgagee.
- The Land Use Act has reduced considerable the efficacy of land as security for loan in a mortgage transaction and invariably it’s value and
This is because of the consent requirement of section 22, which has been criticized for being responsible for the delay and cost which both mortgagor and mortgagee usually face in mortgage transaction.
- The uncertainties surrounding the enforcement of mortgage transactions has remained unsolved.
This is because default by mortgagor is a common practice due to the fact, that the laws on ground to protect mortgagees from defaulting mortgagors who breach their mortgage covenant and vice versa are
1.3 Aim and Objectives of the Study
The fundamental aim of this research is to critically analyze and attempt to unravel the problems associated with mortgage transaction in Nigeria.
In line with this, it seeks:
i.To identify the provision of the Land Use Act that has hindered the use of land as security for loan in mortgage transaction. ii.To examine the reasons for default by mortgagors of their essential obligations and proffer plausible solutions that will make mortgage transactions more secure, favorable and rewarding.
- To examine the reasons for some of the hardship encountered by mortgagors and how it has discouraged prospective businessmen from embarking on a mortgage transaction to secure loan from banks.
- To identify hindrances to the enforcement of legal provision in mortgage transactions and examine the legal machinery and laws on ground and its inability and inadequacy to prevent, enforce and nip in the bud default by mortgagors to liquidate indebtedness. Presently the mortgage industry is struggling with government and law makers to put in place the right legal framework for the industry to be a safe haven, hence the foreclosure bill and mortgage finance corporation.
- The Scope of Study
The research work seeks to look at the law affecting mortgage of landed property in Nigeria and if need be those of other countries for comparative purposes. This research also seeks to examine the hindrances, inadequacies and bottlenecks in mortgage transactions and the lack of a well defined legal framework.
It is expected that the practical outcome of this study will be beneficial to the following:
- Those who need loan for investment in the economy of this nation,
- The banks and other lending institutions who provide credit facilities for prospective investors in the form of loan.
- The executive, judicial and legislative arms of the government who make policies, enact laws, amend, interpret and apply laws affecting mortgage transactions.
- Others include legal practitioners, legal luminaries, students, judges, accountants, financial institutions other than banks i.e (Finance houses).
- Research Methodology
This research used the doctrinal research method, which is library oriented. The materials used are primary documents such as legislations (legislative enactment), decision of superior courts of records (case law) and secondary documents such as discussions, analysis and criticisms made by legal luminaries in textbooks and periodicals, articles and journals.
It also used the Empirical method, which is field oriented research through collection of facts and data through interview. This research was partly conducted in the Land registry in Kaduna State where some facts and data were collected from the principal estate officer (Deed) and deed registrar, bureau of lands, survey and country planning, Governors office, Kaduna.
- Literature Review
It is a fact that volumes of scholarly work have been written on mortgages, but none has been able to put it in the perspective of this research work. Example of which are Goldface Irokalibe in his book, Law of Banking in Nigeria11. This research starts with this work because it seems to be the nearest text to this research topic as it relates to banking. However, on reading it, I could not get much from it. Though banking is the main subject matter of the book and not mortgages, the author committed a chapter of it to securities and mentioned land as one of the security for advances. It was rather brief, considering the fact that land is said to be and remains the most valued security for bank lending because of its reliability and the fact that its value appreciates over the years, unlike chattels and other moveable assets whose value depreciate from
- Goldface-Irokalibe, I. J. (2007), Law of Banking in Nigeria, 1st Edition, Malt House Press Ltd. Lagos. p. 141
year to year. The omission of an indepth study of this topic in the book, “Law of Banking in Nigeria”, has created a lacuna in that work inspite of the fact that it is a well researched and enlightening work in the area of the historical development of banking and banking law.
Aboki,12 in his book “Introduction to Statutory Land Law in Nigeria”, exhaustively defined land and traced the historical development of customary land tenure system in Nigeria, right down to the Land Use Act and its effect on landed property in Nigeria. However, though he also dealt with mortgage of landed property, he did not discuss the importance of land and security for advances in the banking industry in mortgage transactions. In Nigeria today and the world over, banks are one of the primary mortgage institutions dealing with mortgage transactions.
Elias,13 in his book “Nigeria Land Law” which was published before the Land Use Act was enacted in 1978 made no mention on the Land Use Act. This is not unexpected. Though, he dealt with mortgages but did not link it up with banking law. This has created a lacuna in his work in Nigeria today.
- Aboki, Y. (2010), Introduction to Satatory Land Law in Nigeria, Faculty of Law, A.B.U. Zaria, Enifab Graphic
Press, Zaria, pp. 4- 75
- Ellias, T. O. (1981), Nigeria Land Law 5th Edition, Sweet and Maxwill Ltd. London, p. 304 – 315
Smith,14 in his book “Practical Approach to Law of Real Property in Nigeria”, x-rayed the law of property and everything to do with land, including mortgages and the effect of the Land Use Act on land. But he failed to link it up with banks or other financial institutions. This creates a lacuna in his work that needs to be filled up to create a wholesome picture.
Smith,15 in his book “The Land Use Act: Twenty Five Years After”, focused his research on the effect of the Land Use Act and its effect on various strata of the economy and the legal system of Nigeria and its government, dealing with issues of customary land ownership right down to individual interest in land under the Land Use Act, housing and the Land Use Act and also criminalization of fraudulent dealings in land. Though he dealt with the importance of landed property as security for loan with the banks, he did not relate it with the banking law. But rather, his focus was on its relationship with or effect of the Land Use Act. This creates a lacuna in his work because land provides the physical substratum for social, economic interaction and is an instrument of social engineering which invariably should involve banking law.
- Smith, I. O (2007) Practical approach to Law of real Property in Nigeria 2nd Edition Ecowatch Publications (Nigeria) Ltd. Lagos. pp. 353 – 422, 469 – 531.
- Smith, I. O (2003), The Land Use Act: Twenty Five years After, Cit pp. 279-368.
Imhanobi,16 in his book legal Drafting and Conveyancing, which is a book on legal drafting, deed and conveyance, also dealt with mortgages, but limited it to its relationship with the Land Use Act, leading to the practical aspect of drafting a mortgage agreement. He did not go into an in-depth study of its importance in the banking sector of the economy. Not even the historical development or its relationship with banking law was looked into. This creates a lacuna in his work.
Adekanya,17 in his book “Elements of Banking in Nigeria” did a good job by tracing the historical development of banking, banking law, and other elements of banking in Nigeria, which is expected of a banker. He went further to deal with securities for bank lending in Nigeria and actually focused on land as one of the most important security for bank lending. But unfortunately, not being a legal luminary, he did not relate it to the effect of the Land Use Act on landed property in Nigeria. This creates a lacuna in his work which was first published in 2002, long after the Land Use Act. In Nigeria, today you cannot do a research on land without the Land Use Act.
- Imhanobi, S. O (2007), Legal Drafting and Conveyance 2nd Edition, Rock Link Industries Ltd,
Maitama, Abuja, pp. 365- 406
- Adekanya, F. (2010), the Elements of Banking in Nigeria 2 Edition, fazBurn Publishers, Offa, Nigeria,
Ohonbamu, in his book “Introduction to Nigeria Law of Mortgages”, dealt extensively on mortgage, tracing its historical development from customary law right down to the modern trend of mortgage in English form as at that time. Inevitably, the book having been published in 1972, is now somewhat outdated and does not reflect the recent trend. In not relating mortgages to the Land Use Act and law of banking, there is a big lacuna in that piece of research because it does not reflect the present position of things in Nigeria today.
Olong,  in his book, Land Law in Nigeria, just like the other authors on land law, extensively dealt with the historical development and ownership of land in Nigeria, with an exquisite exposition on the Land Use Act, but fell short of relating mortgages to the law of banking and finance, though he highlighted some aspects of the law of mortgage, this creates a lacuna in his research.
Adewale,20 in his book “The Nigerian Land Law”, traced the source of Nigerian Land Law, right down to the Land Use Act. A chapter of the book extensively dealt with mortgages, but failed to look at it as a security for advance from banks, which creates a lacuna in that work.
Uwakwe,21 in his book Land Use and Reform in Nigeria, x –rayed the Land Use Act, but made no mention of mortgage or land as security for advance from banks. This is not surprising since his focus was on the Land Use Act, 1978 and its effect on the Nigerian Land Law and Land Reform, and not on the use of Land as security for loan.
Nwabueze,22 in his book “Nigeria Land Law”, thoroughly researched the Nigerian Land Law and received English Land law right before the Land Use Act 1978. Though he dealt with mortgage, it is out dated because in Nigeria today you cannot talk about land without the Land Use Act and he failed to relate it to security for loan from banks, this creates a lacuna in his book.
Finally, Dadem,23 in his book “Property Law and Practice in Nigeria”,
thoroughly researched property law and practice in Nigeria, a chapter of which dealt with mortgage practice in Nigeria. He looked into mortgage practice in Nigeria under the relevant laws like the Mortgage Institution Act, Land Use Act and others but as expected it was lacking in depth since it was compressed in a chapter thereby creating a lacuna in the work.
- Uwakwe, A (2012), Land Use and Reform in Nigeria, Immaculate Prints, Gwagwalada, Abuja, pp. 8-224
- Nwabueze, B. O. (1973), Nigeria land Law, Nwanife Publishers Ltd. Enugu. pp. 3-619
- Dadem, Y. Y. (2009), Property Law and Practice in Nigeria Jos University Press Ltd. Jos, Nigeria pp. 115 -155
1.8 Organizational Layout
This thesis is divided into five chapters. Chapter one, starts with a look into the background of the study, statement of problem, objective, scope of study, significance of study, research methodology, literature review, organizational layout.
Chapter two, starts with clarifying certain terms after which it discusses the legal frame-work of mortgage institution, mortgage institutions generally, creating mortgage transactions.
Chapter three, discusses the importance of Land, Land Law in the mortgage industry, land as security for loan, the Land Use Act, consent requirement in mortgage transaction, developed land, undeveloped land and compensation.
Chapter four, discusses the enforcement of the rights of mortgagee in the event of a breach, rights of a mortgagor and death of parties to a mortgage.
Chapter five, discusses the findings, recommendations, and conclusion.
 Elias T. O (1956), Nature of African Customary Law, Routledge and Kegan Paul, p.55
 Fitzgerad P.J. (1966), Salmond on Jurispruence. Twelfth Edition, Sweet & Maxwell, London, p. 643
 Sanni A. O. (1991), Introduction to Nigerian Legal Method, Obafemi Awolowo University Press Ltd, Ile-
Ife, Nigeria, p. 2
 S. 315 (5) Constitution of the Federal Republic of Nigeria 1999 (as amended) 2011, S. I Land Use Act, Vol. 7 1978 Cap. L 5, Laws of the Federation of Nigeria, 2004.
 S. I (i) Mortgage Institution Act, Vol. 8, Cap. M19, Laws of the Federation of Nigeria, 2004.
 Banks and Other Financial Institution Act, Vol. 2, Cap. B3, Laws of the Federation of Nigeria, 2004.
 . Goldface-Irokalibe I. J (2007), Low of Banking in Nigeria, 1st Edition, Malt House Press Ltd. Lagos p. 95.
 . Smith, I. O (2003). The Land Use Act Twenty Five Years After Department of Private and Property Law. University of Lagos. Nigeria. Foler Prints p. 280.
 . Raime A. L “The Land Use Act 1978 A Blessing or Curse” Ikeja Bar Review, Vol. 1, Pt 1 & 2 p. 88.
 . Ohonbamu, O. (1972), Introduction to Law of Mortgages Carment and Co. Ltd. Yaba, Lagos pp. nd 3-132
 9. Olong, A; M. D (2011), Land Law in Nigeria, 2 Edition, Malthouse Press Ltd. Lagos. pp. 93-167
 . Adewale, T. (211), The Nigeria Land Law. Ababa Press Ltd. Sango, Ibadan, pp. 100-138, 201-245
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