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NLS - Property Law Practice > MORTGAGES I-III > Flashcards

MORTGAGES I-III Flashcards

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1
Q

What is a mortgage

A

This is an agreement between 2 or more people where legal or equitable in property is conveyed by the mortgagor to the mortgagee to secure a loan and there is an undertaking to reconvey once the loan is paid up

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2
Q

Features of a mortgage

A
  1. There must be a reversionary interest. There must be a provision for cesser upon redemption.
  2. There must be a security given on the mortgage
  3. Transfer of interest (need not be land) to a lender of money
  4. In the event of failure to repay, the lender of the money has the right to sell the property to recover the money lost.
  5. There must be the existence of an obligation which creates the need to transfer interest to a mortgagee.
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3
Q

What are the conditions for validity of contract subject to mortgage?

A
  1. Must state the source of the loan
  2. Must state the terms of the loan and the terms of repayment of the loan
  3. Must state all material facts
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4
Q

Procedure/ Stages of a mortgage transaction

A
  1. Application for loan by proposed mortgagor
  2. Negotiation of the loan
  3. Investigation of the proposed mortgage property by the proposed mortgagee’s solicitor
  4. Property evaluation
  5. Preliminary documentation - contract, loan agreement
  6. Final documentation - Parties make a deed of mortgage (for legal mortgages)
  7. Parties execute this deed and then transfer of deeds
    7 Perfection
    i. Governor consent, stamping, registration
    ii. If corporate body, register charge/ mortgage with CAC within 90 days
    iii. If in Lagos register mortgage with Lagos State Mortgage Board
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5
Q

Modes of creating a legal mortgage within the MPL 2010 Lagos

A
  1. By demise
  2. By sub-demise of unexpired residue leaving the mortgage with residuary interest
  3. Charge by deed expressed to be by way of legal mortgage
  4. Charge by deed expressed to be by way of statutory mortgage
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6
Q

Modes of creating a legal mortgage Under the Property and Conveyancing Law jurisdiction– S. 109, 110 & 137 PCL

A
  1. By sub-demise of terms of years absolute less than at least one day of the term vested in then mortgagor
  2. Charge by deed expressed by way of legal mortgage
  3. By Statutory charge
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7
Q

Modes of creating a legal mortgage within the Conveyancing act jurisdiction

A
  1. By assignment of the unexpired residue subject to cesser upon redemption
  2. By sub- demise
  3. By statutory charge
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8
Q

Modes of creating equitable mortgage

A
  1. Deposit of title deeds accompanied
  2. Equitable Charge accompanied by an agreement to create a legal mortgage
  3. Assignment of an equitable interest
  4. An agreement to create a legal mortgage i.e. the rule in Walsh v Lonsdale.
  5. Mortgage created under the rule of nemo dat quod habet
  6. An imperfect legal mortgage
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9
Q

Features/ Advantages of creating legal mortgage by assignment

A
  1. There is the transfer of entire unexpired interest
  2. There is privity of contract between the mortgagee and the head-lessor
  3. There is no reversionary interest
  4. The mortgagee has a right to retain the unoriginal title documents
  5. The mortgagee is entitled to the beneficial covenants in the headlease
  6. The mortgagee is bound by the onerous covenants in the headlease
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10
Q

Features/ Advantages of creating legal mortgage by sub-demise

A
  1. There is the transfer of unexpired residue but not the entire interest
  2. There is a reversionary interest
  3. There is no privity of contract or estate between the mortgagee and the head-lessor
  4. The mortgagee not bound by the onerous covenants in the headlease nor is he entitled to the beneficial covenants
  5. Sub-demise is common to all jurisdictions
  6. There is uniformity – this mode applies to both CA and PCL states
  7. Mortgagor can create successive legal mortgages on the property: The revisionary interest is legal interest and he may in certain circumstances use this remaining interest to create successive legal mortgages.
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11
Q

Features/Advantages of creating legal mortgage by charge by deed

A
  1. There is no transfer of legal interest
  2. It is simpler to create
  3. It is easily discharged by a statutory receipt of payment unlike in sub-demise or assignment where you need a deed of release or re-conveyance. However, the receipt is not a registrable instrument thus the mortgage may continue to be reflected in the register
  4. Since does not create a legal interest will not be a breach of covenant if there exists a covenant against assignment/ subletting
  5. It is more convenient for business efficacy
  6. Can use one document to charge several properties in one transaction. It is convenient for creating mortgages over mixed properties unlike in sub-demise or assignment.
  7. The chargee has all the powers, rights & protection of a legal mortgagee
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12
Q

Documents required for the purpose of perfecting a legal mortgage/ Documents required to procure Governor’s consent/ Documents required to process a legal mortgage of land

A
  1. CTC of original title documents
  2. Duly executed mortgage deed
  3. Approved building plan
  4. Registered survey plan
  5. Application for payment of stamp duties and registration of documents
  6. Duly completed prescribed application for governors consent – (called FORM 1 C in Lagos state)
  7. 3 years tax clearance certificate of the mortgagor or surety if any
  8. CTC of valuation report
  9. Evidence of payment of ground rent
  10. Evidence of payment of tenement rate
  11. Mortgage deed

NOTE where the mortgagor is a company additional documents will be required:

  1. A CTC of the memorandum and articles of association of the company
  2. A copy of the resolution of the board of directors authorising the mortgage
  3. A copy of the certificate of incorporation of the company
  4. Tax clearance certificate of at least 2 directors
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13
Q

Differences in sub-demise under in CA and PCL & MPL

A
  1. Creation of a successive legal mortgage is possible in a mortgage by sub demise under PCL and MPL, but it is not possible under CA. So cannot create another mortgage over reversionary interest while one exists under the CA due to the doctrine of ‘interesse termini’ which states that all interests in a property is terminated until existing mortgage on it is discharged.
  2. The second difference deals with the reversionary interest of the mortgagor. PCL and MPL rectify this. S. 112(1) states that where the mortgagor fails to pay, the reversionary interest will leave the mortgagor and merge with the interest of the mortgagee allowing the mortgagee to sell the interest to recover the money.
    Under CA there is no such provision so other methods have to be used by the parties such as including a power of attorney or trust declarations in the deed of mortgage in order to recover the loan money.
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14
Q

What is the purpose of the Covenant to pay mortgage sum and interest at fixed rate

A
  • Provides express agreement as to when the loan should be repaid (legal due date)
  • Determines mortgagee’s right of sale which arises at expiration of due date
  • Determines when the mortgagor’s right of redemption will be extinguished by operation of the statute of limitation
  • interest is fixed by the parties where no interest court will impose a reasonable rate.
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15
Q

Draft a covenant to pay mortgage sum and interest

A

The mortgagor hereby covenants with the mortgagee to repay the mortgage sum and interest at 5% per annum or at 3% if paid timeously, repayable on or before 20 January 2019

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16
Q

What is the purpose of the Covenant to insure

A

Determines who to insure. Usually the mortgagee.
Determines when insurance to commence, amount of policy, insurance company, risk to be insured against (only against fire under PCL), application of insurance money.
The covenant is basically to protect the security of the property

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17
Q

Who Covenants to repair?

A

The mortgagor usually covenants to repair but where the mortgagor neglects to the mortgagee has a right to repair but he may charge on what he spent on repairs of the property and this creates a charge on the property and the power of sale may become exercisable
The mortgagee would want to repair to protect the value of the property depreciating in event she need to sell.

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18
Q

What is the purpose of the covenant to consolidate?

A

This used where a mortgagor uses several properties to secure loans. Prevents the mortgagor from redeeming one property without the redeeming the others.
This is because mortgagee must not create any clog on the equity of redemption.

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19
Q

Elements/ Factors needed for consolidation to take place

A
  1. Must be same mortgagor in all the properties
  2. Must be same mortgagee in all the properties
  3. The date of redemption must have elapsed in all mortgages
  4. There must be an express agreement to consolidate
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20
Q

List some covenants in a mortgage

A
  1. Covenant to pay mortgage sum and interest rate
  2. Covenant to insure
  3. Covenant to consolidate
  4. Covenant to pay rent and observe the covenants in the head-lease
  5. Covenant to repair
  6. Covenant not to assign or sublet
  7. Covenant for payment of compensation money
21
Q

What covenants are implied when the mortgagor mortgages the property in his capacity as a beneficial owner

A
  1. Right to convey
  2. Quiet enjoyment
  3. Free from all encumbrances
  4. Further assurances
  5. That the lease is valid and subsisting
  6. The covenants on the part of the lessee in the lease have been observed and performed up till the time of conveyance
  7. That at all times as long as money remains on the security, the mortgagee will continue to pay, observe and perform all the covenants.
22
Q

What is Equity of redemption

A

This refers to the right of a mortgagor to redeem the mortgage property at any time before the mortgage dies provided he has fulfilled his obligations.
The equity of redemption is a continuing interest/estate in land, and could be sold, disposed of or used to create another mortgage. But note that equity of redemption, being an equitable interest could be used to create only an equitable mortgage.
ONCE A MORTGAGE ALWAYS A MORTGAGE

23
Q

Exception to the rule of Equity of redemption

A

The rule that right/ equity of redemption must never be clogged does not apply to DEBENTURES. Hence a company may issue a perpetual debenture.

24
Q

When will equity of redemption be extinguished?

A

A. A valid sale by the mortgagee is made

B. A foreclosure Order becomes absolute

25
Q

What is a legal right to redemption?

A

This is the right of the mortgagor to redeem the mortgage property at any time from the date of the creation of the mortgage to THE LEGAL DUE DATE, provided that the mortgagor has settled fully the mortgage sum and interest

The mortgagee is advised to make the period before the date of redemption short so as to place the mortgagor in default asap in order for the for the power of sale to arise.
If the power of sale becomes exercisable due to the mortgagor defaulting in instalment payment but the legal due date has not passed, cannot enforce valid sale.
See Twentieth Century Banking Corporation Ltd v Wilkinson (1977)

26
Q

What is a equitable right to redemption?

A

The equitable right to redeem is the right granted by equity to the mortgagor to still recover his security after the legal due date has passed if he is able to raise the outstanding sum/ loan money before the sale of the property or a foreclosure order becomes absolute

27
Q

When will equitable right to redeem be extinguished?

A

(a) a valid sale by the mortgagee or
(b) when a foreclosure order becomes absolute or
(c) By a valid order of court

28
Q

What are the rights/ remedies available to a Legal mortgagee

A
  • Right of action in court
  • Right to take possession
  • Right of sale
  • Right to an order of foreclosure
  • Right to appoint a receiver
  • Action for a winding up (where mortgagor is a company)
29
Q

What are the rights/ remedies available to a Equitable mortgagee

A
  • Right to action in court to recover mortgage sum and interest see UBN v Olori Motors (1998)
  • Right to to an order of foreclosure
  • Right to specific performance
  • Appointment of a receiver – by order of court
  • May have right of sale where certain conditions are met: mortgage created by deed and with a remedial device (trust declaration or power of attorney) and no contrary intention
30
Q

Differences between equity of redemption and equitable right to redeem

A
  1. Equity of redemption in an interest in the land while Equitable right to redeem is not
  2. Equity of redemption can be sold, transferred, mortgaged while Equitable right to redeem
  3. Equity of redemption commences with the creation of a mortgage while Equitable right to redeem commences at the expiration of the legal due date
  4. Equity of redemption is alienable and devisable while Equitable right to redeem is not
31
Q

Why is it not advisable or recommended for a mortgagor to seek the remedy of right to take possession?

A

Because they will become responsible for the running and upkeep of the property in a a state that is decent. They are the occupier and so they are entitled to pay all outgoings and rent meant to be paid by the occupier. See Nig Loan & mortgage Ltd v Ajetumobi and Aderokun v UAC

32
Q

What is an order of Foreclosure

A

This is application made by the mortgagee to court which extinguishes the mortgagor’s right of equitable redemption

33
Q

What is the procedure in foreclosure proceedings

A
  • When the legal due date has elapsed, a mortgagee applies to court for an order of foreclosure.
  • The court will grant the order of foreclosure nisi. At this point the mortgagee may not do anything with the property for 6 months. This gives the mortgagor a period of grace to recover the property
  • After 6 months the order becomes absolute and the mortgage dies, the mortgaged property is then is vested absolutely in the mortgagee
  • If the mortgagee sells the property and payment is still outstanding, they may sue to recover the outstanding money
34
Q

How may a foreclosure order be reopened or set aside?

A
  1. Where the foreclosure becomes absolute and the mortgagee institutes an action against the ex-mortgagor in respect of the same transaction, the mortgagor can make an application in court to set aside the foreclosure order.
  2. Fraud.
  3. Where the mortgagor after the order is given promptly approaches the court stating that there are conditions beyond his control preventing him from paying the loan sum but can pay now.
  4. Where the mortgagor is claiming that value of the property is far higher than the outstanding mortgage sum and interest.
  5. The property as security is of special value to mortgagor i.e. it is a family property.
35
Q

Effect of an order of foreclosure on Equitable mortgage

A

Mortgagor is compelled to convey the property to the mortgage but upon sale of the property the mortgagee must account to the mortgagor for the proceeds of sale.

36
Q

What happens if the mortgagee sells the property before the order is made absolute, so while the order is still nisi?

A

The sale is liable to be set aside Except it is made to a bona fide purchaser without notice, then mortgagee is entitled to just damages

37
Q

What factors may the court consider to grant the application for re-opening of the foreclosure order

A
  1. Whether applicant guilty of any unconscionable conduct
  2. Whether application was brought before the court timeously
  3. Applicant must satisfy the court that they have the money
  4. Applicant must satisfy the court that the reason for their default was beyond their control
38
Q

What conditions must be met before mortgagee can sell an equitable mortgage?

A
  1. The mortgage must have been created by deed
  2. The equitable must contain a remedial device i.e. trust declaration or an irrevocable power of attorney
  3. No contrary intention in the mortgage deed other than to sell the property where mortgagee defaults
39
Q

When is a power of sale is said to have Arisen

A
  1. Where the mortgage is created by a deed
  2. Where the legal due date has elapsed
  3. Where no contrary intention in the mortgage deed forbidding the property to be sold
40
Q

When is a power of sale is said to have become Exercisable

A

A power of sale is said to have become exercisable when any one of the following three conditions is fulfilled:

  1. Where mortgagee has sent a notice of demand to the mortgagor and mortgagor has not complied after 3 months of receipt of the letter
  2. Where the mortgagor and defaulted in repayment of his instalment for up to 2 consecutive months
  3. Where the mortgagor has fouled or breached a fundamental term of the legal mortgage apart from covenant to repay
41
Q

Conditions precedent to sell in a legal mortgage:

A

1) The power of sale must have arisen

2) The power of sale must have become exercisable

42
Q

For the sale to be valid the mortgagee must fulfil the following precautionary measures?

A
  1. Must not sell property at a gross undervalue or negligible price
  2. Must conduct sale in good faith - sale must be bonafide
  3. Sale must not be to itself or any of its agents (only way mortgagee can own property is through a foreclosure order)
  4. Must not connive or collude with the buyer
43
Q

What is the Order of application of proceeds of sale of the mortgage property

A

Upon sale of the mortgage property the mortgagee automatically becomes an agent of the mortgagor so must

  1. Settle all prior encumbrances such as prior mortgages
  2. Settle all cost and charges incurred during process of sale of property
  3. Take the outstanding mortgage sum and interest
  4. Return the balance to the mortgagor
44
Q

What would amount to improper exercise of power of sale

A
  1. Where mortgagee sells to himself or servants
  2. Where mortgagee sells before power of sale arises or becomes exercisable
  3. Where mortgagee sells at a gross undervalue
  4. Where mortgagee connives or colludes with the buyer
  5. Where the bank does not conduct the sale in good faith – the sale is not bonafide
45
Q

When is the Governor’s consent not necessary in a mortgage

A
  1. In the case of up-stamping
  2. For re-conveyance or release of the mortgage property when mortgage sum fully paid up
  3. Creation of equitable mortgages
  4. Where consent is obtained for an equitable mortgage that is subsequently converted to a legal mortgage
  5. Where mortgage secured with property that is not real property e.g. shares
46
Q

What is Upstamping?

A

Where a mortgagor has an existing mortgage with a particular mortgagee over a particular property, up-stamping entails the process of payment of additional stamp duties on a mortgage document to accommodate the value of a second loan over the same property thereby increase the value of the original mortgage loan
There is no need for another governor’s consent for the second facility loan - See Owoniboys Technical Services Nig Ltd v UBN PLC

47
Q

Conditions necessary for up-stamping/ Features ?

A
  1. Must be on the same property
  2. Parties must be the same
  3. Stamp duty is paid on the new facility - would be the same deed
  4. Value of the property must cover the first and subsequent loans
  5. There must have been an earlier mortgage on the property
  6. No contrary intention in the deed
48
Q

When will a sale may be restrained or set aside

A
  • Mortgagor has no good title ab initio – see Alli v Ikusebiala
  • Where requisite Governor’s consent was not obtained by the mortgagor renders transaction inchoate and the legal interest void – S. 22 & 26 LUA, Savannah Bank v Ajilo
  • Non-registration of mortgage (where property is in RTL district)
  • Fraud or collusion between mortgagee and buyer
  • Right of sale has not arisen or become exercisable
  • Mortgage is fraud on the mortgagor
  • Sale after the mortgagor has paid in full mortgage sum and interest
  • Where the parties agreed at a different mode of sale
  • Where bank sells at gross undervalue
  • Where the mortgagor can validly rely on plea of estoppel
49
Q

How can a mortgage be discharged?

A
  • If legal mortgage created by assignment or sub-demise - by deed of release, deed of discharge or deed of surrender
  • If by charge by deed expressed to be by way of legal mortgage - by statutory receipt
  • If equitable mortgage - by simple receipt unless paid to mortgagee’s solicitor then should be by deed
  • where mortgagor is a corporate entity by memorandum of satisfaction and filed at CAC see 204 CAMA

NLS - Property Law Practice (10 decks)

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