The mortgage industry has always posed a problem in Nigeria. It is either the public does not understand the full meaning of the concept or that there is a deliberate attempt to undermine the workability of the concept. In this interview, WILLIAM ANAEBONAM caught up with a legal practitioner Ugonna Pat Anyadubalu, who shed light on the issue. Excepts….
To start with What is Mortgage?
Mortgage can be examined from two perspectives. Firstly, a person needs money to finance his business or project. He approaches a financial institution to lend him money. The financial institution in most cases are banks or mortgage institutions. These financial institutions usually insist on fixed assets like land as collateral for the loan. The borrower therefore assigns his right on the land to the lending bank or mortgage institution while he retains the physical possession of the land with a proviso that the lending bank will reassign the said title of the land to the borrower upon the latter’s completion of repayment of the borrowed sum.
Where the borrower fails or refuses to repay the borrowed sum, the lending bank shall foreclose his right of redemption of the mortgaged property and depending on the nature of the mortgage, sell same to recover the borrowed sum.
Honourable Justice Nweze JCA (as he then was) in the case of Pharmatek Industrial Project Ltd v. Trade Bank Plc; defined Mortgage as “a conveyance of a legal or equitable interest in property as a security for the payment of debt or the discharge of some other obligations for which it is given. It is subject to the condition that the title shall be re-conveyed if the mortgage debt is liquidated”.
This type of mortgage is common among the business class.
There is also the second perspective of mortgage which is common among those seeking for accommodation.
In this case, a person who desires to buy a house or block of flats for an agreed price, takes over possession of the house or building as the case may be and pays agreed monthly sum pending the final liquidation of the agreed price. The said house/building becomes that of the mortgagor upon the final liquidation of the agreed price however the mortgagor loses all that he paid if he defaults in payment.
This type of mortgage is different from tenancy. In tenancy, the tenant pays rent for a certain period, renews the rent further or vacates the building for the landlord upon failure to renew same.
Note that in mortgage like in tenancy, the mortgagee/mortgagor depending on the type of mortgage as explained above is in possession therefore where if he defaults, judicial process must be followed to eject him.
How has the emergence of Land Use Act affected acquisition of land for Mortgage?
Before the advent of the Land Use Act of 1978, our people still traded with land. Land was pledged to people especially for primary purposes and there was always room for redemption of the land upon payment the pledged sum. Now, with the introduction of the Land Use Act no doubt limits the availability of land in the lands of the original owners.
Today, before you buy or sell land, it is pertinent to investigate whether the land falls under excision, acquisition or free otherwise one may end up buying litigation or problem.
On the other hand, the Act has assisted in investigating or verifying title to land in the sense that, a land that has certificate of occupancy granted by the Governor could easily be verified at the relevant Registrar of titles. This gives authenticity to the land unlike a land that has no title. It makes it easy for the banks and mortgage institutions to deal with such land with verifiable title like Certificate of Occupancy.
To government, the Act is a good omen because, it generates revenue from granting of Certificate of Occupancy and registration of titles.
From my explanation above, it would be wrong to out rightly condemn the Act as there are both positive and negative angles to it.
The Primary Mortgage Institutions are visually non-existent, apart from one or two of them. What should be their role in the system?
Let me say that it is important that primary mortgage institutions are not many therefore Housing Mortgage is not very common in our country.
Is it not important that a tenant who has religiously paid his rent over twenty years has nothing to show for it? He has no roof over his head while those twenty years of rent could have been converted into Mortgage. In latter situation, he would have acquired the building upon completion of payment of Mortgage sum.
Now some of the discernible reasons for the low patronage and absence of PMI are include, high cost of mortgaged buildings. Most of the mortgaged buildings are very expensive. In some cases, the interested parties would reckon that it would be cheaper building the house by themselves instead going through mortgage.
In some cases, a two-bedroom flat could go for as much as 19–20 million Naira, which is prohibitive for many interested persons and those who can afford it would reckon that with such huge sum, they would rather buy land and build bigger building that will generate more money.
Long-term mortgage. In Nigeria, our businessmen are not interested in long-term investments. You can see that the commonest business we have in Nigeria today is buying and selling. Every nooks and crannies are shops.
Now, the investor is averse to long-term investment which would involve waiting for 10–20 years or more to recover his investment. The intending mortgage (as in mortgage housing), prefers such long term to ease his payment.
How many civil servants can pay two hundred thousand Naira per month for about ten years to enable him pay for mortgaged building of twenty million Naira for two-bedroom flat?
Again, where is the PMI that will be ready to wait for such long period?
Interest Rate. The interest rate chargeable is very high. Note that most of the PMIs borrow from the banks or mortgage banks at a very high interest rate to invest. This is part of the reasons why such PMI’s are not amenable to long-term mortgage.
Systemic Failure. There is systemic failure occasioned by parties to the mortgage transactions not being honest in their dealings.
Judicial System. Note that I pointed out that in the mortgage the mortgagor or mortgagee remains in possession and you must follow judicial process to eject him. This is where there is another bottleneck because you might spend more time than the mortgaged time fighting from the lower court to the Supreme Court in the bid to eject the defaulting mortgage or mortgagor.
Investors may ask why the judiciary has not hastened disposal of cases in our courts. My quick answer will be that there are so many factors militating against quick disposal of cases. This may be a story for another day.
Why are banks shying away from Mortgage as business?
Banks actually engage in mortgage especially the first perspective of mortgage where they use the mortgagor’s land as security for the loan.
I agree that housing mortgage is usually not their favourite. The reasons are not farfetched as mentioned above especially as they relate to long-term projects, systemic failure, and judicial system.
Banks’ primary focus is on profit making and any system that will menace its profit will not interest them.
What we now have are developers, buying off acres of land which they resell to individuals to build their own houses. Is that mortgage and what are the legal implications of such arrangement?
That is not mortgage, but engaging in the business of buying and selling of land.
The legal implications are enormous. I advise you to engage a legal practitioner and surveyor to investigate and verify the title documents and status of such land.
Often these land developers will tell you that they have a global Certificate of Occupancy, whatever that means. Every Certificate of Occupancy has attached to it, a survey plan. The survey plan shows that size of the land meaning that there is nothing called “Global C of O” because of C of O is limited in size as evidenced in the survey plan.
The Surveyor will educate you whether the piece of land in question falls within the Survey Plan.
Often these developers will tell the prospective buyers that C of O is being processed or that excision will soon be granted. Please be wary of such.
Our governments are usually slow in claiming their acquired land and will do so even if you have developed, through demolition of such buildings. The position of the law is that the governor may acquire land for public purposes.
Why is it difficult for the Federal Government to come up with a strong mortgage policy?
Well, do not forget that under the Act, all land belongs to the Governor of the State, therefore the Federal Government has lesser interest in land, which is the epicenter of mortgage transactions.
Also, under the Act, disputes relating to ownership of land is only triable by State High Courts and not Federal High Courts.
