A Critique Of The Effect Of Land Use Act On Legal Mortgages In Nigerian Financial Institutions

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A Critique Of The Effect Of Land Use Act On Legal Mortgages In Nigerian Financial Institutions


This study on a critique of the effect of land use act on legal mortgages in Nigerian financial institutions. Mortgage financing are structured financial arrangements provided by approved financial institutions that accept real estate as security for the loan. Basically, mortgage financing is used to acquire or purchase or develop a property. However, it is also used to access the equity on an existing property. This research work examined various mortgage financing policies in Nigeria, highlight their performance with a view to identify the challenges inhibiting the optimal performance of the mortgage financing structure in Nigeria and suggest the way forward. The methodology adopted was a trend analysis of the various components of the policy measures of the sector. The research however, found that low awareness about existing mortgage financial arrangements, low financing capacity of the mortgage institutions and inefficient legal framework among others, remained the major impediments to the growth of the sector. It recommended that identification of new sources of financing of mortgage institutions, streamlining of legal documentation framework and an active participation of the private sector would position the sector to perform optimally and contribute to the overall economy

Chapter One


1.1 Background to the Study

The Land Use Act is revolutionary legislation which swept away all freehold and vested same in the Governor of a State . When the Act came into effect on the 29th May 1978, it nevertheless took very many people by surprise as they were confronted with the legal realities of losing their previous freehold grip over land. However, the effectiveness of this novel legal reality is still a subject of controversy. The Land Use Act provides that, “it shall be lawful for the Governor of a State to grant a statutory right of occupancy in respect of land whether or not such land is in an urban area to any person for all purposes” while “it shall be lawful for the Local Government Council to grant a Customary right of occupancy to any person or organization for the use of land in the Local Government Area for agricultural, residential and other purposes .

One of the most effective aspects of the Land Use Act is its direct impact on commercial financial activities under which it is stipulated that a certificate of occupancy is required to deal with landed property and that the consent of the Governor must be obtained before an individual can assign, mortgage, transfer possession of his landed property and financial institutions seem to have dogmatically adhered to this tenet.
Mortgage is an avenue through which certain financial demands, and by extension, creation of wealth can be met.

With modern economic development and radical advancement in technology, it becomes imperative to source for funds to meet the challenges posed by rapid industrial advancement.

Hardly can business and commerce develop without capital to fund required projects and trade. Individuals, corporate institutions, property investors etc. will ultimately require fund from financial institutions to meet desired needs. These financial institutions do not readily finance a project for a deserving customer without entering into any form of agreement in the form of contract. Besides entering into an agreement, security is required to ensure that the funds borrowed are secure or at least there is something to fall back on by the lender in the event of default on the part of the customer. This elevates the creditor to the status of a secured creditor, giving him something out of which he is entitled to have his debt paid in preference to an unsecured creditor.

Securing a debt may be in the form of a pledge, a lien, a conditional sale, a charge or a mortgage. A Mortgage is a contract for the conveyance of interest in land or assignment of chattels as a security for the payment of a debt, or the discharge of some other obligation for which it is given and the debt being a thing independent for which the mortgage exists to secure, remains demandable whatever may happen to the security . This definition implies that even if the lender has nothing to fall back on or the security is destroyed, the debt remained demandable. But once the debt is repaid the agreement becomes void and no longer binding. A mortgage is a conveyance of title to property that is given as security for the payment of a debt or the performance of a duty that will become void upon payment or performance according to the stipulated terms . In a mortgage transaction there must be a time lapse to ascertain when the mortgagor falls into default.

A mortgage is essentially a proprietary security the substance of which is a right vested in the mortgagee and entitles the latter by virtue of this title to have the rents and profits applied to satisfy his debt and if necessary pay himself off by realizing his security through sale or foreclosure . Where a mortgagee exercises his right of entering into possession and collection of rents and profits, the mortgagee is bound to give full account of such collections.
Mortgage transaction has throughout history, been a collection of contradictions and Maitland described it as “one long suppressio veri and suggestio falsi” meaning suppression of the truth is equivalent to suggestion of what is false. This is as a result of the disputes that have always arisen between the mortgagor and the mortgagee leading to various interpretations by the law Courts.

Obtaining a mortgage has long been a pursuit that has inspired mixed emotions from hope to fear amid triumphant feelings of achieving the seemingly universal dream—and all the confusion and stress that entails. Theories and practices of the mortgage market have evolved with the ever-changing face of home loans. The history is fraught with booms and busts that have seen rapid expansion and success for individuals and families entering the market as well as recessions and depressions of devastating consequences.

Nevertheless, the mortgage is a widely used form of money lending because, in most cases, the property remains with the debtor in the good faith that the debt will be paid with interest . In other words, the mortgage is meant to be a beneficial arrangement for both parties. However, a mortgagee may choose to take over possession before the ink is dry on the mortgage agreement, but by convention most mortgagees leaves the security in possession of the mortgagor.

In Pharmatek Ind. Projects Ltd V. Trade Bank (Nig.) Plc., Nweze JCA gave a lucid definition of a mortgage thus; a mortgage is 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. The borrower who conveys the property is called the mortgagor. The lender who obtains interest in the property is called the mortgagee. The debt for which the security is created is called the mortgage debt. The substance of a mortgage of land is a right of property vested in the mortgagee. By virtue of this title the latter, namely, the mortgagee, is entitled to have the rents and profits applied to satisfy his debt, and upon default by the mortgagor to liquidate the loan, to enforce the security by sale or foreclosure.

The researcher in his view defines a mortgage as a transaction between two or three persons whether natural or artificial where the mortgagor uses his property as a security to obtain money from a mortgagee with the understanding that upon liquidation of the principal sum including interest, the property/security reverts back to the mortgagor through a release or some other method as per the terms of the transaction or an enabling law. Though a mortgage transaction is usually between a mortgagor and a mortgagee, a third person comes in form of a guarantor who uses his property to secure the loan for the mortgagor.

The Land Use Act did not abrogate the existing law regulating mortgages in Nigeria , but requires that there must be a certificate of occupancy while the consent of the Governor must be sought and obtained . It thus renders null and void any transaction or instrument which purports to confer on or vest in any person any interest or right over land unless in accordance with the Act . This has generated so much controversy than the law makers themselves anticipated.

The existing law on mortgages can be found in the Property and Conveyancing Law in the South Western States including the old Mid-Western Region now Edo and Delta States, with the exception of parts of Lagos which is governed by the Registration of Titles Law and other parts of the Country which uses the Conveyancing Act which is a statute of general application.

1.2 Statement of the Problem

The Land Use Act as contained in the legislation and implemented stands as a two edged sword. The LUA is a laudable legislation as it has afforded government the opportunity to acquire land for development whether Federal or State Government.

However, the LUA is bedeviled by so many controversies. The LUA introduced a new dimension to mortgages as banks and other institutions insist that an intending mortgagor must produce a certificate of occupancy duly signed by the Governor of a State or his delegate as a preliminary step to obtaining a loan facility from the Bank. One major change the Land Use Act strives to achieve is that by the words of the statute, it swept away all existing interest held as freehold or fee simple which before the LUA gave unlimited term of years to Land owners. This is why Banks will not accept anything other than a statutory right of occupancy evidenced by a certificate of occupancy from an intending mortgagor.

The Property and Conveyancing Law provides that “a mortgage of an estate in fee simple shall only be capable of being effected at law either by a demise for a term of years absolute, subject to a provision for cesser on redemption, or by a charge expressed to be by way of legal mortgage” and a first mortgage shall take a term of three thousand years from the date of the mortgage . Under the Land Use Act, a certificate of occupancy issued by a State has a maximum life span of Ninety-Nine years (this duration may differ in some cases) though the duration is unspecified in the Act. This implies that where a mortgage is created therein, its period can only be for the unexpired residue. A mortgage created under the LUA can only be for the period unexpired residue no matter how large or small such period might be. This implies that if the unexpired residue is for five years, an intending mortgagor must stay a day lesser from such term of unexpired residue.

The Land Use Act provides that where reference is made to a conveyance of fee simple in creating a mortgage in the existing law, an assignment of a right of occupancy is substituted and where the Property and Conveyancing Law requires that a mortgage of Land can only be effected by the demise of fee simple, where the estate is freehold or by sub-demise where the estate is leasehold, a sub-grant or sub-undergrant would be substituted respectively .
It confers a borrowed title on an existing holder of a statutory right of occupancy evidenced by a certificate of occupancy otherwise known as C of O. it must be founded on an existing root of title otherwise it can be impeached where there is a superior title rooted in customary law. The reality of the provision of the Act which swept away existing rights are obviously in doubt since a statutory certificate of occupancy itself can only be founded on an existing legal right otherwise it becomes a worthless piece of paper when challenged in a Court of competent jurisdiction. The existing legal right referred to here can be traced to customary law on which such title must be rooted. In Ogunleye V. Oni the supreme court held:

…this is the weakness of a certificate of occupancy issued in such a case. It is never associated with title. Thus, where as in this case, a certificate of occupancy has been granted to one of the claimants who has not proved a better title, then it has been granted against the letter and spirit of the Land Use Act.

1.3 Objectives of the Study

The main objective of this study is to a critique of the effect of land use act on legal mortgages in Nigerian financial institutions.

1.4 Significance of the Study

This study therefore examines a critique of the effect of land use act on legal mortgages in Nigerian financial institutions, in other to review their performance visà-vis their objectives, identify the challenges that might have impeded performance and considers how the challenges facing the sector could be adequately addressed.

1.5 Limitation of the Study

There is no study undertaken by a researcher that is perfect. The imperfection of any research is always due to some factors negatively affecting a researcher in the course of carrying out research. Therefore, time constraint has shown no mercy to the researcher. The limited time has to be shared among many alternative uses, which includes reading, attending lectures and writing of this research, also distance and its attendant costs of travelling to obtain information which may enhance the writing of this study was a major limitation.

1.6 Research Methodology

In order to successfully do a research of this magnitude and in relation to the underlying purpose of this study, this project intend to make use of library based materials, desktop statute books, decided cases, as well as juristic opinions both in journals, articles and textbooks.

1.7 Scope of the Study

The study concerns about a critique of the effect of land use act on legal mortgages in Nigerian financial institutions.

Chapter Five

Conclusion and Recommendations

5.1 Conclusion

Mortgage financing in Nigeria and articulated the impact of various housing reform measures. It also highlighted some constraints that should be addressed in order to boost the flow of funds into the housing and construction sector. The financing of national housing programmes should be viewed primarily as a national responsibility, involving both the private and public sectors. The private sector should, therefore, be encouraged to provide the bulk of actual loanable funds for the housing of middle income and upper income groups. For the low income group, however, continued public support, will be required for housing and community development.

The implementation of the revised PMB guidelines is critical in the context of the stipulated deadline of December 31, 2012. The potential of mortgage banking as a veritable channel/platform for affordable housing in Nigeria is largely unexploited and the implementation of the proposed reforms requires concerted efforts to ensure the achievement of the desired goals of affordable housing. In this connection, the Central Bank should continue to evolve policies that would ensure steady flow of financial resources to the mortgage finance sector. The Bank should also increase its surveillance and supervisory activities on the mortgage institutions to ensure their orderly growth and development.

Furthermore, there is no doubt that the law and practice governing mortgage transactions are extensive, there is no doubt that there are needs for strategic reforms so that it meets the exigencies of modern times.

5.2 Recommendations

  1. Necessary enabling legislations should be enacted and incentives be given to institutions that financing housing in Nigeria so as to encourage them to be more aggressive in mobilizing idle resources from the public via the money and capital market.
  2. There should be new regime of mortgage finance policy aimed at bolstering public confidence in saving and investing in mortgage related instruments, equally in the capital market.
  3. The apex mortgage institution (FMBN) should be reorganized and empowered to ensure proper capitalization and improved service delivery. This is because of its significant effect on housing for all in Nigeria.
  4. The existing procedure for mortgage lending by commercial banks, mortgage banks and private investor be reviewed with the aim of making funds for property development accessible to prospective borrowers at cheaper rates.
  5. In order to make the amendment of the Act easy, it should be removed completely from the constitution. After all, the Act is like any other statutory law and there is no reason whatsoever for giving it such a status in the supreme law of the land.

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