OUTCOMES:

Explain the various contents

 

CONTENT

1. Covenants in a mortgage
2. Drafting of deed of mortgage
3. Ethical issues

 

Don’t confuse up-stamping with successive legal mortgages. They are not the same thing.

Successive legal mortgage there are different parties even though the land is the same  but in the up-stamping the parties are the same with the same property.

Features of up-stamping

• Same property
• Same parties
• Facility (loan) is new (there must have been an earlier mortgage on the property)
• Stamp duty is paid on the new facility – it would be the same document (deed), it would just have this “deed is stamped to the sum of N2 million”, you don’t need to execute a new deed

 

Conditions precedent for up-stamping

• Same property
• Same parties
• The value of the property must cover both the first loan and the second loan

 

Discharge of a mortgage

The mode of creation will determine the mode of discharge i.e. so how the mortgage was created will determine how it will be discharged.

In an assignment, demise or sub- demise it can be by A deed of release/ deed of discharge / deed of surrender – (a deed of re-conveyance). When it is executed the mortgagor should ensure that the deed of re-conveyance is registered to reflect that the mortgage has been discharged otherwise any search conducted will show that the land is encumbranced.

Where it was created by charge by deed expressed to be by way of legal mortgage or a statutory charge, A Statutory receipt will suffice. A shortcoming however is that the receipt that is issued need not be registered and where it is not registered a search on the land will always show an encumbrance.

Where what was in existence was an equitable mortgage then Amere receipt will be sufficient. Under s 47 (1) MPL all that needs to be done is issue a receipt.

Pursuant to S204 CAMA there is prescribed form, in addition to the deed of release filed at the land registry; a memorandum of satisfaction must be filed in the prescribed form.

 

There are three levels of perfection in a legal mortgage

1. Perfection that happens at the land registry – this applies to all legal mortgages: this is governor’s consent, stamping and registration. Failure to obtain governors consent means that the mortgage is inchoate and the legal interest sought to be transferred is void. Failure to register – pay penalty for late registration, not acceptable as evidence to prove title, and may lose priority.
2. Registration of mortgage with the Lagos state mortgage board - This is obtainable in Lagos state only and compulsory because the MPL states that every mortgage that fails to comply with the provision of the law is void
3. Where a corporate body is involved, whether it is legal or equitable mortgage, s 197 CAMA whenever a company creates a charge it must be registered with Corporate Affairs Commission (CAC) within 90 days. Two documents would be submitted 1) deed of legal mortgage and 2) particulars of charge in FORM CAC 8. Failure to do this makes the mortgage void against the creditors and the money lent becomes immediately repayable. Also discharge of a mortgage must be reported to CAC and two documents must be submitted as well to CAC 1) FORM CAC 9 – memorandum of satisfaction together with 2) evidence of discharge e.g. deed of release/surrender. Furthermore if the bank exercises power of sale, CAC must also be notified.

 

FORM AND CONTENT OF A MORTGAGE

 

INTRODUCTORY PART

Commencement – This legal mortgage/ this deed of legal mortgage / this charge by deed expressed to be by way of legal mortgage/ This charge

Date – Same as in deed. Note: it should still be left undated to avoid payment of stamp penalty

….is made this …. Day of …. 2015.

Parties ..(Mortgagor/ borrower of the first part) , ( mortgagee/lender of the second part) , and when applicable Mr nelson (surety of the third part)

Recital: you must make use of the two types of the recitals – narratory and introductory. Recite the mortgagor’s title, surety’s title, the loan agreement, consent if it necessary etc.

 

OPERATIVE PART

In a deed of legal mortgage, the operative part usually starts with the receipt clause.  In consideration of the sum of N50,000,000 (fifty million naira) paid by the lender to the borrower, the receipt of which the borrower acknowledges. Then the Testatum follows – NOW this deed witnesses as follows. It usually includes 2 things/ clauses/tesatum,

1. Covenant to repay principal and interest;- this would then lead to re-conveyance of the property
2. Conveying as beneficial owner (charge of security) - the clause that charges the property

• The mortgagee will be indemnified against all actions arising from the defects or defaults’ of the mortgagor covenants– an undertaking to indemnify the mortgagee

So when they say the mortgagor is transferring as a beneficial owner there will be 7 covenants stated

In a leasehold 6 covenants are implied (right to convey, quiet possession, freedom from encumbrances, further assurances 

“ The beneficial owner now sub-demises

Once it is created by sub-demise, remedial clauses are contained in miscellaneous part. These are the remedial devices: 1) power of attorney and 2) Trust declaration

Note the two important matters to be included in the operative part of a deed of legal mortgage .

“The borrower as beneficial owner assigns/sub demises/charges to the lender ….”

Then the habendum

 

CONVENANTS

• Covenant to pay principal: parties should make express agreement as to when the loan should be repaid. It is here that the legal due date will be included, if it (legal due date) is not included the loan will be payable on demand. The mortgagees’ right to sale would not arise until the expiration of the legal due date.
• Covenant to pay interest: interest is usually agreed by the parties, where no such agreement was made or entered into the court will impose a reasonable interest rate. It is also possible for the court to review the interest rate where it is considered unconscionable. The interest rate should not be drafted in way that will, appear as if the mortgagor is being punished e.g. interest is at 15% but if paid before the 25^th of August, interest shall be computed at 10% per annum. The form of interest e.g. compound interest, simple interest, has to be agreed upon by the parties  
• Charging clause - this conveys the title to the mortgagee, this is how you determine the mode of creation of the legal mortgage
• Re-conveyance / cesser
• Covenant to insure:see s123 PCL , for the mortgagee to undertake insurance , the clause . The policy can be taken after the date of the mortgage, and it can only be insured against fire, the mortgage must be by deed and he can only insure to the tune of the mortgage sum, in the absence of insuring to the mortgage sum he can only insure to two-thirds of the mortgage sum. This covenant is basically to protect the security, and so either party could insure. s 130 PCL - this qualifies the right, the mortgagee cannot insure 1) where there is a declaration in the mortgage deed that there is no requirement/need to insure.  2) The insurance is kept by the mortgagor, 3) where the mortgagor has taken out the insurance with the consent of the mortgagee, under these three circumstances the mortgagee will be precluded from taking out the insurance. Where these are not present, the mortgagee can go ahead to take out insurance
• Covenant to repair – this is the mortgagor’s covenants, but where he refuses the mortgagee can repair but note that he may charge what he spent on repairs of the property. Where he chooses to charge the cost of repair to the property, it becomes a charge on the property (this is an example of a breach other than the covenant to pay in the deed) and this will be a reason for the power of sale to become exercisable
• Covenant as to declaration of trust and power of attorney
• Covenant to pay rent and observe covenant in head lease
• Covenant not to lease or sub let

 

Consolidation – S.17 CA and s155 PCL

Consolidation –It says you cannot redeem VGC without redeeming Ikorodu property.

It is a clause in a legal mortgage that states you can’t redeem one property without redeeming all the others held as mortgage property with the same bank. Even though Ikorodu property is not useful to them but they need to recoup their interest. On this basis they will say all the mortgages will be consolidated and this will not constitute a clog on equity of redemption. It (the provision of the law)  has to be excluded on at least one of the property  s17 CA or 115 PCL. So at least one deed must make provision for it. It has to be expressly stated, it cannot be implied in the absence of an express provision for it .

The right to consolidate the mortgages in favour of the mortgagee is based on the doctrine of equity – he who comes to equity must do equity.

Conditions before

1. Same mortgagor and same mortgagee
2. Legal due date in all must have passed
3. There must be an agreement to consolidate
4. It covers different properties

 

In a legal mortgage the mortgagee has the right to retain title deeds.

The mortgagee must not create any clog on the equity of redemption.

To determine whether a clog has been created in the equity of redemption is a question of fact depending on the particular circumstances. That a time period is given doesn’t mean it’s a clog, the time period will determine whether it’s a clog, but if it is extended that it endures in perpetuity, this will constitute a clog.

 

Concluding part

Testimonium

Execution and attestation clauses

 

Note perfection