Handbook on Mortgage Law and Banking in Nigeria
By Maiyaki
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About this ebook
Maiyaki
Maiyaki Theodore Bala is a student of international economic law with a PhD from the University of Jos-Nigeria. He is also a practicing lawyer and lecturer with the Faculty of Law, University of Abuja-Nigeria. He is married with three kids.
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Handbook on Mortgage Law and Banking in Nigeria - Maiyaki
© 2012 by Maiyaki Theo Bala. All rights reserved.
No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.
First published by AuthorHouse 08/30/2012
ISBN: 978-1-4772-2313-0 (sc)
ISBN: 978-1-4772-2312-3 (ebk)
Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.
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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.
CONTENTS
Dedication
Statutes
Table of Cases
Acronyms
Preface
PART ONE
NATURE AND SCOPE
General Overview
Chapter One
Meaning Of Mortgage
Historical Origin and Development
Definition of Mortgage
Differences between Mortgage and Other Related Transactions
Chapter Two
Legal Requirements Of Mortgage Contracts
Einführung
Infants
Lunatics
Governor’s Consent
Stamping and Registration
Chapter Three
Forms Of Mortgage
Einführung
Legal Mortgage and Its Creation
Equitable Mortgage and Its Creation
Chapter Four
Mortgage Securities And Forms
Einführung
Promissory Notes
Deposit of Title Deeds
Deposit Accompanied by a Memorandum
Legal Mortgage
Chapter Five
Remedies And Enforcement
Einführung
The Rights of a Legal Mortgagee
Rights of a Legal Mortgagor
Rights Common to Both Mortgagor and Mortgagee
Power to Accept Surrender of Leases
Remedies under Equitable Mortgage
PART 2
THE LEGAL AND REGULATORY REGIMES
General Overview
Chapter Six
The National Housing Policy
Einführung
Goals of the National Housing Policy
Objectives of the Policy
Strategies of the National Housing Policy
An Evaluation of the Policy
Chapter Seven
The National Housing Fund Act
Einführung
Mission of the National Housing Fund
Objectives of the Fund
Contributions to the Fund
A Review of the National Housing Fund Act
An Evaluation of the Regulatory Requirements
Chapter Eight
The Federal Mortgage Bank Of Nigeria Act
Einführung
Functions of the FMBN
The FMBN Act Review and Evaluation
Chapter Nine
The Mortgage Institutions Act
Einführung
Aims and Objectives of the Mortgage Institutions Act
Operations of the Mortgage Institutions
Experiences in Other Jurisdictions
PART 3
INSTITUTIONAL AND OPERATIONAL FRAMEWORK
General Overview
Chapter Ten
The FMBN And Mortgage Banking
Einführung
Banking and Mortgage Banking
Functions of the FMBN
Powers of the FMBN
Review of the Functions and Powers of FMBN
The Role of FMBN
Inter-relationship between FMBN and PMIs
Problems of the FMBN
Chapter Eleven
Primary Mortgage Institutions (Pmis)
Einführung
Features of Primary Mortgage Institutions
Sources of Fund for Primary Mortgage Institutions
Role of PMIs in Mortgage Banking
Role of PMIs in National Housing Fund
Operational Problems of Primary Mortgage Institutions
Prospects of Primary Mortgage Institutions
Chapter Twelve
The Central Bank Of Nigeria (Cbn) And Mortgage Banking
Role of CBN in Mortgage Transactions
Inter-Relationships between CBN and PMIs
Inter-Relationships between CBN and FMBN
Chapter Thirteen
Policy Considerations
Issues for Consideration
Funds
A Case for Reform
References
Papers, Journals, and Magazines
Dedication
This book is most humbly dedicated to the reposed soul of my beloved sister (Deceased), Edris Homsuk Wukari (Mrs.), who departed this sinful world in 2000 AD.
Statutes
1. Banks and Other Financial Institutions (Amendment) Act (BOFIA) 1999
2. Central Bank of Nigeria Act No. 24, 1991
3. Central Bank of Nigeria Act (Amendment) No. 24, 1998.
4. Companies and Allied Matters Act No. 1, 1990.
5. Employees Housing Scheme (Special Provisions Act) 1979
6. Federal Mortgage Bank of Nigeria (Consolidation) Act 1992
7. Federal Mortgage Bank of Nigeria Circular No 1/94 1994
8. Infant Relief Act 1874
9. Land Use Act 1978
10. Limitation Act Laws of the Federation of Nigeria 1996.
11. National Housing Fund Act No. 3, 1992
12. Mortgage Institutions Act 1989
13. Mortgage Institutions Act, 1996
14. National Housing Policy 1991
15. Property Conveyancing Act 1881
16. Property Conveyancing Law 1959
17. Regulation 2 (2) Part 1 Terms and Conditions for Obtaining the National Housing Fund Loan by Primary Land Instrument Registration Law, Volume 3, Laws of Ogun State of Nigeria, 2003.
18. Registration of Titles Law Cap. R.4 Laws of Lagos State 2003.
Table of Cases
1. Abdurahman v. Oduneye (2009) 17 NWLR (Pt. 1170) Pp. 221-222).
2. Ahaneku v. Iheaturu (1995) 2 NWLR (Pt. 380), P. 758.
3. Akwule v. R. (1963) 1 All NLR 193.
4. Aloa v. Akano (2005) 11 NWLR (Pt. 935) 160
5. Amale v. Sokoto Local Government (2012) 5 NWLR (Pt. 1292) 181 SC
6. Anyegwa v. Onuche (2009) 3 NWLR (Pt. 1129) 659
7. Awojugbabe Light Industries v. Chinukwe (1993) 1 NWLR, Part 270, P. 485.
8. Bailey v. Barnes (1894) Ch.D. 25.
9. Barclays Bank of Nigeria Ltd. v. Ashiru (1978)1 LRN 266.
10. Benhart v. Greenshields (1853)9 Mor PC 18.
11. B.P. West Africa Ltd v. Allen (1962)1 All NLR Part 4, P. 645.
12. Campbell v. Holyland (1877)1 Ch.D. 172-173.
13. C.C.C.T. & C.S. v. Ekpo (2001) 17 NWLR (Pt. 743) 649.
14. Dakolo v. Rewane (2011) 16 NWLR (Pt. 1272) 22 SC
15. Ekah Eteh v. NBS (1973)6 SC 183.
16. Ekaete v. HDS Ltd (1973) 6 SC, P. 183
17. Erikitola v. A.S.
18. Exparte Kennedy (1888)21 QB. D. 384.
19. Gbadamosi v. Okoye (2011) 3 NWLR (Pt. 1233) 175 CA
20. Glasswork v. Balls (1890)24 QBD 13.
21. IBB Ind. Ltd. v. Mutanci Co. (2012) 6 NWLR (Pt. 1295) 492, CA
22. Intercity Bank Plc v. Feed and Food Farms Nig. Ltd (2002) FWLR, (Pt 128) P.1289.
23. Jalosun v. Bamgboye, (2010) 18 NWLR (Pt. 1225), P. 294
24. Kadiri v. Olusoga (1956)1 FSC 59/61.
25. Karim v. Lagos State Government (2012) 5 NWLR (Pt. 1294) 620 CA
26. Knights Bridge Estates Trust Ltd v. Barne (1939) CH. 441.
27. Lasisi Adetuyi v. Thomas Agbojo (1997) 1 NWLR (pt. 484) P, 705; 132
28. LEDB v. Ashanti & Ors (1937)3 WACA 143.
29. Muhammed v. abdulkadir (2008) 4 NWLR (Pt. 1076) 111, P. 114 CA
30. Mustapha v. Abubakar (2011) 3 NWLR (Pt. 1233) 123 CA
31. Nigerian Loan and Mortgage Co. Ltd v. Adetunmobi (1944) 17 NLR 136.
32. Ogbahon v. Registered Trustees of CCCG.
33. Ogundiani v. Araba (1978) Nscc (Vol. 11) P. 55.
34. Olalomi Industries Ltd v. Nigerian Industrial Development Bank (2009) 16 NWLR (Pt. 1169) Pp. 272-272
35. Olaleye v. Trustees of ECWA (2011) 2 NWLR (Pt. 1230) 1 CA.
36. Olateji v. Comm. L & H Kwara State (2010) 14 (Pt. 1213) 297 CA.
37. Olayinka v. State (2007) 9 NWLR (Pt. 1040) 561
38. Onade & Anor v. Thomas (1993) 11 NLR 104.
39. Onashile v. Idown.
40. Oturkpo v. John (2012) 7 NWLR (Pt. 1219) 357 CA
41. P. v. Baker: Megary’s manual of the Law of Real Property, 5th Ed. P.428.
42. Pharmatrix Industrial Project Ltd v. Trade Bank (Nig.) Ltd. (2009) 13 NWLR (Pt. 1159) P. 583-584
43. Registered Trustees of RCCG v. Bankole (2011) 1 NWLR (Pt. 1227) 40 CA
44. Re: Whitehorse Cottage (1965)1 All ER, 11.
45. Salami v. Wema Bank (Nig.) Plc (2010) 6 NWLR (Pt. 1190) P. 341, CA
46. Samuel v. Jarrah Timber Corporation (1904) AC 323/326.
47. Savage v. Uwechia (1972)1 All NLR 251.
48. Savannah Bank Ltd v. Abel Ajilo & Anor (1987)2 NWLR 421.
49. Solanke v. Abed & Ors (1962)1 All NLR, Part 2, P. 230.
50. T.B. Erikitola v. A.S. Alli & Ors (1941/1942) 16 NLR 56
51. Tippi v. Notani (2011) 8 NWLR (Pt. 12490 285 CA
52. Tomkin v. Luce (1889)43 Ch. D. 191.
53. Ukachukwu (2004) 17 NWLR (Pt. 902) 227
54. Union Bank of Nigeria Ltd v. Ayodare and Sons nig. Ltd (2007) 13 NWLR (Pt. 1059) 567.
55. White v. City of London Brewery Co. (1889) 42 Ch.D
56. Yaro v. Arewa Construction Ltd. (2007) 17 NWLR (Pt. 1063) P. 33
57. Zentley v. Wilde 1899, 2Ch.D. 474.
Acronyms
ASHS — African Staff Housing scheme
CAMA — Companies and Allied Matters Act 1990
CBN — Central Bank of Nigeria
CDC — Commonwealth Development Corporation
FBIRS — Federal Board of Internal Revenue Service
FHA — Federal Housing Authority
FMBN — Federal Mortgage Bank of Nigeria
FMFL — Federal Mortgage Finance Limited
LEDB — Lagos Executive Development Board
LUA — Land Use Act
NBS — Nigerian Building Society
NHF — National Housing Fund
NHP — National Housing Policy
NHPC — National Housing Policy Control
NSUDP — Nigerian States Urban Development Program
PCA — Property Conveyancing Act
PCL — Property Conveyancing Law
PMI — Primary Mortgage Institution
Preface
Housing is the most quintessential component of the socio-economic framework of the development of the human specie next to food and clothing. In his drive to meet with his housing aspirations, the reality has remained that, for every Nigerian that is a house owner, there are still several others without it. Indications from copious other studies have continuously shown that the major factor militating against the realization of this dream has remained the shortage of housing finance or even the complete dearth of it.
The malaise of housing finance in Nigeria has become so cancerous and disturbing that it evidently manifests to the depth. Nigerians have so adapted to this pain that it has become usual housing, to have sane and healthy people live under bridges and on the streets of our urban cities. Although these ills were characteristic of the urban cities in the past, the problems have of late crept into the rural areas with an alarming spread. Further, where there are said to be some measure of housing, Nigerians find themselves living under sub-standard and inhuman conditions with very poor environmental and infrastructural outlays. Majority, if not all of our urban cities in Nigeria are undoubtedly deprived of the necessary compliments of decent housing.
Given the notoriety of the housing problem in Nigeria and the failure of earlier government policies address it with a view to yielding the desired succor, government in 1989 responded to this basic struggle by the stock of Nigerians to attain adequate and decent shelter, predicated upon the bedrock of sufficient funding for the housing sector and secure the active participation of the organized private sector through the introduction of the National Housing Policy 1991. The National Housing Policy of 1991 contained a two-pronged strategy, which was aimed at putting to rest the housing dilemma of Nigerians.
The first was the introduction of a two-tier institutional structure for the housing finance system. This was preceded by the enactment of the enabling Federal Mortgage Bank of Nigeria (Consolidated) Act of 1993 and the Mortgage Institutions Act of 1989. The former gave legal and institutional backing to the proper positioning of the Federal Mortgage Bank of Nigeria to play the role assigned to it under the new housing policy. The latter gave birth to the Primary Mortgage Institutions (PMIs), which were to be used as the retail outlets for the new housing strategy.
The second strategy was the establishment of the National Housing Fund, through the enactment of the Act of 1992. It provided that the fund was a compulsory savings and contributory mechanism which will provide a pool of long-term soft loans to interested individuals. The fund was to be managed by the Federal Mortgage Bank of Nigeria. By the Federal Government pronouncement in its 1997 budget, the ultimate supervision and regulation of the primary mortgage institutions in Nigeria was vested in the Central Bank of Nigeria.
These policies above have been acclaimed as some of the best policy strategies globally targeted at affordable and decent housing delivery. However, it is posited that notwithstanding the acclaimed beauty of these policies, much of the housing problems experienced today are no doubt to a large measure, an unequivocal expression of the cumulative distortions from policy weakness recorded so far. Consequently, what appeared to be no worse than a precarious balance between resources and demand is now threatened by increasing urbanization and absolute growth of population. Rather fortuitously, the increasing need for housing financial services coincides with a clattering slow down in the growth of resources and consequential reduction in financial capability of the government, the private sector and the individual household which situation poses a challenge to enterprise.
Collectively put together, it could be surmised that all enabling legislations passed were deliberately designed to attract and enhance private sector participation and ultimately attract idle funds into the area of financing housing delivery. However, so many years thereafter, most of the primary mortgage institutions have remained comatose, thereby necessitating wide spread reflection and introspect into the various legal and institutional strategies and mechanisms so far placed on ground towards achieving proper and decent housing for all Nigerians.
Notwithstanding the avalanche of crisis that had bedeviled the housing sector with its various strategies in its short period of experience, the institutional concept of the Primary Mortgage Institutions is viewed as an indispensable necessity, if the constraints of funding and inadequate institutions are to be directly and comprehensively addressed in the short to medium term.
It has been posited that a similar institutional experience had been the bedrock of the success of housing delivery in other countries around the world. Empirical evidence shows that the private sector participation in this area of housing delivery is the only assured way to induce stability in the market, with facilitation and close surveillance by government to inhibit the possibilities of derailment.
The thrust of this book will therefore be an in-depth analysis and evaluation of the major government policies and the existing structures that have been put in place towards achieving (the so much talked about) Housing for all by the year 2020.
This work will also focus its attention on the various legal and institutional structures that have been put in place by government towards the attainment of a strategy of painless funds mobilization for onward lending to Nigerians who desire to own, renovate or extend their dwelling houses. By so doing, this work would elicit and analyze the various factors that had defied attainment of this noble objective of government. It would further explore existing opportunities within the system towards greater stability and security of resources to be translated into the provision of basic shelter for Nigerians in fulfillment of government’s housing policy drive.
This enormous task of providing the so much needed resources and their administration for channeling into housing finance is to be achieved through the mechanism of the PMIs. It follows therefore, that how well a PMI is able to carry out these functions overtime would depend on how well it is able to manage any risks inherent in mortgage finance intermediation. These risks include credit liquidity, cash-flow, agency, and the political system stability. These factors normally become more complicated in housing finance, which is due to the size and term of housing investment.
At the end, this work will have elicited the weaknesses of the policies and the institutional framework, which defied capacity building and sustainability. Finally, the book proffered strategies on how best to chart a way forward for housing delivery in Nigeria. Of course, there is no doubting the fact that Nigeria requires a well articulated and aggregated strategy for reforming or indeed developing a robust and sustainable housing delivery system to meet the yearning of the average nigerian.
Maiyaki T.B Ph.D, @2012
PART ONE
NATURE AND SCOPE
GENERAL OVERVIEW
Before the coming into law of the Primary Mortgage Institution (PMI) Act 1989, the business of the housing finance was predominately being handled by the Federal Mortgage Bank of Nigeria. This was being complemented by the vast but confined retail mortgage portfolio that was being maintained by various commercial banks around the country and the major part of their activities concentrated on residential loan origination.
The enactment of the Primary Mortgage Institutions Act therefore gave birth to the plethora of mortgage institutions, which emerged in response to the call for intermediation in the provision of housing finance. The response thence underscored the fact that hitherto, finance and accompanying services being rendered in tackling the housing problems were grossly inadequate. This status quo necessitated the introduction of the National Housing Policy, which sought to address the long missing link in the area of housing delivery, which is the adequate supply of finance for on-lending as soft loans to the target beneficiary. This, the policy desired to achieve through the active participation of the organized private sector.
The enactment of the PMI Act saw the licensing of so many mortgage institutions. This reality emerged against the background of the myriad of applications that were submitted to the Federal Mortgage Bank of Nigeria (FMBN). Some of the licenses were clearly given without regard to the procedure, requirements and the potency of such applicants.
Further, against the background of the fact that the National Housing Fund was potentially in the offing for onward disbursement by the Primary Mortgage Institution (PMI), some dubious Nigerian promoters saw the enactment of the law as an opportunity to obtain and divert the National Housing Fund (NHF).¹ That enactment also came at a time when there was an embargo on issuing commercial bank licenses. These promoters saw this as an opportunity to float and run financial institutions simpliciter, without regard to the specialized nature of the mortgage banking and the roles they are assigned to play in the overall economy for national development.
Having licensed the numerous Primary Mortgage Institutions, the general expectation of Nigerians, was the consequent collection and disbursement of the National Housing Fund. The unexpected turned out to be the case, as till this day, the NHF is yet to optimally reach the target beneficiaries as was desired. The inability of the Federal Mortgage Bank of Nigeria to disburse the National Housing Fund optimally has been severally blamed on a combination of numerous factors among which are policy deficiency, the ill preparedness of the regulatory bodies to contend with the myriad of responsibilities cast on it, the inability of the Primary Mortgage Institution and beneficiaries to meet up with disbursement requirement etc.
Most of the foregoing problems can be attributed to policy distortions and/or the complete lack of the necessary structures for the subsequent implementation of these policies. An author amply captured this situation thus;
Housing in Nigeria is fraught with inconsistencies. This is more amply explained by the myriad of housing policies and programs formulated since the pre-colonial time of which non-has been fully implemented. The problem of housing in Nigeria is more compounded by its being used to score cheap political points by the people at the helm of affairs…
²
The Former Chairman of the Nigeria Economic intelligence Committee had also criticized the Federal Government’s Housing Policy describing it as ‘hyper-inflationary’ and a gross violation of the principles of that year’s government Budget.³
It was during these formative and transitional years that changes had occurred in the basic economics of all financial markets, which forced major alterations in the way mortgage banking operations were planned and managed. This is so when considered along with the degree of interest rate movement, characteristic of the regime of deregulation and the speed with which they had occurred. Interest rates reached all high levels unknown and unanticipated by the Act setting up mortgage institutions. This was coupled with the shortage of long-term funds in the system.
The consequent collapse of the mortgage market and the global financial sector during the mid 1990s amply illustrated the potentials of the enabling Law. It is quite discernible that the regime of deregulation in the mid 90s was intended to liberalize the economy and free it from the shackles of control characteristic of a free market economy.
The apparent inactivity during the early and mid 90s in the mortgage industry predicated upon the non-release of the National Housing Fund (which was the thrust of the establishment of the Primary Mortgage Institutions), compelled the PMIs to nose-dive into short-term funds placement attracting as high as (in some cases) 100% interest without proper collaterization. This was to be so since the deposit receipts of the primary mortgage institution were also short. The result was that the funds market was engendered with an all-time high risk, which turned out to be the bane of the market during the mid 1990s and thus the collapse of the industry at that time.
The effect of this volatility during the trial period was to make the mortgage banker’s job of risk management much more difficult. Further complexities were added to the business considering wider variety of diversification options (in disregard to the mortgage classification) available to the primary mortgage institutions whose