Handbook on Mortgage Law and Banking in Nigeria

By Maiyaki

The challenge of housing the citizenry has remained the intractable burden of most governments. The strategies employed by the respective governments are wide and diverse. What matters is the end result. The Nigerian government has been engaged in different forms of experiments from the precolonial days to date towards meeting this ever-increasing demand. With rising population and shrinking resources available to governments around the world, the option of partnering the private sector in a practical way became inevitable, in order to meet targeted housing stock. The Nigerian government through the instrument of the National Housing Policy with its two-pronged strategy set to overcome this challenge. The Housing Policy was widely applauded as a unique housing compendium and an ingenious housing delivery mechanism. However, so many years after, the housing fortune of Nigerians has weaned and is critically on the precipice. This book examines the inherent weaknesses in the legal and institutional framework with a view to jump-starting the housing sector, which is currently comatose.

• Language: English
• Publisher: AuthorHouse UK
• Release date: Sep 5, 2012
• ISBN: 9781477223123

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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© 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)

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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

Introduction

Infants

Lunatics

Governor’s Consent

Stamping and Registration

Chapter Three

Forms Of Mortgage

Introduction

Legal Mortgage and Its Creation

Equitable Mortgage and Its Creation

Chapter Four

Mortgage Securities And Forms

Introduction

Promissory Notes

Deposit of Title Deeds

Deposit Accompanied by a Memorandum

Legal Mortgage

Chapter Five

Remedies And Enforcement

Introduction

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

Introduction

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

Introduction

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

Introduction

Functions of the FMBN

The FMBN Act Review and Evaluation

Chapter Nine

The Mortgage Institutions Act

Introduction

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

Introduction

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)

Introduction

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