MORTGAGEE’S RIGHT OF REDEMPTION (RIGHTS OF THE MORTGAGEE)

These are means by which the mortgagee may enforce the security so as to recover the loan. There are basically four of such rights:

1.Statutory power of sale

2.Foreclosure

3.Taking possession and

4.Appointment of Receivers.

1.STATUTORY POWER OF SALE

Under sections 19 (1) of the CA and 123 (1) of the PC & L, every mortgagee (legal or equitable) whose mortgage is created be Deed may enforce its/his security after the legal due date by sale of the mortgage property. Power of sale here is automatic; the mortgagee does not require a court order before he/it can sell. However, for the mortgagee to be entitled to exercise its power of sale, the power must HAVE ARISEN and become EXERCISABLE. 

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For the power of sale to arise the following three conditions must exist:

a)The mortgage must have been created by a deed;

b)There must be no contrary intention against sale in the mortgage deed; and

c)The legal due date, which is the date of redemption of the mortgage must have passed.

Even where power of sale has arisen, the mortgagee is still NOT entitled to sell the mortgaged property unless and until the power has become exercisable.The power becomes exercisable when ANY of the three conditions in section 20 of the CA and 125 of the PCL is satisfied, which is that:

i.               Notice requiring payment of the mortgage money has been served on the mortgagor or one of several mortgagors and default has been made in payment of the mortgage money or part thereof for three months after service of such notice/letter; or

ii.               Some interest under the mortgage is in arrears and unpaid for at least two months after becoming due; or

iii.              There has been a breach of some provision contained in the mortgage deed or in the Act/Law and on the part of the mortgagor or of some person concurring in making the mortgage to be observed or performed other than and beside a covenant for payment of the mortgage money or interest thereon.

This means that when the power has arisen, the occurrence of any of the above three factors will give the mortgagee absolute power to exercise his power of sale.The requirement of notice to the mortgagor includes notice to persons deriving title through him, for example, where there is a subsequent mortgage.The notice need not fix the time of repayment. It is sufficient if it request that the mortgagor should pay the loan. The date of the service of the notice is excluded in the computation of time for this purpose.

Where the mortgagor is in default of payment of any instalment or interest is in arrears, it is not a defence that substantial part of the loan has been paid.Thus, in Okafor & Sons V. NHDS Ltd(1972) NHJSCC 271, it was held:

Where under the terms of a mortgage deed the mortgage money is to be advanced not as a lump sum but in instalments, the mortgagee has a right to exercise his statutory power of sale under Section 19 of the Conveyancing Act, 1881 if the mortgagor is in default as to the payment of interest, even if the principal sum has not been advanced in full.”

Note that where the power of sale has not arisen, the mortgagee/lender has no right to sell but if it sells after the power has arisen but not yet exercisable, it may pass good title.

PROTECTION OF INNOCENT PURCHASERS

Section 21(2) of the CA, which is similar to Section 126(1) of the P & CL, provides that:

“Where a conveyance is made in exercise of the power of sale conferred by this Act, thetitle of the purchaser shall not be impeached on the ground that no case has arisen to authorise the sale or that due notice was not given or that the power was otherwise improperly or irregularly exercised but any person damnified by an unauthorised or importer or irregular exercise of the power shall have his remedy in damages against the person exercising the power.”

Therefore, where a prospective purchaser is investigating the title of the mortgagee to sell, he is only bound to inquire whether the power of sale has arisen; he needs not concern himself with whether or not the power has become exercisable.

Note that this protection is available only to a purchaser for value acting in good faith. Where the purchaser has actual notice that the power of sale is not exercisable or of any fact or circumstances that is improper or irregular, the exercise of the power of sale of the property to him will be defeated because equity will not allow him to benefit from his fraud.Otherwise, the purchaser takes free of the mortgagor’s interest.The sale extinguishes the mortgagor’s equity of redemption.

The mortgagor’s remedy in such a situation is in damages against the mortgagee. The purchaser takes a good title, provided he a bona fide purchaser for value without notice.

CONDUCT OF SALE

How do you conduct the sale?Usually, it will be by public auction.Where a mortgagee’s power of sale has arisen and become exercisable, he is not a trustee of the mortgagor in conducting the sale.He is, therefore, not bound to sell at a particular price provided he (the mortgagee) acts in good faith.

A sale at undervalue is not proof of bad faith unless the mortgagee sells to himself and to his nominee or his agent.In that case, the court can infer bad faith.See Eka-Eteh V. Nhds Ltd And Anor (1973) ALL NLR 555 where it was held thus:

“undervalue alone is not sufficient to vitiate the exercise of a mortgagee’s power of sale; it must be shown that the same was made at a fraudulent or gross undervalue. Also, if having regard to the circumstances of the particular case, a mortgagee exercises his power of sale in good faith his conduct cannot be impeached.So since there is no evidence ofmala fidesor collusion on the part of the defendants, the second defendant is entitled to the statutory protection afforded abona fidepurchaser by Section 126(2) of the PCL and the sale to him cannot be set aside.”

In Kennedy V. Trafford (1897) AC 180, the court held that a mortgagee discharges his duty towards the mortgagorif he exercises his power of sale in good faith. But if he wilfully and recklessly deals with the property in such a manner as to sacrifice the interests of the mortgagor, he cannot be said to have exercised his power of sale in good faith.

APPLICATION OF THE PROCEED OF SALE

Though the mortgagee is not a trustee of the mortgagor for the conduct of the sale, he is a trustee for the proceeds of sale.See section 21(3) of the Conveyancing Act and section 127 of the PCL. Section 21(3) of the Conveyancing Act and Section 127 of the PCL regulate distribution of the proceed of sale.

ORDER OF DISTRIBUTION OF THE PROCEEDS OF THE SALE

1. Prior encumbrances are discharged/settled.

2. Cost, charges and expenses properly incurred in the sale;

3. Mortgage sum and interest will be paid;and

4. The balance will be paid to the mortgagor.

If there is no balance, the mortgagee is still entitled to demand for the remaining unpaid balance.See the case of Visioni V. National Bank(1975) 1 NMLR 8.

INJUNCTION AGAINST SALE

Though the mortgagor’s power of sale will not generally be restrained by injunction, in deserving circumstances the mortgagee may be restrained from exercising the power of sale. The mortgage can be restrained in the following situations:

1)Where the right of sale has not arisen;

2)Where the parties agreed to a different mode of sale.

3)Where the mortgagor can validly rely on plea of estoppel.

4)Where the mortgage is a fraud on the mortgagor

5)Where the mortgagor pays the whole outstanding sum and interest into court before the sale

To be continued with FORECLOSURE

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