Posted: 2022 | Pages: 61 | Format: MS Word | Chapters: 1-5 | Others: Questionnaires & References

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ABSTRACT

Mortgage is a very important aspect of credit transaction that contributes to the growth of national economy and aggregate commercial development. However financial institutions such as banks require collateral for security before granting loans to their customers. The researcher used Enugu state as the study area to carryout research on exanimation of the problems associated with using real estate as collateral for bank loans and advances in Nigeria using twenty commercial banks in Enugu. A survey research method was applied and systematic sampling technique was used to ensure a detailed study. A total of 50 respondents were drawn from bankers, registered estate surveys and valuers and real estate developers. The data used for this research work were collected from primary and secondary sources through administration of questionnaire, oral interview and literature review. It was presented in frequency table and analyzed using percentage. It was found out that banking institutions (lenders) favours the use of other kinds of assets more than real estate as collateral for loan and advances. This is due to the fact that such assets as Treasury bills, share certificates, debenture certificates etc. are more liquid than real properties and can be converted to cash within the shortest possible time. Also the consent provision in the Land Use Act possesses another problem because it takes a lot of time to obtain governor’s consent without which the mortgage transaction can not succeed. It was equally found out that there is problem of disparity in value which led to doubt on the competency and creditability of the professional valuer by banking institutions. The researcher recommended following the findings that the Land Use Act should be amended in order to completely take away mortgage transaction from consent requirement. He further recommended that; valuation report presented by mortgagee should be verified before accepting it, any valuer found wanting should be reported to the board for proper sanctioning and multiple registration of title should be avoided for the survival of this credit transaction in Nigeria.   

CHAPTER ONE

• INTRODUCTION
  • BACKGROUND OF THE STUDY

The use of real property as a collateral is an age long practice which help the borrower to secure a loan or advance easily and guarantee that the borrower will not default in the repayment of capital and interest. Real estates were highly favoured by financial institutions than other asset as collateral for loans and advances because of the unique characteristics over other kinds of asset. Such unique features include security of capital, security of income, good hedge against inflation, immobility among others. However, during early colonial period, mortgage transaction did not receive much government attention as most of the housing activities and policies of government focused essentially on the provision of quarters for the expatriate staff and for selected indigenous staff in specified occupations like railway, police, army and son on. This period saw the establishment of government residential area (GRA), Barracks etc.  No effort was made at that time by the government to build houses for sale or rent to the general public and little was done to allow the growth of settlement outside the government ordinance (CAP 95).  This led to acute shortage of housing in the country.

       Mortgage transaction was introduced in a bid to address the structural deficit in the country. However, the method of mortgaging depends on which part of the country the property that is subject matter situates. In the northern and eastern  states, where the  conveyance Act of 1881 applies, legal mortgage of a free- hold is created by a conveyance of the fee-simple, subject, of  course, to a proviso for  re-conveyance  and a mortgage of a leas-hold by an  assignment  of the  lease. But in the former western and mid-western state where the property and conveyance law of 1959 applied, mortgages are usually created by a charge by way legal mortgage or demise for a term of years absolute subject to a proviso for redemption in respect of both freehold and leasehold. For land subject to the Native Land Acquisition by Alien Law 1925 in the western and mid-western states and Acquisition of Lands by Aliens Law 1957, in the three eastern states, a mortgage can only be created by demise for a term of year not exceeding 99years. In the case of lease it is usual to take an assignment where the covenants are not unduly onerous and alternatively, a mortgage by sub-demise.

    However, the disparities reduced with the introduction of Nigerian Building Society (NBS), a joint venture of the common wealth development corporation and federal eastern Government of Nigeria in 1956. But following the introduction of the indigenization policy, the federal Government, by indigenization Act 1973, under took 100 percent ownership acquisition of NBS and consequently renamed it the Federal Mortgage Bank of Nigeria (FMBN). The vehicle used for this capital investment was the Common Wealth Development Corporation with advance share capital of 81,625,000, GB pounds. The society collapsed in early seventies due to its inability to perform its statutory functions. This led to government injecting N20m and changing its name to Federal Mortgage Bank of Nigeria (FMBN).  The FMBN took off in 1977, with a take off capital of N20 million from the federal government. The FMBN was unable to meet up with the pressure of demand. In 1970, outstanding application were N223.8 million and available funds equaled N127.0 million, meaning that demand and supply was in the ration of 2:1. This degenerated to ration 4: 1 in 1986 when the outstanding application increased to N465.8 million and only N105.3 million was available. The bank has never been able to meet up with demand. The failure of the FMBN over the years and acute shortage of housing led to the promulgation of the National Housing Policy of 1991. The policy of National Housing fund and the decree of 1992 were promulgated to strengthen housing finance. The legal framework for the establishment, operation and regulation of mortgage business in Nigeria are prescribed in the Mortgage Institution Decree No 53 of 1989.

   The promulgation of the Mortgage Institution Decree No. 53 of 1989 provided the regulatory framework for the establishment and operation of primary Mortgage Institutions (PMI) by private entrepreneurs.  The FMBN under the decree became the apex institution, which regulates primary mortgage institutions and was empowered to license the PMIs as second tier housing finance institutions. The PMIs, under the Decree were to mobilize savings from the public and grant housing loans to individuals, while the FMBN mobilizes capital funds for the primary mortgage institutions. The PMIs were expected to enhance private sector participation in housing finance. 

      Lately, the Land Use Act of 1978 has posed serious problem to mortgage administration in the country. This is because Land Use Act has vested all land in the state on the Governor to hold in trust for the citizenry and equally created a new interest known as right and certificate of occupancy which do not carry with it an absolute ownership thereby divesting previous owners their freehold interest and they are left with only the right to occupy and use the land. Any other transaction on land must be done with the Governor’s consent. Hence, lenders are now in doubt as to the worth and potency of right of occupancy as collateral for loans and advances.