Know The Parts Of A Deed Of Legal Mortgage

A mortgage agreement is a legal instrument used to create a security interest in real property to be held by a lender as a security for a debt, usually a loan of money. When a person approaches a financial services company, bank, or microfinance bank for a loan facility, he or she would most likely be required to collateralized the loan facility. This would give the lender a sort of security for that loan facility. Let’s say that it would make the lender, bank, microfinance bank has a sort of assurance that even if the borrower defaults in making repayments of the loan facility, there is something that the lender can fall back on to recoup the loan amount and whatever interest that has accrued on the loan.   

A mortgage is not a debt, it is the lender’s security for a debt owed by a borrower. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In simple terms, the owner of the property or its equivalent would transfer his or her interest to the lender pending when the loan amount and interest are repaid. However, when there is a default, the lender reserves the right to transfer the property to himself. But when the loan amount and interest are completely paid, then the lender returns the property to the owner (borrower), and his right is relinquished.

This write-up is simply to address the different parts of a legal mortgage agreement. This is aimed to simplify the importance of each part for easy assimilation even for non-lawyers. Before I continue, I would want to let you know that there are about 2 popular types of mortgage agreements which are the Deed of Legal Mortgage and the Tripartite Deed of Legal Mortgage.

A Deed of Legal Mortgage is just between the lender and the borrower. The lender is the Mortgagee while the borrower is the mortgagor. Here the borrower is the owner of the property and therefore a third party is not needed in the agreement. For a Tripartite Deed of Legal Mortgage, the agreement is between the owner of the property, the lender, and the borrower. Here the owner is a different person entirely and not part of the loan facility agreement between the lender and the borrower. He or she just allows and accepts that the borrower uses his or her property as collateral for the loan agreement. The lender is the Mortgager, the owner is the Mortgagee and the borrower is simply the borrower.

Now let’s go straight to the parts of a legal mortgage agreement.

1. Front page: this would just be the title of the document. It could be a Deed of Legal Mortgage or a Tripartite Deed of Legal Mortgage depending on the number of persons involved in the agreement.
2. The introduction: this would indicate the type of agreement and the date the agreement is been made.
3. Parties to the mortgage: these are the persons involved in the mortgage agreement. Here we may have two or three parties to the legal mortgage depending on whether it is just a normal deed or a tripartite deed.  Here the parties can be a natural person, a registered business, a partnership business, an incorporated trustee or a registered company. This part is important as it properly addresses the parties to the mortgage agreement. it is also for easy identification of the parties to the mortgage agreement.
4. Recital: This can be said as the story behind the preparation of the mortgage agreement. Here, the loan facility amount be mentioned. It would also be mentioned that an agreement has been reached between the lender and the borrower. In the case of a tripartite deed of legal, it would be added that the agreement has been reached among the three parties which are the lender, borrower and the owner of the property to be used as collateral. Another addition is that the property is vested in the borrower or mortgagor as the case may be and that the mortgagee has agreed to grant the mortgagor the loan.
5. Agreement: this is basically where all the agreements reached would be written. It is divided into different parts which are the:

• Description of the mortgage property: Here is where the agreement would state that the mortgagor transfers hereby transfer, assigns, grants and convey to the Mortgagee all its interest, rights, title and claims in and over the Mortgaged Property as beneficial owner and by way of first ranking legal mortgage.
• Security: Here it would be stated that the mortgagor is executing the legal mortgage agreement to deliver the property as collateral for the loan facility.
• Mortgagor’s covenant: these are the acts that the mortgagor has promised the mortgagee to do during the tenor of the loan facility. This include; payment of loan facility; agreement that the loan amount would not be paid by set-off, counter-claim or any deductions except one allowed by law and in such event the mortgagor must pay the additional amount to make the full payment of the loan facility to the mortgagee; agreement that the mortgagor must pay all taxes and charges assessed and placed on the mortgaged property when due and payable; agreement that the mortgagor shall provide the title documents to the mortgagee on the date of the execution of the deed of legal mortgage; agreement that the mortgagor would take care of the mortgaged property and shall not commit it to any waste during the term of the loan; agreement that the mortgagor would not do any substantial improvement or alterations to the mortgaged property without the consent of the mortgagee; agreement with the mortgagee by the mortgagor that in the events that the statutory right of occupancy of the property is revoked, the mortgagee would be entitled to any compensation paid as a result of that revocation to the extent to which the loan amount is covered; agreement by the mortgagor not to rent, lease or alienate his or her rights to a third party without the consent of the mortgagee.
• Insurance: here the mortgagor agrees with the mortgagee to insure the property against loss in the mortgagee’s name with an insurance company approved by the mortgagee from time to time. Also, all payments regarding this would be made by the mortgagor. Also, if the mortgagor fails to do this, the mortgagee can do it but the mortgagor must indemnify the mortgagee of all expenses made in all regard.
• Limitation of transfer: here the mortgagor agrees with the mortgagee on limitation of his power to do any form of assignment, mortgage, sublet or part with possession of the Mortgaged Property or any part thereof must be done with the written consent of the Mortgagee.
• Remedies and related matters: Here the Mortgagor would agree with the mortgagee that the mortgagee would be entitled to exercise its remedies as granted under the applicable laws in Nigeria including but not limited to the power of sale, foreclosure, appointment of a Receiver and taking possession at any time after the deed becomes enforceable.
• Costs: here the mortgagor would agree with the mortgagee to pay the mortgagee any reasonable costs incurred by the mortgagee for the purpose of enforcing its rights under this Deed, within seven (7) days of demand. These costs would include; costs of foreclosure, disposition and sale of the mortgage property; costs of maintaining, preserving or preparing the mortgage property for sale; costs of obtaining money damages; and fees and expenses of attorneys employed by the mortgagee for any purpose related to this deed or the credit facility/loan, including consultation, drafting documents, sending notices or instituting, prosecuting or defending litigation or arbitration.
• Mortgagor’s representation and warranties: Here the mortgagor would give the mortgagee some warranty in respect to all his representations to facilitate the process of the loan facility. This warranty includes an assurance that he/she owns the mortgage property; that the mortgagee can enter into the property peacefully to hold, occupy and even enjoy the property; that all the information and/or data referenced in the loan agreement and the deed are correct; that there has been no activity or operation carried out on the mortgaged property without obtaining requisite permission before the execution of the deed. Also, the mortgagor would give warrantee that he has read and understands all the terms of the deed and understand the nature of the loan facility. The Mortgagee here would also indicate that he has relied on all the information provided by the mortgagor and this has compelled him to give the loan facility to the mortgagor.
• Waiver of right: Here it would be stated that the failure on the part of the Mortgagee to exercise, or delay the exercise of any of its respective rights, powers and remedies provided by this Agreement or by Law (collectively the “Rights”) would not operate as a waiver.
• Continuing Security: Here it would be stated that no reduction in the outstanding balance of the loan facility shall means the release of the mortgage until the full credit facility is paid.
• Release of Mortgage: It would be stated here that the mortgaged property shall be released to the mortgagor as soon the loan facility is paid at the expense of the mortgagor.
• Severability: this means that even if one of the terms in the agreement is found to be invalid by a court of competent jurisdiction, it does not affect the other terms imbedded in the legal mortgage. It simply means that the terms are operating independently.
• Assignment: here it would be inputted that the Mortgagor cannot transfer all or any part of his or her rights or obligations under the deed without the prior written consent of the Mortgagee. However, the Mortgagee may assign its interest under this Agreement with due notice to the Mortgagor but not necessarily with their consent.

Notice: There is a provision for when there is any notice from one party to the other party. The notice must be sent to the parties.

1. Governing law: the law governing the agreement would be input here. Usually, the law of the federal republic of Nigeria.
2. Dispute Resolution:  Here means of dispute resolution would be stated in case there is any dispute between the parties.
3. Schedule of the Property: here is where the full description of the property would be stated.
4. Execution clause and governor consent.

Now you know the basic parts of a deed of legal mortgage.