Under What Circumstance can the Morgage Sell the Mortgaged Property
Introduction
In the realm of secured lending, mortgages are a common and powerful tool used to secure loans, particularly in real estate and commercial financing. A mortgage involves the transfer of an interest in land or property by the mortgagor (borrower) to the mortgagee (lender) as security for the repayment of a loan.
When the borrower defaults, the mortgagee may take steps to recover their money, one of which includes selling the mortgaged property. However, the mortgagee cannot do this at will—there are specific legal and equitable circumstances under which such a power can be exercised.
This article explores the legal basis, limitations, procedures, and circumstances under which a mortgagee can sell a mortgaged property in Nigeria, including statutory and judicial principles, types of mortgages, and practical considerations for lenders and borrowers alike.
Understanding Mortgage in Nigerian Law
Definition
A mortgage is a conveyance of land or assignment of chattels as security for the payment of a debt or the discharge of some other obligation, with a proviso that the security shall be redeemable upon the repayment of the debt.
Key Parties
Mortgagor – The borrower who owns the property and offers it as security.
Mortgagee – The lender who gives money based on the security of the property.
Types of Mortgages in Nigeria
Legal Mortgage – A formal transfer of legal interest in land (usually created by deed or registration).
Equitable Mortgage – Does not transfer legal title but creates an equitable charge on the property (e.g., deposit of title documents).
Statutory Mortgage – Created by operation of law or under specific statutes such as CAMA.
Legal Basis for the Sale of Mortgaged Property
The right to sell the mortgaged property arises from:
Express terms of the mortgage deed
Common law and equitable principles
Statutory provisions such as:
Conveyancing Act 1881
Property and Conveyancing Law (PCL)
Land Use Act
Companies and Allied Matters Act (CAMA) for corporate mortgagors
The right is not automatic. It must comply with conditions precedent, procedural requirements, and fairness.
Circumstances Under Which the Mortgagee Can Sell the Mortgaged Property
✅ 1. Default in Repayment of Loan
The most common trigger is when the mortgagor defaults on the repayment of the principal loan or interest. The mortgagee must have:
Advanced money to the mortgagor
A legal or equitable interest in the property
Proof that the loan or any part remains unpaid after the agreed period
🔹 Case Law:
In Okonkwo v. Cooperative & Commerce Bank (Nig.) Ltd. (2003), the court held that the mortgagee’s right to sell crystallizes upon the mortgagor’s failure to repay the loan as agreed.
✅ 2. When the Mortgage Deed Expressly Grants Power of Sale
Most mortgage deeds contain a power of sale clause, allowing the mortgagee to sell upon breach or after a stated period of default. Where such a clause exists, the court will enforce it provided:
There has been a breach
Proper notice has been given
Even where the mortgage is silent, statutory powers of sale may still apply.
✅ 3. Expiry of the Loan Period Without Payment
If the loan period expires and the debt is still outstanding, the mortgagee may exercise the power of sale. This is particularly applicable where there is no further agreement to extend or restructure the loan.
✅ 4. Failure of the Mortgagor to Comply with Demand Notice
Before selling the property, the mortgagee must typically issue a demand notice to the mortgagor to pay within a specified time (usually 30 days or more depending on the agreement).
Failure to comply allows the mortgagee to:
Enforce the security through sale
Initiate foreclosure proceedings
🔹 Judicial Emphasis:
In Ogundiani v. Araba (1978), the court emphasized that demand must be made and notice properly served.
✅ 5. After Giving Statutory Notice of Sale
Under the Conveyancing Act, a 3-month statutory notice must be served before sale.
Conditions under Section 103 of the Act:
The mortgage must be a legal mortgage
Notice of intention to sell must be given to the mortgagor
At least 3 months must have elapsed from the date of such notice
The mortgagee can then sell without applying to court, provided due process is followed.
✅ 6. Where the Mortgagor is Insolvent or in Receivership
In cases involving companies, once a company is insolvent and unable to pay its debt, the mortgagee may appoint a receiver/manager under CAMA and proceed to sell the mortgaged property to recover the debt.
This is applicable to debentures secured by floating or fixed charges.
✅ 7. Court Order or Judicial Sale
In some cases, especially with equitable mortgages (where title deeds are merely deposited), the mortgagee cannot sell without a court order.
The mortgagee must:
File a court action
Obtain an order of foreclosure or sale
Sell through the sheriff or judicial process
This applies mostly when the mortgage deed does not confer power of sale or when the property is held under equitable interest only.
Procedural Requirements Before Exercising Power of Sale
To lawfully sell a mortgaged property, the mortgagee must comply with:
📌 1. Issue of Demand and Default Notices
Notify the mortgagor of outstanding sums
Specify the exact amount and due date
Serve notice of default in writing
📌 2. Service of Statutory Notice of Sale
Mandatory for legal mortgages
3-month notice under Conveyancing Act
Should be served personally or through registered mail
📌 3. Proper Valuation of Property
The property must be sold at market value
Independent valuation reports are required
Undervaluing can render the sale void or lead to liability
Remedies of the Mortgagor Against Unlawful Sale
If a mortgagee unlawfully sells the mortgaged property without fulfilling required conditions, the mortgagor may:
🔹 Apply to Court to Set Aside the Sale
Where no proper notice or valuation was conducted.
🔹 Sue for Damages for Breach of Duty
The mortgagee has a duty of care to obtain the best price reasonably obtainable.
🔹 Allege Fraud or Bad Faith
If the sale was done in secrecy, to self or close associate, or with intent to cheat the mortgagor.
Duty of Good Faith and Reasonable Conduct
Although the mortgagee has the power to sell, it must be exercised:
Honestly
Fairly
Without recklessness
Without undervaluation
🔹 Case Law:
In Awojugbagbe Light Industries Ltd v. Chinukwe (1995), the court stressed that the mortgagee owes the mortgagor a duty to act in good faith and to take reasonable care in the conduct of the sale.
Sale by Auction vs Private Treaty
Mortgagees can sell either:
By Public Auction – Open to bidders, conducted by licensed auctioneers
By Private Treaty – Direct negotiation and sale with a buyer
Each method must reflect fair market value and proper documentation.
Registration and Transfer After Sale
After sale:
The buyer obtains a Deed of Assignment or Conveyance
Stamp duties and consent under the Land Use Act may apply
The sale must be registered with the appropriate Land Registry
Limitation Period for Sale of Mortgaged Property
Under the Limitation Law, the right to enforce a mortgage by sale is subject to a 12-year limitation from the date of default or breach.
Differences Between Foreclosure and Power of Sale
| Foreclosure | Power of Sale |
|---|---|
| Requires court order | Can be done without court order |
| Mortgagor loses all interest | Mortgagor entitled to surplus |
| Mostly applies to equitable mortgages | Common in legal mortgages |
| Slower, litigation-based | Faster, less formal |
Role of Lawyers in Mortgage Transactions
Due to the complexity of mortgage law, legal professionals play a crucial role in:
Drafting mortgage deeds
Ensuring proper perfection of title
Advising mortgagees on lawful enforcement
Representing mortgagors in defending unlawful sales
At Chaman Law Firm, we offer full-service legal support in real estate and mortgage law, ensuring your rights are protected whether you’re a lender or borrower.
Conclusion
The mortgagee’s right to sell a mortgaged property is an important remedy, but it must be exercised strictly in accordance with the law, equity, and fairness. Before initiating a sale, the mortgagee must ensure the loan is due, demand and statutory notices have been properly served, and the sale is conducted with due diligence and transparency.
Understanding these principles helps lenders avoid litigation and ensures borrowers know their rights. Whether you’re creating a mortgage or seeking to enforce one, always engage experienced legal counsel.
Contact Us
Are you a property owner or investor dealing with a mortgage? Understanding the circumstances under which a mortgagee can lawfully sell a mortgaged property is crucial to protecting your rights and interests.
At Chaman Law Firm, we provide expert legal advice on mortgage agreements, enforcement rights, foreclosure procedures, and borrower protections. Whether you are a lender or a borrower, our seasoned lawyers can help you navigate complex mortgage transactions and avoid legal pitfalls.
📞Phone: 08065553671, 08096888818
✉ Email: chamanlawfirm@gmail.com
📍 Address: 115, Obafemi Awolowo Way, Allen Junction, Ikeja, Lagos, Nigeria
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