AN EXAMINATION OF THE LEGAL IMPLICATIONS OF MORTGAGES AS COLLATERAL IN NIGERIA

ABSTRACT

The challenge identified by this research was the manner of collaterisation of credits by financial institutions. It was discovered that due to the volume of funds available at the disposal of financial institutions as a result of the consolidation exercise and stiff competition towards making substantial margin of profits, some financial institutions often comprise or even ignore standard in giving out credit to their customers because of a combination of factors viz:

• Insider credits
• Desire to make huge profits
• Political reasons
• Ethnic considerations

Thus, as a result of the above factors, financial institutions often get saddled with lots of bad debts which usually militate against the growth of an organization with the likelihood of distress and corporate failure since the credits were not given based on business considerations. To arrest this situation, regulatory authorities like the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation should commence the enforcement of the provisions of the Banks and Other Financial Institutions Act which provides for various categories of offences and penalties relating to Bank officers who give credit facilities that were supposed to be backed by security, without such securities.

CHAPTER ONE: INTRODUCTION
1.0 General Introduction … … 1
1.1 Statement of the Research Problem … … 2
1.2 Aims and Objectives of the Research … … 3
1.3 Scope of the Research … … 3
1.4 Research Methodology … …. 4
1.5 Literature Review … …. 4
1.6 Justification … …. 5
1.7 Organizational Layout … …. 5

CHAPTER TWO: NATURE OF LENDING RELATIONSHIP

2.1 Introduction to Loans, Debts and Credit … …. 7
2.1.1 Loans … …. 7
2.1.2 Debts … …. 7
2.1.3 Credit … …. 8
2.1.4 Distinction between Loans and Debts … …. 8
The Importance of Distinction between Loans and other Forms
of Credit Transactions … …. 9

Characteristics of a Loan … …. 10

Types of Loans … … 11

Bad Debts/Loans … … 13

Effects of Bad Debts/Loans … … 14

CHAPTER THREE: MEANING AND PURPOSE OF COLLATERALS IN LENDING

3.0 Forms of Collateral ….. 20
3.1 Collateral Defined ……. 21
3.2 Purpose and Features of Collateral … 23
3.3 The Mortgage …. …. 24
3.4 Steps to Obtaining Legal Mortgage … …. 24
3.5 Types of Mortgages … …. 28
3.6 Right of Mortgagors … …. 32
3.7 Right of the Mortgagee …. 32
3.8 Perfection of Collateral …. 33
3.9 The Implications of Creating or Taking Collaterals … …. 36

CHAPTER FOUR: THE NATURE OF COLLATERAL INTEREST

4.0 The Nature of Collateral Interest …. 39
4.1 Collateral Interest Arising From Transaction Intended as Collateral Transaction
….
39
4.2 Collateral Interest as a Right in Rem …. 39
4.3 Agreement to give Collateral …. 40
4.4 Contractual Set Off vis-à-vis Collateral …. 40
4.5 Conditions for Repayment vis-à-vis Collateral …. 40
4.6 Enforceability of collateral – at what stage does the Collateral
….
41
4.7 Enforcement of the Covenant to Repay …. 42
4.8 Entering into Possession . 43

4.9 Collateral Interest Vis-à-vis Customer’s Dominance
Over the Assets …. 44
CHAPTER FIVE: FORM OF COLLATERAL

5.0 Consensus Securities … . 45
5.1 The Pledge …. 45
5.2 The Charge …. 46
5.3 Contractual Lien …. 46
5.4 Fixed and Floating Collateral …. 46
5.5 Pledge Collaterals …. 47
5.6 Customary Pledge …. 49
5.7 Creation of Customary Pledge …. 51
5.8 Negative Pledge Collateral …. 53
5.9 Legal Nature of Negative Pledge Collateral …. 55
5.10 Taking Security with Notice of a Negative Pledge Clause … …. 56
5.11 Contingent Liabilities … …. 57
5.12 Features of Guarantees …… ….. 59
5.13 Bonds as Security … …. 67
5.14 Major Types of Bonds … …. 67
5.15 The Charges … …. 72
5.16 The Difference between a Mortgage and a Charge … …. 73
5.17 Types of Charges … …. 74
5.18 Crystallization of Floating Charge … …. 77

CHAPTER SIX: CONCLUSION, SUMMARY, FINDINGS AND RECOMMENDATIONS

Conclusion … . 81
Summary … . 81
Findings … . 82
Recommendation … . 83
BIBLIOGRAPHY
A. Textbooks … . 84
B. Journals … . 84
C. Seminar/Workshop Papers … . 84
D. Websites … . 84