“Once a Mortgage, Always a Mortgage.”
A mortgage is a creation of an interest in – originally the conveyance of – real or personal property by a debtor/borrower (the mortgagor) to a creditor/lender (the mortgagee) as security for a monetary debt on the condition that the interest shall be extinguished on payment of the debt within a certain period.
It is a contractual agreement in which immovable property, such as a house or land, serves as security for the repayment of a debt or the fulfilment of other obligations. The essence of a mortgage, therefore, lies in its ability to provide borrowers with access to funds while leveraging the value of their property.
In Ghana, securing debt repayment is paramount for individuals and businesses. One effective method that has gained prominence is the use of mortgages as collateral. Mortgages play a crucial role in providing a tangible asset that can be pledged to ensure the repayment of debts, offering lenders a sense of security.
A security interest is hereby created by the transaction or agreement that secures payment or performance of an obligation between a borrower who has title to collateral, willing to create a security interest in favour of a lender. The security interest created does not in any way transfer title in the collateral property to the lender. This is a typical arrangement in banks and special deposit taking institutions regulated by the Bank of Ghana. (See the Borrowers & Lenders Act, 2020)
- Characteristics of Mortgages? Once a Mortgage, always a Mortgage!
A. A mortgage is only a security
One of the distinguishing features of mortgages as collateral in Ghana is their use as security for the payment of a debt or the fulfilment of an obligation. When a borrower obtains a mortgage, they renounce their property as security for the loan’s repayment or the performance of other financial obligations.
Section 5 of NRCD 96 (Mortgages Act, 1972) provides that unless a contrary intention appears expressly, a mortgage is a security only for the performance of the act provided in the mortgage and not for a performance promised in a past or future contract.
This reinforces the applicability of the provisions of the Borrowers and Lenders Act, 2020 (ACT 1052) to a mortgage, since a mortgage is a transaction that in substance secures the performance of an obligation and the mortgagor is the one who willingly creates the mortgage in favour of the mortgagee.
Section 22 of Act 1052 further provides that a lender in whose favour a security interest is created shall register the security interest with the Collateral Registry of the Bank of Ghana within 28 days after the date of creation of that security interest and thus, the lender may register the security interest before or after stamping the instrument by the Stamp Duty Act, 2005 (ACT 689). Registration under the Borrowers and Lenders Act, 2020 shall have priority over other security interests registered under any other enactment including the Lands Act.
B. Mortgages are always redeemable
Redemption is the very nature and essence of a mortgage. Redemption refers to the act of repaying the mortgage debt in full, thereby releasing the encumbrance on the property and restoring the borrower’s full ownership rights.
The concept of redemption is fundamental to mortgages because it allows borrowers to regain complete control over their property once the debt is satisfied.
Once the substance of the transaction is a mortgage, it will be treated as such. In the case of Khoury v. Mitchual, the court held that the true position in equity is that the mortgagor’s equity of redemption is inviolable. Therefore, once a mortgage, always a mortgage.
Redemption allows borrowers to fulfil their financial obligations and regain unrestricted ownership of the property. It represents the ultimate goal for borrowers as it signifies the successful completion of their mortgage journey and the elimination of the encumbrance on their property.
- The law on registration of mortgages/securities in Ghana.
The Land Act, 2020 (ACT 1036) allows for the registration of mortgages and must be filed in the Registry of the Lands Commission. Before registration, such instruments must be stamped in accordance with the Stamp Duty Act.
Although registration of immovable property can be done under any of the following Acts: Home Mortgage Finance Act, 2008 (Act 770), Mortgages Act, 1972 (NRCD 96), and the Borrowers and Lenders Act, the law prioritises registrations under the Borrowers and Lenders Act, 2020 (Act 1052).
The long title of the act presupposes that the act is meant to regulate transactions between borrowers and lenders, establish a Collateral Registry, provide a legal framework for the registration and enforcement of security interests in collateral, establish an order of priority of security interests, to provide for credit agreements generally and to provide for related matters.
Act 1052 has the following requirements for a credit agreement to be valid for registration. It must identify the lender, borrower, sufficiently described collateral, and the secured obligation(s). Registration must be done within 28 days after the date of execution with the written consent of the borrower.
A security interest which is not registered is of no effect as security for a borrower’s obligations for repayment of the money secured, and can effectively be termed an unsecured loan. Registration is mandatory. Once a security interest is registered it remains valid until discharged.
- Rights of the parties in a mortgage agreement
- Rights of the mortgagor
- The mortgagor has the contractual right to redeem the mortgage/the equity of redemption.
- The mortgagor has the right to redeem the mortgaged property before the contractual date of redemption.
- Due to the inviolable nature of the mortgagor’s equity of redemption, equity dictates that there should not be any provision in the mortgage that prevents the mortgagor from being able to redeem the property or any provision that renders the right of redemption illusory, as this will constitute a clog or a fetter on the equity of redemption – be it a collateral advantage for the mortgagee or a postponement of redemption by a mortgagor.
- The mortgagor can always redeem the mortgaged property. The right to redeem is vested in the mortgagor, a proprietary right that is alienable and inheritable. Section 24(1) of NRCD 96 defines the mortgagor as “any person from time to time deriving title through the original mortgagor or entitled to redeem a mortgage according to his interest in the property mortgaged. Even if the mortgagor becomes deceased, his descendants can still redeem the mortgage.
- The mortgagor remains the owner of mortgaged property and is entitled to remain in possession of the property notwithstanding the mortgage, until the mortgagee takes action to recover possession in the event of a default by the mortgagor.
- Under Section 17 of NRCD 96, the mortgagee has a right to enter into possession of the mortgaged property where there is a failure to perform an act or acts secured by the mortgage.
(ii) Rights of the mortgagee
- The mortgagee is entitled exclusively to title documents; and even during the subsistence of the mortgage, all available title documents become the entitlement of the mortgagee and the mortgagor must deliver to him/her as per section 10 of NRCD 96.
- Where there is a default by the mortgagor, the mortgagee has the right to sell the property and use the money realised from the sale to pay off the debt owed. This is by judicial sale, which is an application to the court to sell the mortgaged property.
- Per Section 16 of NRCD 96, the mortgagee can apply to the court for the appointment of a receiver to manage the mortgaged property where there is a default by the mortgagor.
- The mortgagee’s right to sue the mortgagor on his covenant for the settlement of the mortgage debt where a judicial sale of the mortgaged property does not entirely satisfy the debt owed and hence, proceed to other properties of the mortgagor.
- Discharge of mortgages
A mortgage is discharged where the mortgagor performs all the acts secured by the mortgage and sufficient compensation where necessary, and the mortgagee accepts this. It may also be discharged by a court order for redemption.
For mortgages registered under NRCD 96 and Act 1036 as per section 153 of Act 1036, the Land Registrar is mandated upon the production of a discharge instrument to register the same and indicate the land certificate is wholly or partially discharged from the mortgage.
However, if registration is done, Act 1052, Section 30 directs that a lender may apply for a discharge of the registration of the security interest, where the obligations under the credit agreement to which the registration relates have been performed and there is no commitment to make a future advance and the lender consents to the release of the whole or part of the security interest described in the registration.
- Defaults and realisation of security or collateral under the BLA
Per Section 60 of the Borrowers and Lenders Act, where a default arises under a credit agreement and the lender decides to realise the security interest, the lender shall first give written notice of the default to the borrower and request the borrower to pay the amount due within 30 days after receipt of this notice.
The Bank of Ghana (BOG) has directed all lenders to expressly capture their rights of enforcement under Section 61 of the Borrowers and Lenders Act, 2020 (Act 1052) in their credit and collateral agreements.
Section 61 provides that the lender has the right to sue the borrower on any covenant to perform under the credit agreement, realise the security interest in the collateral without initiating court proceedings (where the security interest is registered under the Act) or appoint a receiver or manager to collect the rents and profits derived from the property, and realise the security interest on behalf of the lender
A lender who intends to realise a security interest registered at the Collateral Registry without a court order shall register a notice of their intention to do so with the Registry. When all the requirements have been met, the Registrar shall certify the realisation process by issuing a certificate known as a Memorandum of No Objection, which will remain valid until a time when the collateral has either been sold, retained by the lender or the debt has been settled, and the collateral redeemed.
A lender shall realise the collateral by auction, public tender, or private sale. The price at which the collateral is sold shall be determined by an independent valuer appointed by the lender, unlike mortgages under NRCD 96 where it is determined by the court.
Under the NRCD 96, however, the realisation of mortgaged property by the mortgagee upon default by the mortgagor is only achieved in one of two ways – judicial sale or by adverse possession.
Conclusion
The role of mortgages as collateral in Ghana is of paramount importance in securing debt repayment. By leveraging property assets as collateral, mortgages offer a tangible and enforceable mechanism for lenders to protect their interests and mitigate the risk of default.
NB: The content of this article is intended to provide a general guide to the subject matter. Specialised legal advice should be sought about your specific circumstances.
Kojo Tabiri is a Lawyer at Zoe, Akyea & Co. His legal interests include Property Law (Real Estate), Construction Law, Dispute Resolution, and Commercial Practice. ([email protected])
Kofi Asante is a Lawyer at JDL & MB Legal and an avid reader of all things legal and tech-related. His areas of specialisation include corporate and insurance law. ([email protected])
