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MORTGAGES & CHARGES AND THE LAW RELATING THERETO

Mortgages and Charges are borrowing commercial transactions whereas mortgages apply to such transactions created under the ITPA charges are a feature of similar transactions carried out pursuant to the provisions of the RLA to the extent that the obligations and duties created restrict the powers of the registered proprietor from dealing freely with his property. Transactions in mortgages and charges amount to burdens on land or on property offered as security and in especially a capitalist economy they have assumed great significance as a way of accessing credit facilities from financial institutions or with their help each property owner may develop their properties using their titles as security in consideration for the loan or credit advanced.

The transactions involved require that property owners desirous of accessing funds approach financial institutions that are willing to accommodate them financially to a certain level agreeable on the footing of security to be offered by property owners in the form of the titles that they hold.

The idea of mortgages is said to have originated from ancient Roman law and practice although it has also been accepted that Mohammedan Law as well as common law has traits which point to these forms of transactions. Under ancient Roman Law two forms of Mortgage transactions can be identified the first aspect of the mortgage institution to develop under this law was the form that was known as the Fiducia as a form of mortgage this involved a fiduciary relationship between a lender and a borrower whereby the property in question was given to the lender upon default such property would be forfeited to the lender regardless of the value comprised.

The second aspect of the mortgage institution under Roman law was identified as the Pigmus which entailed a transfer of possession of the property pledged as security but without the element of forfeiture as was the case in the first example. Upon default the property in question was merely sold and not forfeited so that there was a possibility of the borrower getting back something that in the event that the property fetched something more than was owed.

There was a third realm distinct from the first two with different rules being applicable though it is not very clear how it worked but the Hypotheca involved a pledge without the need for the property being delivered instead what the creditor had was a kind of power of sale which could be exercised in the event of there being a default. When such a power was invoked the duty to render accounts for the proceeds from such a sale arose and it was a much stricter requirement than the practice involved in the Pigmus.

Under Mohamedan Law the starting point is that the idea of charging interest or having any gain over and above what has been extended as the principal amount is offensive to the Islamic religion. Mohamedan law does not accommodate the element of charging interest. Their equivalent of mortgage institutions is what they call the Bye-Bilwafa and this is what comes close to a mortgage institution and the borrower pledges his property to the lender for the money for sums advanced with the promise of repayment for the principal sum that is advanced. The lender has a right to take any benefits such as rents and profits that accrue from such a property until such a time that the amount advanced will have been fully recovered even though there is no duty to render accounts the fact that this is a religious arrangement and is premised on religious doctrine, the expectation is that utmost good faith is expected on the part of the lender to make this system work so that he will take no more than his entitlement after which he will turn the property over to the owner.

At Common Law, the institution of mortgage took the form of the pledge of a property to the lender coupled with the transfer of possession rather than title. Originally the mortgage institution at common law manifested itself by way of pledge of a property to the lender but not the title thereto. This eventually developed into what is known as the English mortgage which is a form of conveyance of the property in question with the understanding that the mortgagee will re-convey the property in question to the mortgagor upon payment of the principal sum and any interest that may have accrued. Over the years the institution developed in various forms so that by the 12th century two forms of pledges evolved e.g. a living pledge and a dead pledge.

The living pledge otherwise known as Vivum Vadium was an arrangement requiring the lender to take possession of the property recover what was owed in the form of principal sum advanced together with interest on such loan and thereafter discharge the property.

In the case of the dead pledge (Mortum Vadium) the lender received benefits from the property towards the discharge of the element of interest only leaving the principal sum to the responsibility of the borrower so that any benefits to the property was to be applied towards discharging interest accrued rather than the principal amount advanced.

Because of the practice as embraced under common law a lot of injustice and unfairness characterised the operations of the mortgage institutions and due to this, equity intervened to reign in on the perceived harshness of the mortgage institution as operated under common law for instance under common law upon a borrower defaulting in his paying obligations the element to forfeiture of the property which had been offered as security for the loan was very much the preferred remedy and this meant that the borrower would lose his interests and rights in the property regardless of its value and this in situations that involved very low levels of credit represented injustice and so equity intervened to put straight the underlying concepts behind these forms of mortgage transactions and in doing so it was guided by the principle that once a mortgage always a mortgage and in seeking financial accommodation the property owner is not saying that he has given up his rights and interests and is ready to forfeit. On the contrary the understanding is that here is somebody who has property but lacks credit with which to develop his property and is merely seeking some funds to develop his property with the understanding that the property will be turned over to him as soon as he makes arrangements to repay and common law should not make this hard. Equity intervened to proclaim the principle that once a mortgage always a mortgage meaning the right of the property owners should not be trampled on.

The interests and rights in the property were merely confined to that of affording security that the lenders principal sum would be repaid and not that he would seize and take possession and deprive the property owner of the property and this was the starting point for the courts of chancery. They developed certain rules which guided the activities and powers or the limits within which the parties could exercise their respective rights in connection with the arrangements. Failure for the borrower to pay on the agreed date did not extinguish their interests in the property and therefore it did not necessarily have to cause the borrower to forfeit his property to the lender and by applying these rules the courts of chancery developed the equity of redemption and the Equitable Right to Redeem.

Equity of Redemption gave the mortgagor a general right to redeem his property on/or before the actual date of redemption whereas the equitable right regime gave the borrower what was a form of grace period which extended long past the actual contractual date of redemption, for the borrower enjoyed a right to redeem the property even long after the expiry of the agreed date of redemption. A borrower did not have to live in mortal fear of losing his property merely because he had failed to meet the deadline as set in the contractual date of redemption.

 
 
 

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