INTRODUCTION
This
article provides a concise summary of the law of mortgages. It highlights the
nature, types of mortgages and considers the rights of the mortgagor and
mortgagee
LEGAL DEFINITION OF A MORTGAGE
Santley
v Wilde [1899]
2 Ch 474
Lord Lindley
A
mortgage is a conveyance of land or an assignment of chattels as a security for
the payment of a debt or the discharge of some other obligation for which it is
given. The security is redeemable on the payment of the debt or discharge of
the obligation, any provision to the contrary notwithstanding.
He
further stated: Any provision inserted to prevent redemption on payment or
performance of the debt or obligation for which the security was given is what
is meant by a clog or fetter on the equity of redemption and is therefore void.
It follows from this that "once a mortgage always a mortgage.”
Explanation
Lord
Lindley was reiterating the original position of the law regarding mortgages.
The conveyance of title was strictly a means of security and not a means by
which mortgagees should take advantage of contractual terms to enrich
themselves. The title was to be redeemable once the debt was settled even
though the contractual terms indicated that the title would only be transferred
back if payment was made at a particular time and place. The court’s position
was an equitable one as the common law strictly applied the doctrine of freedom
to contract.
By
virtue of this equitable position which looked at the essence of a mortgage
rather than strictly looking at the contractual terms, the title was redeemable
and would not be permanently lost by virtue of the failure to settle the debt at
the contractual time and place. Equity looked at the true essence of the
transaction rather than being shallow and looking at the terms of the contract.
It thus looked at the core of a mortgage to remedy the unjust position of the
common law.
This
position in equity is enshrined in section 65 of the Lands and Deeds Registry
Act which stipulates that a mortgage of any estate or interest in land shall
have effect as security and shall not operate as a transfer or lease of the
estate or interest thereby mortgaged.
Lord Lindley further stated that terms in the contract rendering the title irredeemable upon the failure to make payments on the contractual date (legal date of redemption) are referred to as "fetters" or "clogs." Such terms are considered void because they contradict the essence of a mortgage. The equitable maxim “once a mortgage, always a mortgage” illustrates that parties cannot include terms prohibiting the recovery of title, as this would go against what constitutes a mortgage: the use of title only as security and not as a means of purchase.
NATURE OF A MORTGAGE
A
mortgage like a lease is both a contract and an interest in land. It is thus
two-ford in nature.
A contract
A
mortgage is a contract between a borrower and a lender. The lender lends a capital
sum in consideration of the borrower’s property to act as security. A mortgage
contract may be expressly created by deed or may be implied from the parties
conduct.
Interest in property
The
rights acquired under the mortgage contract are proprietary. The mortgagee acquires
rights in the mortgagor’s land while the mortgagor retains residual rights in
the land known as equity of redemption which enable him to still call the land
his own despite the conveyance of title. By virtue of being interests in land,
they are thus transferable and run with it. The mortgagor can transfer his
residual interest in the land to another party while the mortgagee can also
transfer his security interest in the land.
A Mortgage and a Charge
As noted from Lord Lindley’s definition, a mortgage involves the conveyance or transfer of title or any interests in the property from the borrower to the lender. A charge on the other hand does not involve any movement of title or interests. The borrower only acquires security interest in the property usually through a legal instrument stipulating that certain property is security for a debt.
TYPES OF MORTGAGES
Legal Mortgage
A
legal mortgage is created through the transfer of title or any via deed. A deed creating a legal mortgage must be
registered as stipulated by section of 4 of the Lands and Deeds Registry Act.
The purpose of such registration is not only to secure the transfer but also to
make aware anyone intending to acquire an interest in any land of the
pre-existing encumbrances (legal interests) attached to it. According to the
case of Great Lenders Services and Others v Indo Zambia Bank (2020 ZMCA 219),
a legal mortgage that falls short of the registration requirements under
section 4 is null and void at law.
An Equitable Mortgage
This
type of mortgage involves the deposit of the title documents to the mortgagee. The
only interest the mortgagee acquires in the land is one of security through enforcement
in the court. It is also deemed as creating a charge as it establishes security
without the transfer of title or any interests in the land.
In
addition to the deposit of title, an equitable mortgage may also be created
when a person with an equitable interest in land enters into a mortgage
transaction. Persons with an equitable interest in land do not have title to
transfer.
In
Sanat
Ltd v Shaileshukmar Amin (2019 ZMCA 137), the Court of Appeal looked at
section 74 (2) and was of the view that a deed creating a trust may be
registered in the Miscellaneous Register. It concluded that the registration of
equitable interests in the miscellaneous register was optional unlike the
registration of legal interest under section 4 of the Act. According to the
case of Magic Carpet Travel And Tours Ltd V Zambia National Commercial Bank Ltd
(1999
ZR 61 HC) , One of the shortcomings of an equitable mortgage is that it
is not registered in the Lands and Deeds Registry as an encumbrance against the
land. It stated that to ensure that there are no pre-existing equitable
interests attached to the land, any potential mortgagee is strongly advised to
take advantage of Section 76 of the Lands and Deeds Registry Act by registering
a caveat against a mortgaged property.
A Caveat
A
caveat is a means of protecting unregistered interests against third party
interests. Section 76 lists individuals who do not have registered interests in
land but who still need protection from any pre-existing or potential third
party interests in the land. These are:
a. claiming
to be entitled to or to be beneficially interested in any land or any estate or
interest therein by virtue of any unregistered agreement or other instrument or
transmission, or of any trust expressed or implied, or otherwise howsoever; or
b. transferring
any estate or interest in land to any other person to be held in trust; or
c. being
an intending purchaser or mortgagee of any land; may at any time lodge with the
Registrar a caveat in Form 8 in the Schedule.”
An
individual who may claim to have an interest by virtue of an unregistered
agreement is a lessee. A tenant with a 5 year contract may obtain a caveat
where the landlord intends to sell the land to a third party. An intending
purchaser or mortgagee might need to ensure that the land is free of any
unregistered interests.
Section
77 of the Act, stipulates that a caveat should be signed by the caveator or by
his Attorney or agent and should state with sufficient certainty the nature of
the estate or interest claimed by the caveator with such other evidence as may
be required.
RIGHTS OF THE MORTGAGOR
Contractual
Right to Redeem: This is the contractual right to redeem
the security when payment of the debt is made on the contracted date or
timeframe known as the legal date for redemption. The reality is that
mortgagors at times face challenges and delay in repayment considering that
they must add interest to the debt. Under common law, failure to settle the
debt on the legal date for redemption meant that the condition upon which title
would be transferred back was never met and thus the mortgagor forever lost his
land of higher value.
Equitable
Right to Redeem: This right as previously stated was
introduced in equity as a remedy against the unjust position of the common law.
It entitled the mortgagor to redeem the security after the legal date for
redemption had expired.
The equity of redemption: This
is the sum total of a mortgagor’s residual rights in the property subject to a
mortgage. It is a right in property created immediately a mortgage transaction
is created and it allows the mortgagor to continue calling the land his own. An
equitable right to right to redeem is different as it only arises after the expiration
of the legal date for redemption had expired.
MORTGAGEE’S REMEDY FOR DEFAULT
Right
to sell
Section 19 of the Conveyancing and Law of Property
Act of 1881 confers a power of sale in every mortgage created by deed unless
the parties express the contrary in the deed. By virtue of this section, the
mortgagee has the right to sell the property upon the expiry of the legal
redemption date. In order to balance the mortgagee’s right to sell with the
mortgagor’s equitable right to redeem, section 20 stipulates a notice
requirement and waiting periods after the expiry of the legal redemption date
before the mortgagee can exercise the power to sell.
Foreclosure
A foreclosure has the effect of extinguishing the
equity of redemption and resulting in the transfer of the mortgaged property to
the mortgagee, free of any rights of the mortgagor. It is sought through a
court order. According to the High Court in Mwanza v Simpasa (2011 ZMHC 65), a foreclosure is the primary
remedy for an equitable mortgagee. This makes sense considering that an
equitable mortgage cannot exercise a right to sell since he does not have legal
title or may merely be holding it as security. A legal mortgagee may opt to
exercise his right to sell.
Right
to Take Possession
According to the common law in the case of Four-Maids Ltd v Dudley Marshall [1957 Ch
317], a legal mortgagee who had acquired legal title had a right to go
into possession of the mortgaged property before the ink was dry on the
mortgage contract. He could thus eject the mortgagor from the mortgaged
property. Statutory law has intervened against this harsh principle. Section 34
(1) (a) of the Lands and Deeds Registry Act stipulates that that an action for
the possession of land by the mortgagee can only lie where the mortgagor
defaults in payment of the debt.
Right
to Appoint a Receiver
Section 19 of the Conveyancing and Law of Property
Act also grants a legal mortgagee the power to appoint a receiver to collect
income produced by the mortgaged property. Where the mortgagor put the land
under a lease, the mortgagee may appoint a receiver to collect any rent due.
Right
to Sue for Money after the Date Fixed for Payment
The mortgagee still retains his basic contractual right
to strictly sue for the debt plus interest and costs.
DISCHARGE OF A MORTGAGE
Section 67 of the Lands and Deeds Registry Act
stipulates how a mortgage should be discharged. The mortgagee must sign a
memorandum which should be attested to by a third party. This serves as
evidence of the mortgagor’s full or partial performance of his obligations. The
register should then make an entry in the register and the title that land is completely
or partially discharged.
LEGAL AID INITIATIVE
(Access to Knowledge)
