2.1     Introduction

Our needs automatically lead us to commerce and business and inevitably to banking. Mortgage transactions fall within this category and giving the importance of mortgage transaction to the development of any nation, it is important to understand the legal framework of mortgage institutions in Nigeria and the creation of mortgage transactions.

The Nigerian Mortgage Banking Industry came into existence in 1956 with the establishment of the Nigerian Building Society, now known as the Federal Mortgage Bank (FMBN). The bank operates as an effective vehicle for increasing the mobilization of long term funds, lending, volume and expansion of mortgage lending service to all segments of the Nigerian population. It is the primary institution specialized in retail mortgage banking in Nigeria.[1][2]       

2.2       Meaning of Key Terms  

At this point, it is important for us to understand some key terms. But before we proceed, it is worthy to note that mortgage is a transaction, in this case, business transaction between the mortgagor, the owner of the security (property) and the mortgagee the bank that gives the loan.

Black’s Law Dictionary defines “security” as: A collateral given or pledged to guarantee the fulfillment of an obligation, especially the assurance that a credit will be paid (usually with interest) any money or credit extended to the debtor.[3]

He defined “transactions” as:  an agreement that is intended by the parties to prevent or end in which they make reciprocal concession[4] 

He defines “loan” as: a thing lent for the borrower’s temporary use, especially a sum of money lent at an interest.[5]

He defines “mortgage” as: a conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment performance according to the stipulated terms. An instrument (such as a deed or contract specifying the terms of such a transaction. Loosely, the loan on which such a transaction is based.[6]

According to Smith relying on the words of Lord Lindley M.R. in Santley vs Wilde, defined a mortgage as:[7], “a legal or equitable conveyance of title as a security for the payment of debt or the discharge of some other obligation for which it is given subject to a condition that the title shall be re-conveyed if the mortgage debt is liquidated.” 

Chesire said[8], “a mortgage arises where land is conveyed or otherwise dealt with in order to secure the payment of a debt or the discharge of some other obligation.” According to Megerry, “the essential nature of a mortgage is that it is conveyance of a legal or equitable interest in property with a provision for redemption.”[9]


 “Bank” is defined as:

A quasi public institution, for the custody and loan of money, the exchange of bills and drafts, and the issuance of it’s own promissory notes, payable to bearer, as currency, or for the exercise of one or more of these functions, not always necessarily chattered, but sometimes so, created to subservice public ends, or a financial institution regulated by law  . . .  A bank is wholly a creature of statutes doing business by legislative grace and the right to carry on a business through the agency of a corporation in a “franchise” which is dependent on a grant of corporate powers, by the state.[10]


By implication of Section 55 of the Central Bank of Nigeria Act the definition of bank in the repealed Banking Act 1990 still applies Section[11][12] 43 defines a bank as any person who carries on banking business. It further defines banking in the following words.

Business of receiving monies from outside sources as deposits irrespective of payment of interest or the granting money loans and acceptance of credits or the purchase of bills and cheques or the purchase and sale of securities for, of others or the incurring of the obligation to acquire claims in respect of loan. .


2.2       The Legal Framework of Mortgage Institutions in Nigeria 

Mortgage institutions in Nigeria are largely regulated by the provision of the mortgage institution Act, the preamble of the Act states that the object of the Act is to make provision for establishment and licensing of mortgage institutions to grant loans and advance to individuals for the purchase or construction of a dwelling house; improvement or extension of an existing dwelling house, and to accept savings and deposits from members of the public and pay interest on the deposit.11

Failure to obtain a licence before engaging in mortgage business is an offence with a penalty on conviction to a fine of N100 for each day during which the offence continues12. A licence is obtained by way of a written application through the Federal Mortgage Bank to the Minister in charge of Works and Housing. The document required to accompany the application depends on whether the company was already in existence and engaged in other business, other than mortgage business. Where it is, section (i) of the Act will not apply13 but where the company was already in existence and engaged in other business than in mortgage business, the following documents are required14.

  1. a copy of the company's certificate of incorporation, memorandum and articles of association certified by a director, secretary or other senior

official of the company.

  1. a copy of the latest balance sheet of the company.
  2. a feasibility survey report in respect of the company's proposal to engage

in mortgage business iv.        Such other particulars as may be called for by the Federal Mortgage Bank.

[1] .     S. I. (i) Mortgage Institution Act, Vol. 8, Cap. M19, LFN, 2004, Federal Mortgage Industry Report,  14th Dec.    

[2] . Com/search 17th March 2013.    


[3] .   Garner B. A (2004), Black’s Law Dictionary 8th Edition Thompson West, United States of America, p. 1384


[4] .   Ibid; p. 1535

[5] .   Ibid, p. 954 

[6] .  Ibid; p. 1031

[7] .   Smith  I. O (2007) Practical  Approach to the law of Real Property in Nigeria 2nd Edition. Ecowatch Publication 

                   (Land Use  Act Myth or Reality http:/  papers. cfn? IdNigerian) Ltd. Lagos, p. 353,  (1899) Ch 474, Amodu, N. A (2011), Efficacy of Mortgage Transaction under the  -1843241. p.2, March 12th 2014,                                                 

                              (1899) Ch. p.  474                                                                                  th

[8] .   Cheshire, G. (1972). Cheshire’s Modern law of Real property. 9 Edition  Butterworths p. 547


[9] .    Garner B. A Op. cit, p. 154.


[10] .    BOFIA  S.66, Vol. 2, Cap B3, LFN 2004, , Central Bank of Nigeria Act, Cap. C4,  LFN, 2004 


[11] .  S. I. (i) Mortgage Institution Act, Vol. 8, Cap M19, Ibid. 

[12] .  Ibid S. I. (1)

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