When are money lenders entitled to ....

....take possession of mortgaged properties?

By: Daniel Korang, Ghana School of Law, Accra.





Introduction


In Ghana, like any other part of the world, loans provide a substantial financial cushion and indeed serve as a major source of finance for most indsividuals, families, organizations, corporations, and the government in many respects. In order to assure themselves of repayment of the money they advance to borrowers, lenders often require that loans be secured with property as collateral. Loan transactions which create a charge or an encumbrance on properties in security of the loan are called mortgages. Borrowing, in the nature of mortgage, is a practice of great antiquity and chequered trajectory. The relevance and prevalence of mortgages has led post independent governments to enact various pieces of legislation to govern the relationship between lenders and borrowers.

At present, mortgages in Ghana are largely governed by the Mortgages Decree, 1972 (NRCD 96), the Home Mortgage Finance Act, 2008 (Act 770), and the Borrowers and Lenders Act, 2008 (Act 773). In the wake of the current economic turmoil in Ghana, a lot of people have resorted to borrowing for a wide array of purposes with the attendant effect of losing their properties to money lenders as security. In the light of this situation, it has become necessary to enforce the law in order to tame the unlawful and selfish proclivities of money lenders to deprive desperate borrowers of possession, use and enjoyment of their properties, including their craze for illegal profits and unjust enrichment. If the law is neglected it is the poor Ghanaian who suffers. In this article, I prefer to use ‘lender’ instead of ‘mortgagee’ and ‘borrower’ instead of ‘mortgagor’ to ensure enhanced understanding of the discourse.


Despite the existence of the above mentioned enactments governing mortgages in Ghana, certain persons still lend money to borrowers outside the requirements of the law. The most objectionable practice in vogue in many parts of Ghana today is that, money lenders advance loans to borrowers and as part of the mortgage agreement these money lenders seize, for their use and enjoyment, the properties of the borrowers under the cloak of securing repayment of the loans. What is worse is that the borrowers’ obligation to pay the loan is not in any way reduced by the lenders’ use and enjoyment of the mortgaged property. Under these apparently unlawful mortgage arrangements, the borrower pays the full loan and at the same time losses possession, use and enjoyment of the mortgaged property to the lender. More obnoxiously, in some cases, the mortgage agreement provides that even if the borrower is able to pay off the loan before the specified period for repayment, he is still not entitled to redeem his property until the expiry of the period specified in the mortgage agreement. Equally reprehensible is the fact that the lender has no obligation under the mortgage agreement to account for his possession and use of the mortgaged property. This practice smacks of economic brutishness and flies in the face of the law of mortgages in Ghana. Bluntly put, it constitutes a naked subversion of the rule of law, a travesty of good conscience, and a blatant slur on our legal system. It is repugnant to statute and must be met with unqualified and unanimous aversion of all peace-loving and law abiding citizens of Ghana.


The Nature of Mortgages


Section 1 of the Mortgages Decree, 1972 (NRCD 96) defines a mortgage as ‘a contract charging immovable property as security for the due repayment of debt and any interest accruing thereon or for the performance of some other obligation for which it is given, in accordance with the terms of the contract.’(Emphasis supplied) The Decree further provides that a ‘mortgage shall be an encumbrance on the property charged, and shall not… operate so as to change the ownership, right to possession or other interest (whether present or future) in the property charged.’ (Emphasis supplied). This means that a mortgage is a mere encumbrance or charge on the mortgaged property which does not involve the transfer of ownership or possession of the mortgaged property from the borrower to the lender. The lender’s interest in the mortgaged property is merely to ensure that the property exists and is capable of securing repayment of the loan. Arguably, section 2 of NRCD 96 abolishes customary law pledge which had a characteristic feature whereby the pledgee (‘lender’) was automatically placed in possession of the pledged property. Therefore, no matter how a loan transaction is called, insofar as it involves the use of property as security, it passes as a mortgage and the lender has no right, either in law or equity, to hold on to the mortgaged property from the beginning of the mortgage agreement in the absence of default. Thus for a mortgage to be lawful, the mortgaged property must remain at all times in the possession of the borrower, except upon default of the borrower to repay the sum borrowed.


Under our present law, the lender is only entitled to take possession of the title documents covering the mortgaged property (Section 10 (1) of NRCD 96). Therefore, any mortgage agreement that purports to transfer ownership or possession of the mortgaged property to the lender is unlawful, illegal, unenforceable, and null and void.

When Can a Lender Enter into Possession of the mortgaged property?


Even though the various enactments retain the right of the lender to enter into possession of the mortgaged property, such right of entry is now narrowly circumscribed. Under the old law, the legal lender had a right to enter into possession of the mortgaged property at any time at his pleasure, regardless of whether there had been any default on the part of the borrower. Now the lender cannot enter into possession of the mortgaged property merely at his pleasure. He can only exercise that right in the event of a default by the borrower in performance of any act secured by the mortgage (section 17 (1) of NRCD 96).


A lot of factors come together to perpetuate the unlawful act under discussion. The foremost factor is the acute ignorance of the law on the part of both lenders and borrowers. It must be stressed, however, that ignorance of the law is no excuse. Also, in great majority of the cases, mortgage agreements are drafted by Commissioners for Oaths and other persons who may have little or no legal know-how on mortgages. Commissioners for Oaths are advised to be abreast of some basic legal requirements on mortgages in Ghana in order to place them in a better position in the drafting of such documents. Parties to mortgage agreements are further advised to obtain the services of qualified lawyers before mortgage agreements are executed in order for them to meet the requirements of law.


The point should be emphasized that arbitrary deprivation of borrowers of possession and use of mortgaged properties by money lenders is not only objectionable and unconscionable, but same is illegal under Ghanaian law. The rationale for prohibiting money lenders from taking possession of mortgaged properties is easily discernible. Retention of the mortgaged property by the borrower may enable the borrower to enjoy his property and use the proceeds to repay the loan or for other benefits to which he is rightfully entitled. Unlawful deprivation of borrowers of possession of the mortgaged property renders most borrowers incapable of repayment of the money borrowed.


Unlawful possession of the mortgaged property by lenders constitutes unjust enrichment as they do not account for the proceeds used during the period they remain in possession; neither do the proceeds go to extinguish the indebtedness of the borrower. Money lenders are cautioned to desist from the wanton deprivation of property owners of their hard-gained properties under the cloak of security. Money lenders who are presently violating the law must regard themselves as holding the proceeds from the property in trust for the property owners. It matters not whether the lenders are in possession with the consent of the property owners, for a man cannot lawfully consent to statutory infringements and violations. Moreover, victims of this oppressive practice are advised to bring actions in court to set aside the mortgage transaction(s) on grounds of illegality and unconscionability, for recovery of possession of the mortgaged properties and account of proceeds realized by the lender in unlawful possession.

In the face of our collective national resolve to alleviate poverty and enhance the standard of living for the ordinary Ghanaian, no form of inhuman economic treatment can be permitted to blossom into a full-fledged commercial practice in any part of Ghana. I must, as always, say in conclusion, that, Ghana is a country ruled by law and if we desire to live peaceably and conduct our affairs with some humaneness and in a manner devoid of illegalities, then all of us should endeavour to abide by the law.


By: Daniel Korang, Ghana School of Law, Accra


0208759342; dkorang1986@yahoo.com