BY COLLINS NKUMBWA,
ABSTRACT
This paper discusses the definition, nature and the types of mortgages in the Zambian legal system. It also discusses the legal effect of different types of mortgages and the enforcement mechanisms. It looks at the rights and duties of mortgagors and the mortgagees. The right of priority and the requirement to register the mortgage as an interest in land. The paper also examines the legal framework for mortgages in Zambia and makes recommendations in this area of law.
Key words or phrases – Mortgage, Legal Mortgage, Equitable Mortgage, Third Party Mortgage, Further Mortgage, Mortgagor, Mortgagee
INTRODUCTION
A mortgage is a loan where property is used as collateral to secure the debt. Section 65 of the Lands and Deeds Registry Act provides:
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, but the mortgagee shall have and shall be deemed always to have had the same protection powers and remedies (including a power of sale, the right to take proceedings to obtain possession from the occupiers and the persons in receipt of rents and profits or any of them and, in the case of land held in leasehold, the right to receive any notice relating to the land the subject of the mortgage which under any law or instrument the mortgagor is entitled to receive) as if the mortgage had so operated as a transfer or lease of the estate or interest mortgaged. (Emphasis mine)
NOTE
Mortgagor – Person borrowing money
Mortgagee – Person lending money
TYPES OF MORTGAGES
Legal Mortgage: A registered mortgage that's formally documented and provides strong legal protection for lenders. It's created through a deed and registered with authorities, giving lenders automatic rights to sell the property if borrowers default. If the mortgagor request for additional amount from the same bank and uses the same property as collateral, then a further charge is created. If the mortgagor approaches a different bank to borrow using property which is already covered by another bank or lender, then a second mortgage is created.
Equitable Mortgage: An informal mortgage based on the deposit of title deeds. It's quicker and less expensive but offers weaker legal protection. Lenders must seek court intervention to enforce their rights. Section 2 of the Lands and Deeds Registry Act defines a mortgage to include a deposit of title deeds or documents with the object of creating an equitable mortgage on the property comprised in such deeds or documents and any charge;
Third-Party Mortgage: When someone other than the property owner guarantees a loan using their property as collateral. This adds an extra layer of security for lenders.
NB – Section 4 of the Lands and Deeds Registry Act requires mortgages to be registered as documents which purport to grant, transfer or lease the interest in land.
COMMENCEMENT OF A MORTGAGE ACTION
Order 30 Rule 14 of the Rules of the High Court provides:
Any mortgagee or mortgagor, whether legal or equitable, or any person entitled to or having property subject to a legal or equitable charge, or any person having the right to foreclosure or redeem any mortgage, whether legal or equitable, may take out as of course an originating summons, returnable in the chambers of a Judge for such relief of the nature or kind following as may by the summons be specified, and as the circumstances of the case may require; that is to say:
Payment of moneys secured by the mortgage or charge;
Sale;
Foreclosure;
Delivery of possession (whether before or after foreclosure) to the mortgagee or person entitled to the charge by the mortgagor or person having the property subject to the charge or by any other person in, or alleged to be in possession of the property;
Redemption;
Reconveyance;
Delivery of possession by the mortgagee.
Order 88 of the Rules of the Supreme Court of England 1999 Ed provides for additional rules for mortgage actions.
RIGHTS OF MORTGAGEE
Payment of moneys secured by the mortgage or charge;
Sale;
Foreclosure;
Delivery of possession (whether before or after foreclosure) to the mortgagee or person entitled to the charge by the mortgagor or person having the property subject to the charge or by any other person in, or alleged to be in possession of the property; and
The Judgment Act provides for interest on principal sums.
RIGHTS OF MORTGAGOR
Right of redemption – pay off the debt and get the property back even after default. Defendant was given three months to pay the debt and if there is default, Plaintiff is at liberty to foreclose, take possession of and exercise the right to sale the mortgaged property.
Reconveyance; and
Delivery of possession by the mortgagee.
JUDICIAL PRECEDENTS
- Posa Estates Ltd & 4 Others and First National Bank (Z) Ltd - The principle is that the remedy of foreclosure acts to vest the ownership of the mortgaged property in the mortgagee absolutely thereby terminating the equity of redemption in the mortgagor. On that account, the mortgagee does not have to account to the mortgagor the excess if he decides to sell the property and neither can he seek to recover if he sells at a loss. It was further that where the mortgagee decides to sell or indeed sells in accordance with section 85 (1)(b) of the Banking and Financial Services Act, after an order of foreclosure, there is no requirement to turn over any excess to the mortgagor as is the case when the mortgagee exercises the power of sale. (Emphasis mine)
- Nkongolo Farms Limited Vs Zambia National Commercial Bank Appeal No. 101/2004 - The mortgagor whose debt is secured by the 3rd party mortgagor can never be an agent of a mortgagee. That is not tenable. The Bank lending money has to take reasonable steps to explain to the surety, the extent, and the implications of the transaction and to make sure that the surety independently sought independent legal advice before committing itself to the transaction. It is not sufficient for the bank lending money just to have a causal contact with the guarantor. The bank has a duty to make sure that the surety sought to seek independent legal advice. The creditor has the obligation to inform itself to whether or not there is a relationship of trust and confidence between the borrower and guarantor, and the attendant risk to abuse that, relationship. The bank has an obligation to ensure that the guarantee did not in any way exercise undue influence on the guarantor. (Emphasis mine)
- Michelo Special Georges Mwiinga (Sued As Mortgagor And Guarantor) Florence Kachesa Mwiinga (Sued As Mortgagor and Guarantor) And Zambia National Commercial Bank Plc - it was held that the court could exercise discretion to postpone possession if it appeared that the mortgagor was likely to pay any sums due under the mortgage within a reasonable time. It was further held that the existence of a counter-claim did not mean that the defendants would be able to pay off their arrears within a reasonable period, since even if they had a reasonable prospect of success, there was no reason for the court to conclude that they would pay over any damages they might recover. (Emphasis mine)
- Bomach Finance Limited and Gregory Mwanza Emma Nyandoro - It is our firm view that the learned Judge in the Court below erred by varying the interest rate from the 20% per annum agreed in the Mortgage Deed by Ordering the outstanding balance to be paid with interest at current bank lending rate. This was contrary to what the Parties agreed upon in the Mortgage deed. We, therefore, set aside the Order by the learned trial Judge that the outstanding balance be paid with interest at current bank lending rate and substitute it with the interest rate agreed in the Mortgage deed of 20% per month compound interest. (Emphasis mine)
CONCLUSION AND RECOMMENDATIONS
This paper has established that where the mortgagee decides to sell or indeed sells in accordance with section 85 (1)(b) of the Banking and Financial Services Act, after an order of foreclosure, there is no requirement to turn over any excess to the mortgagor as is the case when the mortgagee exercises the power of sale. While this sounds plausible, it deprives the lessee not only of the property but the deposits that were made towards the property. It is recommended that the mortgagee should still be accountable to the lessee to avoid unjust enrichment on the part of the mortgagee.
This paper has further established that the existence of a counter-claim did not mean that the defendants would be able to pay off their arrears within a reasonable period. It is recommended that a counter-claim should be used to pay off the debt if the claim is against the mortgagee. This should be deemed as additional assurance that the mortgagee shall recover the amount or part payment. The counter claim should be dealt by the same court together with the mortgage claim so as to expedite the process of settlement.
Lastly, this paper also established that the court could exercise discretion to postpone possession if it appeared that the mortgagor was likely to pay any sums due under the mortgage within a reasonable time. It is recommended that there should be promulgation of laws and policies to ensure consistency in the application of the discretion.
About Author
COLLINS NKUMBWAEsq.
CIP (NIPA), LLB (UNZA), LLM (UNZA), AHCZ, ASCZ, PhD Cand. Lecturer of law and Commissioner for Oaths.
Writes this article in his own capacity.
REFERENCES
STATUTES
Judgments Act Chapter 81
Lands and Deeds Registry Act Chapter 184 of the laws of Zambia
Rules of the High Court Chapter 27 of the laws of Zambia
Rules of the Supreme Court of England 1999 Ed (White Book)
CASE LAW
ZANACO VS Wane Ng’ambi 2023 Page J11
Posa Estates Ltd & 4 Others and First National Bank (Z) Ltd Appeal No. 007/020
Nkongolo Farms Limited Vs Zambia National Commercial Bank Appeal No. 101/2004
Michelo Special Georges Mwiinga (Sued as Mortgagor and Guarantor) Florence Kachesa Mwiinga (Sued as Mortgagor and Guarantor) v Zambia National Commercial Bank Plc SCZ Judgment No. 51/2014
Bomach Finance Limited v Gregory Mwanza Emma Nyandoro Appeal No. 109/2014
BOOKS
Frederick Mudenda, Land Law in Zambia: Cases and Materials (2006, UNZA Press, Lusaka)
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