Securing Debt Repayment: The Significance of Mortgages as Security

for Debt Settlement in Ghana

Co-Writers: Prince Kojo Tabiri ESQ & Sampson Kofi Asante Sampong ESQ
"Once a Mortgage, Always a Mortgage."

Introduction
A mortgage is a creation of an interest in (originally the conveyance of) real or
personal property by a debtor/borrower (the mortgagor) to a creditor/lender
(the mortgagee) as security for a monetary debt on the condition that the interest
shall be extinguished on payment of the debt within a certain period.

It is a contractual agreement in which immovable property, such as a house or

land, serves as security for the repayment of a debt or the fulfillment of other
obligations. The essence of a mortgage, therefore, lies in its ability to provide
borrowers with access to funds while leveraging the value of their property.

In Ghana, securing debt repayment is paramount for individuals and businesses.

One effective method that has gained prominence is the use of mortgages as
collateral. Mortgages play a crucial role in providing a tangible asset that can be
pledged to ensure the repayment of debts, offering lenders a sense of security.

A security interest is hereby created by the transaction or agreement that secures

payment or performance of an obligation between a borrower who has title to
collateral, willing to create a security interest in favor of a lender. The Security
Interest created does not in any way transfer title in the collateral property to the
lender. This is a typical arrangement in Banks and Special Deposit Taking
institutions regulated by the Bank of Ghana. (See the Borrowers & Lenders Act,
2020)

 Characteristics of Mortgages? Once a Mortgage, always a Mortgage!

A. A mortgage is only a SECURITY
One of the distinguishing features of mortgages as collateral in Ghana is their use
as security for the payment of a debt or the fulfillment of an obligation. When a
borrower obtains a mortgage, they renounce their property as security for the loan's
repayment or the performance of other financial obligations.

Section 5 of NRCD 96 (Mortgages Act, 1972) provides that unless a contrary

intention appears expressly, a mortgage is a security only for the performance of
the act provided in the mortgage and not for a performance promised in a past or
future contract.

This reinforces the applicability of the provisions of the Borrowers and Lenders Act,
2020 (ACT 1052) to a mortgage, since a mortgage is a transaction that in substance
secures the performance of an obligation and the mortgagor is the one who willingly
creates the mortgage in favor of the mortgagee.

Section 22 of Act 1052 further provides that a lender in whose favor a security
interest is created shall register the security interest with the Collateral
Registry of the Bank of Ghana within 28 days after the date of creation of that
security interest and thus, the lender may register the security interest before or
after stamping the instrument by the Stamp Duty Act, 2005 (ACT 689).
Registration under the Borrowers and Lenders Act, 2020 shall have priority over
other security interests registered under any other enactment including the Lands
Act.

B. Mortgages are always REDEEMABLE

Redemption is the very nature and essence of a mortgage. Redemption refers to the
act of repaying the mortgage debt in full, thereby releasing the encumbrance on the
property and restoring the borrower's full ownership rights.

The concept of redemption is fundamental to mortgages because it allows

borrowers to regain complete control over their property once the debt is satisfied.

Once the substance of the transaction is a mortgage, it will be treated as such. In the
case of Khoury v. Mitchual, the court held that the true position in equity is that the
mortgagor’s equity of redemption is inviolable. Therefore, once a mortgage, always a
mortgage.

Redemption allows borrowers to fulfill their financial obligations and regain

unrestricted ownership of the property. It represents the ultimate goal for borrowers,
as it signifies the successful completion of their mortgage journey and the
elimination of the encumbrance on their property.

 The Law on Registration of Mortgages/Securities in Ghana.

The Land Act, 2020 (ACT 1036) allows for the registration of mortgages and must
be filed in the Registry of the Lands Commission. Before registration, such
instruments must be stamped in accordance with the Stamp Duty Act.

Although registration of immovable property can be done under any of the following
Acts: Home Mortgage Finance Act, 2008 (Act 770), Mortgages Act, 1972 (NRCD 96),
and the Borrowers and Lenders Act, the law prioritizes registrations under the
Borrowers and Lenders Act, 2020 (Act 1052).

The long title of the Act presupposes that the Act is meant to regulate
transactions between borrowers and lenders, establish a Collateral Registry,
provide a legal framework for the registration and enforcement of security
interests in collateral, establish an order of priority of security interests, to
provide for credit agreements generally and to provide for related matters.

Act 1052 has the following requirements for a credit agreement to be valid for
registration. It must identify the lender, borrower, sufficiently described collateral,
and the secured obligation(s). Registration must be done within 28 days after the
date of execution with the written consent of the borrower.

A Security Interest which is not registered is of no effect as security for a borrower’s

obligations for repayment of the money secured and can effectively be termed an
unsecured loan. Registration is mandatory. Once a security interest is registered it
remains valid until discharged.
  Rights of the Parties in a Mortgage Agreement

(i) Rights of the Mortgagor

a. The mortgagor has the contractual right to redeem the mortgage/the

equity of redemption

b. The mortgagor has the right to redeem the mortgaged property before
the contractual date of redemption.

c. Due to the inviolable nature of the mortgagor’s equity of

redemption, equity dictates that there should not be any provision in
the mortgage that prevents the mortgagor from being able to redeem
the property or any provision that renders the right of redemption
illusory, as this will constitute a clog or a fetter on the equity of
redemption, be it a collateral advantage for the mortgagee or a
postponement of redemption by a mortgagor.

d. The mortgagor can always redeem the mortgaged property. The right
to redeem is vested in the mortgagor, a proprietary right that is
alienable and inheritable. Section 24(1) of NRCD 96 defines the
mortgagor as “any person from time to time deriving title through the
original mortgagor or entitled to redeem a mortgage according to his
interest in the property mortgaged. Even if the mortgagor becomes
deceased his descendants can still redeem the mortgage.

e. The mortgagor remains the owner of mortgaged property and is

entitled to remain in possession of the property notwithstanding
the mortgage, until the mortgagee takes action to recover possession in
the event of a default by the mortgagor.

f. Under Section 17 of NRCD 96, the mortgagee has a right to enter into
possession of the mortgaged property where there is a failure to
perform an act or acts secured by the mortgage.

(ii) Rights of the Mortgagee

a. The mortgagee is entitled exclusively to title documents and even
during the subsistence of the mortgage all available title documents
become the entitlement of the mortgagee and the mortgagor must
deliver to him/her as per section 10 of NRCD 96.

b. Where there is a default by the mortgagor, the mortgagee has the right
to sell the property and use the money realized from the sale to
pay off the debt owed. This is by judicial sale, which is an application
to the court to sell the mortgaged property.
 c. Per Section 16 of NRCD 96, the mortgagee can apply to the court for the
appointment of a receiver to manage the mortgaged property where
there is a default by the mortgagor.

d. The mortgagee’s right to sue the mortgagor on his covenant for the
settlement of the mortgage debt where a judicial sale of the
mortgaged property does not entirely satisfy the debt owed and hence
proceed to other properties of the mortgagor.

 Discharge of mortgages
A mortgage is discharged where the mortgagor performs all the acts secured by the
mortgage and sufficient compensation where necessary, the mortgagee accepts
this. It may also be discharged by a court order for redemption.

For mortgages registered under NRCD 96 and Act 1036 as per section 153 of Act
1036, the Land Registrar is mandated upon the production of a discharge
instrument to register the same and indicate the Land certificate is wholly or
partially discharged from the mortgage.

However, if registration is done under Act 1052, Section 30 directs that a

lender may apply for a discharge of the registration of the security interest where
the obligations under the credit agreement to which the registration relates have
been performed and there is no commitment to make a future advance and the
lender consent to the release of the whole or part of the security interest
described in the registration.

 Defaults And Realization of Security or Collateral under the BLA

Per Section 60 of the Borrowers and Lenders Act, where a default arises under a
credit agreement and the lender decides to realize the security interest, the lender
shall first give written notice of the default to the borrower and request the
borrower to pay the amount due within 30 days after receipt of this notice.

The Bank of Ghana (BOG) has directed all lenders, to expressly capture their rights
of enforcement under Section 61 of the Borrowers and Lenders Act, 2020 (Act
1052) in their credit and collateral agreements.

Section 61 provides that the lender has the right to sue the borrower on any
covenant to perform under the credit agreement, Realize the security interest
in the collateral without initiating court proceedings (where the security
interest is registered under the Act) or Appoint a Receiver or Manager to
collect the rents and profits derived from the property and realize the security
interest on behalf of the lender

A lender who intends to realize a security interest registered at the Collateral

Registry without a court order shall register a notice of their intention to do so
with the Registry. When all the requirements have been met, the Registrar shall
certify the realization process by issuing a certificate known as a Memorandum
of No Objection, which will remain valid until a time when the collateral has either
been sold, retained by the lender or the debt has been settled and the collateral
redeemed.

A lender shall realize the collateral by auction, public tender, or private sale. The
price at which the collateral is sold shall be determined by an independent valuer
appointed by the lender, unlike mortgages under NRCD 96 where it is determined
by the court.

Under the NRCD 96 however, the realization of mortgaged property by the

mortgagee upon default by the Mortgagor is only achieved in one of two ways;
Judicial Sale or by Adverse Possession.

Conclusion
The role of mortgages as collateral in Ghana is of paramount importance in
securing debt repayment. By leveraging property assets as collateral, mortgages
offer a tangible and enforceable mechanism for lenders to protect their interests
and mitigate the risk of default.

NB: The content of this article is intended to provide a general guide to the subject matter. Speciali zed legal advice
should be sought about your specific circumstances.