Types of Mortgages: Legal Mortgage

A legal mortgage is a mortgage recognized by law as the highest form of security interest over property. It transfers the legal ownership or title of the mortgaged property to the lender (mortgagee) until the borrower (mortgagee) repays the debt in full, including interest. In Ghana and Africa, legal mortgages are extensively used for securing loans, particularly for immovable properties like land and buildings.

Definition of Legal Mortgage

A legal mortgage is a formal and registered mortgage that complies with statutory laws. It creates a legal relationship between the lender and borrower, granting the lender a security interest in the borrower’s property while allowing the borrower to retain possession until default.

• Ownership Transfer: Legal ownership or title of the property is transferred to the lender, but possession remains with the borrower.
• Redemption Right: Borrowers retain the right to redeem the property once the loan is fully repaid.

Features of a Legal Mortgage

1. Formality and Registration
• Legal mortgages must be created in writing and registered with the appropriate legal or statutory body.
• In Ghana, mortgages are governed by the Land Act, 2020 (Act 1036) and must be registered with the Lands Commission.
• Registration ensures the lender’s interest is legally enforceable and ranks higher than unregistered or informal claims.
2. Legal Title Transfer
• The lender holds the legal title to the property until the debt is repaid. This title gives the lender a superior claim over other creditors.
3. Borrower’s Possession
• While the legal title transfers to the lender, the borrower retains possession of the property and can continue to use it.
4. Right to Foreclosure
• If the borrower defaults, the lender can foreclose on the property, sell it, and recover the outstanding debt.
5. Right of Redemption
• Borrowers have the legal right to redeem the property after repayment, and any clause attempting to block this right is void under Ghanaian law.

Types of Legal Mortgages

1. Mortgage by Demise or Sub-demise
• The borrower transfers the legal title of the property to the lender for a specific term, subject to a condition for repayment.
• Common in traditional common law jurisdictions, but less common in Ghana due to statutory reforms.
2. Mortgage by Legal Charge
• The borrower creates a charge over the property in favor of the lender without transferring ownership.
• This is the most common form of legal mortgage in Ghana under the Land Act, 2020.

Legal Mortgage Process in Ghana

1. Creation of the Mortgage
• A formal mortgage deed is drafted, detailing the terms of the agreement, loan amount, repayment schedule, and lender’s rights.
2. Consent and Documentation
• Borrowers must provide ownership documents, including land titles or deeds. In some cases, consent from traditional authorities is required if the property is under customary tenure.
3. Registration
• The mortgage is registered with the Lands Commission, ensuring it is enforceable and prioritizes the lender’s claim over the property.
4. Disbursement and Repayment
• Funds are disbursed, and borrowers make repayments per the agreed schedule.
5. Foreclosure in Case of Default
• If the borrower defaults, the lender can initiate foreclosure proceedings to sell the property.

Importance of Legal Mortgages in Ghana and Africa

1. Securing Loans
• Legal mortgages provide lenders with strong security, making it easier for borrowers to access substantial loans.
• Real estate developers and homeowners often rely on legal mortgages for financing projects.
2. Economic Growth
• Mortgages contribute to infrastructure development and housing, promoting economic stability and growth in Ghana and Africa.
3. Investor Confidence
• The legal recognition of mortgages and their enforceability builds trust among financial institutions and investors.

Challenges of Legal Mortgages in Ghana and Africa

1. Complex Land Tenure Systems
• In Ghana, customary land tenure systems often complicate the creation of legal mortgages due to unclear ownership.
• Across Africa, multiple land rights systems can cause disputes, delaying mortgage registration.
2. High Costs
• Registration fees, legal costs, and high interest rates deter low- and middle-income earners from accessing legal mortgages.
3. Foreclosure Difficulties
• Longer foreclosure processes in some jurisdictions, including Ghana, make it challenging for lenders to recover debts.
4. Limited Awareness
• Many potential borrowers are unfamiliar with mortgage laws and processes, limiting their ability to utilize legal mortgages effectively.

Reforms and Recommendations

1. Simplification of Land Registration
• Streamlining land registration processes can reduce delays and disputes, making legal mortgages more accessible.
2. Public Awareness Campaigns
• Educating the public about mortgage benefits and procedures can encourage adoption.
3. Government Support
• Subsidizing mortgage rates or providing affordable housing loans can increase access for low-income earners.
4. Digitization
• Implementing digital land registry and mortgage platforms can improve transparency and efficiency.

Conclusion

Legal mortgages are a cornerstone of real estate financing and economic development in Ghana and Africa. By providing secure, enforceable rights to lenders while protecting borrowers’ redemption rights, they create a balanced framework for property-based loans. Addressing challenges like land tenure complexities and high costs will be crucial for expanding the accessibility and impact of legal mortgages across the continent.

Meet the Author

View Profile

---

Emmanuel Amoabeng Gyebi

Accountant

follow me