Notes on Mortgage Rights and Obligations of Parties—Right to Sell the Property in Ghana and Africa
Introduction
The right to
sell the property is one of the key rights granted to a lender (mortgagee) in a mortgage
transaction. This right allows the lender to sell the mortgaged property to
recover the outstanding loan amount in the event of default by the borrower
(mortgage). It is a critical remedy that protects the lender’s financial
interests while encouraging borrowers to fulfill their obligations.
In Ghana and
across Africa, the right to sell is governed by statutory provisions, judicial
precedents, and the terms of the mortgage agreement. It is typically exercised
after all other remedies, such as demand for repayment or taking possession,
have failed.
Legal Framework in Ghana
In Ghana, the Mortgages
Act, 1972 (NRCD 96), the Land Act,
2020 (Act 1036), and common law
principles provide the legal basis for the right to sell. These laws establish
the conditions under which a lender can exercise the right, the process for
conducting the sale, and protections for borrowers.
1. Triggering the Right to Sell
The right to sell
is triggered when the borrower defaults on their loan obligations. Default
typically includes:
Failure to
make agreed loan repayments on time.
Breach of
other terms of the mortgage, such as failure to maintain the property.
The lender is
required to issue a notice of default, giving the borrower an opportunity to
cure the default. If the borrower fails to comply within the specified period,
the lender may proceed to sell the property.
2. Power of Sale Clause
Most mortgage
agreements in Ghana include a power of sale clause that allows the lender to sell the property without a
court order. However, this power must be exercised in good faith and in
compliance with the law.
Legal Framework Across Africa
The right to sell
is similarly recognized in other African jurisdictions, although the specific
procedures and borrower protections may vary.
1. Nigeria
In Nigeria, the Conveyancing
Act, 1881, and the Land Use
Act, 1978, govern the
right to sell. Mortgagees are required to issue proper notices to borrowers
before selling the property. Courts in Nigeria have consistently held that
sales must be conducted fairly to ensure that the borrower’s interest in the
property is not unjustly forfeited.
2. Kenya
In Kenya, the Land Act,
2012, provides clear
guidelines for exercising the right to sell. Mortgagees must serve borrowers
with notices of default and allow a redemption period before initiating the
sale. Sales must also be conducted transparently, often through public auctions.
3. South Africa
In South Africa,
the National
Credit Act and property
laws require lenders to obtain a court order before selling a mortgaged
property. This ensures judicial oversight and protects borrowers from arbitrary
actions by lenders.
Process of Exercising the Right to Sell
1. Notice of Default
The lender must
serve the borrower with a formal notice of default. The notice typically
includes:
Details of
the default (e.g., missed payments).
A demand for
repayment or compliance with the mortgage terms.
A specified
period for curing the default.
In Ghana, the
notice period is often stipulated in the mortgage agreement or prescribed by
law.
2. Notice of Sale
If the borrower
fails to remedy the default, the lender must issue a notice of sale. This
notice informs the borrower and the public about the intended sale, ensuring
transparency and compliance with statutory requirements.
3. Method of Sale
The sale of the
property can be conducted through:
Public
Auction: This is
the most common method, ensuring openness and fair competition.
Private
Sale: Allowed
under certain conditions, provided it is conducted in good faith and
achieves a fair market value.
4. Application of Sale Proceeds
The proceeds from
the sale are applied as follows:
Repayment of
the outstanding loan amount.
Payment of
costs associated with the sale (e.g., auctioneer fees).
Return any surplus to the borrower.
Rights and Obligations of the Parties
1. Lender’s Rights
Right
to Conduct the Sale: The lender has the right to sell the property to
recover the outstanding loan amount.
Right
to Recover Costs: Costs incurred during the sale process can be
deducted from the sale proceeds.
Right
to Retain the Outstanding Loan Amount: The lender is entitled to retain the loan balance
from the sale proceeds.
2. Borrower’s Rights
Right
to Notice: Borrowers
must be given proper notice of default and sale.
Right
to Redemption: Borrowers can redeem the property by paying the
outstanding amount before the sale is completed.
Right
to Fair Treatment: Borrowers are entitled to fair treatment during the
sale process, including protection against undervaluation or misconduct.
Challenges in Ghana and Africa
1. Judicial Delays
In countries
where court orders are required for sales, judicial delays can hinder the
process, prolonging the lender’s ability to recover funds.
2. Undervaluation of Property
In some cases,
properties are sold at undervalued prices, depriving borrowers of their equity
in the property. Laws in Ghana and other African countries aim to address this
by requiring sales to reflect market value.
3. Borrower Resistance
Borrowers may
challenge the sale in court, alleging improper notice, undervaluation, or
non-compliance with statutory requirements.
4. Unregistered Properties
In Ghana and
other parts of Africa, the prevalence of unregistered properties can complicate
the sale process. Disputes over ownership or boundaries may arise, delaying the
lender’s ability to sell.
Conclusion
The right to
sell the property is a crucial remedy for lenders in mortgage transactions, ensuring
that they can recover their investment when borrowers default. In Ghana and
across Africa, this right is subject to legal safeguards to protect borrowers
and ensure transparency in the sale process.
While the right
to sell provides lenders with an effective means of debt recovery, it must be
exercised in compliance with statutory requirements and the principles of
fairness and good faith. As mortgage markets in Africa continue to develop, it
is essential for both lenders and borrowers to understand their rights and
obligations to promote trust and stability in the financial system.
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