What power of sale means
A power of sale is a mortgagee's right to sell the mortgaged property to recover the debt.
It arises from the mortgage deed, and in some cases from statute, and it is one of several remedies a mortgagee has alongside suing for the debt, taking possession, appointing a receiver and foreclosing.
Two stages matter. The power must have arisen, which normally happens when the legal date for redemption has passed. And it must have become exercisable, which normally requires a default of the kind the deed specifies, such as arrears persisting after a notice, and expiry of any notice period.
A mortgagee who sells before the power is exercisable has acted wrongly and can be liable. A purchaser who bought in good faith is generally protected, which means the borrower's remedy is usually damages against the mortgagee rather than recovery of the property.
How it is used
The practical sequence is notice, then default, then sale.
The mortgagee serves a demand or default notice as the deed and the law require, giving the borrower the opportunity to pay. If the default continues past the stated period, the power becomes exercisable.
The mortgagee then markets and sells. It is not a trustee for the borrower and it is entitled to choose its own time, but it owes a duty to take reasonable care to obtain a proper price, and it cannot sell to itself.
Proceeds are applied in order: the costs of the sale, then any prior charges, then the debt owed to the selling mortgagee, then any subsequent charges, and the surplus is accounted for to the borrower. That accounting is an obligation, not a courtesy.
For land in Nigeria, the sale is a transfer of an interest in land, so the Governor's consent and registration requirements apply to the conveyance in the ordinary way.
Key features
- A mortgagee's right to sell the property to recover the debt
- Must have arisen and become exercisable before it is used
- Requires notice and a continuing default as the deed provides
- The mortgagee must take reasonable care to obtain a proper price
- Proceeds are applied in order, with any surplus payable to the borrower
- A purchaser in good faith is generally protected against defects in the exercise
How this works in Nigeria
The Land Use Act shapes the process. What is mortgaged is a right of occupancy, and a sale by the mortgagee is an alienation, so the Governor's consent is required for the transfer to be complete. Mortgagees who sell without addressing consent leave the purchaser with an incomplete title, and Nigerian courts have considered the point repeatedly.
The duty to obtain a proper price is where most borrower challenges are made. A property sold quickly, without proper marketing, at a figure well below its value, invites a claim that the mortgagee breached its duty. Evidence of marketing, of a valuation obtained before sale, and of the process followed is what defends it.
Self help is the other recurring issue. A mortgagee taking physical possession by force, changing locks or ejecting occupants without process is acting unlawfully however clear the default is.
For borrowers, the practical advice is to engage early and in writing. A documented repayment proposal made before the power becomes exercisable is worth far more than a challenge afterwards, and a borrower who goes silent while notices accumulate has removed their own options.
Where the borrower is a company and the security is a debenture, receivership rather than a power of sale is usually the route the lender takes.
Power of sale vs foreclosure vs receivership
Three mortgagee remedies, with different mechanics and different consequences for the borrower.
A power of sale sells the property and applies the proceeds to the debt, with any surplus returned to the borrower. It is the most commonly used remedy because it is comparatively quick.
Foreclosure extinguishes the borrower's right to redeem and vests the property in the mortgagee. It requires a court process, and because the mortgagee keeps the whole property regardless of value, courts approach it cautiously and it is rarely used.
Receivership appoints a receiver to take charge of the property, collect its income and, where empowered, sell it. It suits income producing property and is the usual route where the security is a debenture over a company.
A borrower facing enforcement should understand which is being used, because a power of sale returns the surplus and foreclosure does not.
Limits and risks
The mortgagee is not obliged to wait for a better market. It can sell at a time of its choosing, provided it takes reasonable care to obtain a proper price, so a borrower cannot object simply because the timing was poor.
A challenge after completion rarely recovers the property. A purchaser in good faith is generally protected, leaving the borrower with a damages claim against the mortgagee.
Sale proceeds frequently fall short. Enforcement sales realise less than open market value, and the borrower remains liable for the shortfall.
And consent and registration requirements slow the process, which is one reason enforcement against Nigerian land takes longer than lenders expect.
Worth knowing
Engage in writing the moment you know you will miss payments, and keep every notice you receive. Nigerian borrowers lose properties not because the debt was unmanageable but because they went silent while the notice periods ran, and by the time they responded the power of sale was already exercisable.
Questions people ask
What is a mortgagee's power of sale?
The right to sell the mortgaged property to recover the debt, arising from the mortgage deed and in some cases from statute. It must have arisen and become exercisable before it can be used.
Does the bank need a court order to sell?
Not always, where the power of sale is properly exercisable under the deed. It must still follow the notice requirements, obtain the Governor's consent for the transfer, and take reasonable care to obtain a proper price.
Can I challenge a sale at an undervalue?
You can claim that the mortgagee breached its duty to take reasonable care to obtain a proper price. A purchaser in good faith is generally protected, so the usual remedy is damages against the mortgagee rather than recovery of the property.
What happens to money left over after the sale?
Proceeds are applied to the costs of sale, then prior charges, then the debt, then subsequent charges, and any surplus is accounted for to the borrower. That accounting is an obligation.
Can a lender take possession of my property by force?
No. Taking possession by force, changing locks or ejecting occupants without process is unlawful however clear the default is, and it exposes the lender to claims.
What is the difference between a power of sale and foreclosure?
A power of sale sells the property and returns any surplus to the borrower. Foreclosure vests the property in the mortgagee and extinguishes the right to redeem, requires a court process, and is rarely used.