In emerging economies such as Nigeria, where macroeconomic volatility, foreign exchange pressures, and business risks often affect borrowers’ repayment capacity, loan defaults are an inevitable feature of credit markets. For lenders, the critical question is not whether default will occur, but how effectively they can enforce their rights when it does.

In Nigeria, the enforcement of security is shaped by a combination of contractual terms, statutory provisions, and judicial precedent. The legal framework seeks to protect lenders’ recovery rights while ensuring that borrowers are not subjected to arbitrary or oppressive enforcement measures.^[1][2]

This article examines the legal and practical realities lenders should expect when enforcing security following a loan default in Nigeria.

UNDERSTANDING LOAN DEFAULT IN NIGERIA

A loan default arises when a borrower fails to perform obligations stipulated in a loan agreement. A loan agreement (also known as a lending agreement) is a contract between a borrower and a lender that regulates the mutual promises made by each party.^[3] While non-payment of principal or interest is the most obvious form of default, the courts recognize that breach of other covenants, such as failure to maintain collateral or insolvency events, may also trigger default rights.^[4]

The occurrence of default activates the lender’s contractual and proprietary remedies, particularly where the facility is secured. Default typically triggers the lender’s right to demand immediate repayment, enforce contractual remedies, and realize any security provided.

RIGHTS OF LENDERS UPON DEFAULT UNDER NIGERIAN LAW

The rights of lenders in loan agreements in Nigeria can be identified as follows:

1. Action for debt recovery

The courts have consistently upheld a creditor’s right to recover liquidated sums. However, where security exists, lenders typically prefer proprietary remedies because they offer a more direct path to recovery

2. Taking Possession of Mortgaged Property

A key remedy is the right to take possession of mortgaged property. Under Nigerian law, a legal mortgagee is entitled to possession once the mortgage is created, even before default, although this right is rarely exercised until default occurs. This principle was reinforced in Awojugbagbe Light Industries Ltd v Chinukwe^[5], where the court emphasized the proprietary nature of a mortgagee’s interest. Simply, in the case of a legal mortgage, the lender may take possession of the secured property. This right arises from the lender’s legal interest in the property.^[6] However, equitable mortgagees typically require a court order before exercising possession rights.^[7]

3. Power of Sale

The power of sale is often the most commercially viable enforcement tool. This right allows the lender to sell the secured property and apply the proceeds toward the outstanding debt. The exercise of this power is typically governed by the mortgage deed and, in some cases, statute. However, the power of sale must arise and become exercisable before it can be utilized. Importantly, once the power of sale has arisen and become exercisable, the mortgagee is not required to obtain a court order, provided all conditions precedent, such as service of notice, have been satisfied. The courts have, however, imposed a duty of care on lenders exercising this power. In B.O.N. Ltd v Aliyu^[8], it was held that a mortgagee must act in good faith and take reasonable steps to obtain the best price reasonably obtainable. A failure to do so may expose the lender to liability.

4. Foreclosure

Foreclosure represents a more drastic remedy. It involves a court order extinguishing the borrower’s right of redemption and vesting full ownership of the property in the lender. The courts treat foreclosure as an equitable remedy of last resort, typically granted only where sale is impracticable or insufficient.

The foreclosure process occurs in stages. The order nisi comes first, giving the borrower a final six months’ opportunity to repay. Then comes the order absolute, which vests ownership in the lender if default persists.^[9]

THE ENFORCEMENT PROCESS IN PRACTICE

In practice, enforcement rarely begins immediately upon default. Lenders are expected to comply strictly with pre-enforcement requirements, many of which are stipulated in the loan and security documents. These may include issuing demand notices, for example.

Failure to comply with these procedural steps can be fatal. The courts have shown a willingness to set aside enforcement actions where statutory or contractual notice requirements are not met. Once preliminary steps are satisfied, the lender must decide between judicial and extra-judicial enforcement. Judicial enforcement involves court processes such as foreclosure proceedings or actions for possession. While it offers legal certainty, it is often slow due to court congestion.

Extra-judicial enforcement, on the other hand, relies on contractual rights such as the power of sale or repossession. Under the STMA 2017, secured creditors may take possession of movable assets without court intervention where the debtor has agreed to such enforcement in the security agreement. This has significantly improved recovery prospects for lenders dealing with movable collateral.^[10]

CONCLUSION

Loan default is a commercial reality that lenders must be prepared to confront. The Nigerian corpus juris provides a comprehensive framework for enforcing security, supported by a broad body of judicial authority.

However, enforcement is not automatic. It requires strict compliance with legal requirements, careful navigation of procedural rules, and an understanding of the practical challenges involved. Ultimately, lenders who combine sound legal structuring with disciplined enforcement strategies are better positioned to protect their interests and achieve efficient recovery when defaults occur.

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^[1] It is a trite principle of law emphasised in a plethora of cases, including the case of Governor of Lagos State v Ojukwu, (1986) 1 NWLR Pt. 18, p. 61 SC that the law frowns at self-help, for example.

^[2] ‘Legal Framework for Debt Recovery in Nigeria’ (Francis Okoye Legal Consults, 2025) https://www.francisokoyelegalconsults.org.ng/legal-framework-for-debt-recovery-in-nigeria/
accessed 23 March 2026.

^[3] Wikipedia contributors. (2024, December 30). Loan agreement. Wikipedia. https://en.wikipedia.org/wiki/Loan_agreement

^[4] See the provision of Section 125 (iii) of the Property & Conveyancing Law (PCL) 1959. [Accessed at https://www.lawglobalhub.com/section-125-property-and-conveyancing-law-pcl-nigeria-1959/ on 23rd March, 2026.]

^[5] Citation: Awojugbagbe Light Industries Ltd v Chinukwe and NIDB Ltd, (1995) 4 NWLR (pt. 390) 379

^[6] ‘Enforcement of Mortgage Securities in Nigeria’ (AAA Chambers) https://www.linkedin.com/pulse/enforcement-mortgage-securities-nigeria-aaa-chambers
accessed 23 March 2026

^[7] ‘The Viability of Enforcement of Mortgage Security in Nigeria’ (2015) https://www.mondaq.com/pdf/952808.pdf
accessed 23 March 2026.

^[8] See: Bank Of Agriculture Limited Vs Alhaji Audu Ade Aliyu (2019) 20 E-WRN / 69 (CA)

^[9] ‘An Appraisal of the Right of Foreclosure to Mortgages in Nigeria’ (Mondaq, 2022) https://www.mondaq.com/nigeria/financial-services/1262010
accessed 23 March 2026.

^[10]   Igbinosun B. Security Interests in Personal Property and the Nigerian Secured Transactions in Movable Assets Act 2017: An Appraisal. Journal of African Law. 2020;64(3):357-371. doi:10.1017/S0021855320000157

Written by Inioluwa Olaposi for The Trusted Advisors

Email us: info@trustedadvisorslaw.com

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