Mortgages: What are your rights?

Ms Beatrice Odongo, a director at Macdowel, last month wrote to the Special Investigations Division of the Criminal Investigations Directorate, asking police to investigate circumstances under which their property was illegally sold.

In a statement, the bank acknowledged accusations leveled against its employees but noted that it couldn’t discuss the matter as it was already before court.

Stanbic Uganda acknowledges that the matter is subject to further court proceedings. Since the matter is before the Courts of law, the bank is unable to publicly discuss the merits of its case at this time.

Another instance is where Simbamanyo Estate Limited through their lawyer Muwema Co Advocates and Solicitors issued a notice to the Court of Appeal against a 30-day ultimatum issued by High Court that would see their property sold.

While a notice was still on, Equity Bank rushed and sold the contested property to Meera Investments, although Mr Fred Muwema told Prosper that it was illegal and fraudulent.

Another scenario is where President Museveni had intervened in a case where Housing Finance Bank is accused of fraudulently selling property belonging to a city businesswoman.

Ms Ida May Kwesiga who owns Mayflower Apartments located in Nakasero, had run to the Land Division of the High Court in Kampala. sued Housing Finance Bank together with Balaji Group East Africa Limited.

President Museveni directed that Ms Kwesiga should be given the opportunity to sell the property herself and pay the bank within a period of two months.

Ms Kwesiga argued that the property was being sold at $2.4m (around Shs8.8b) yet it had earlier been valued at $8m (about Shs33b).

Such cases leave a bad feeling among the public who often conclude that banks are “heartless and are after people’s property.”

Another question is why mortgaged properties have become a target of financial institutions and why the owners feel cheated by banks. But where do the rights of the mortgagee and mortgagor end?

Mr Joel Basoga, an associate with Cristal Advocates, says mortgages are important because they can help individuals secure money to develop their business.

“Mortgages are ideal to lenders because they offer the lender proprietary protection which minimises credit risk.  If all parties (the mortgagor (borrower) and the mortgagee (bank)) comply with their contractual obligations, mortgages are arguably a perfect tool for raising debt finance,” he says

He adds, “However, when the borrower is unable to pay their debt under a mortgage, it makes things more complicated because people feel cheated.”

Ms Basoga also explains that upon default on a loan agreement, under the law, the lender (usually a bank) generally has recourse to any of the remedies provided for under the Mortgage Act. 

 “With regards to selling of the mortgage land, the mortgagee (bank) has the power of sale after the expiration of the time for the rectification of default in the notice served on the mortgagor,” he says.

Usually, the sale is done by public auction, a sale of whole or part of the land, a sale by a private treaty - only if the mortgagor consents, according to Mr Basoga. 

Process

Mr Kato Mukasa, a lawyer with Mukasa Lugalambi & Company Advocates, says once you (the mortgagee) enter into an agreement - mortgage deed - you have obligations well.

For instance, he explains, before you sell a piece of land or property, you give a notice once one default.

“Let’s use a bank; the bank must inform me, give me a notice of which I have a right and it should be in writing and served personally or through my lawyers,” he says.

He adds, “That notice is called ‘demand notice’ which should run for 30 days after the default; when I don’t pay within that notice, again the bank gives me another 45 days before they take any further action, that brings it to 75 days.”

Once served, Mr Mukasa says the borrower has a right to renegotiate depending on the agreement first signed. Here, one can get another repayment plan.

Mr Mukasa says before a bank sells property after giving all the notices, the borrower has a right to know when the bank is going to sell the property. If you are using a bailiff, the bailiff must advertise and notify me as well because the borrower might be able to raise money.

“In most cases, loans have guarantors in case you default, the bank should contact my guarantor but sometimes, our banks don’t contact the guarantors and rush to sell yet guarantors have the right to be in the know and in most cases, they could be having the money,” he explains.

According to Mr Mukasa, after the expiry of the 75 days, the borrower must be given another 21 days before any sale and incase of sale, there must be proper property valuation in accordance with the current market value and the evaluation report is issued.

In the case of May Flower where a property worth Shs8b was sold at Shs2b, Mr Mukasa says Housing Finance bank didn’t do evaluation on the current market rates. Evaluation should be done after every six months.

“Banks should also be able to quote ‘forced sale value.’ This is done when banks want their money quickly; for instance if the property is worth Shs100m, forced sale value should be around Shs80m, there should be a difference but not so big compared to the market value,” he says.

Upright Auctioneers & Court Bailiff’s Mugenyi Akiiki Kulubya, says the bank always gives a chance to the owner to sell the property after failure to get buyers that bank comes in to auction. 

“Auction always comes in two stages; it can either be by private treaty or public auction where the property is advertised in newspapers,” he says.

 The public auction indicates the date, time and they consider the highest bidder in this sale as well as in the other sale by public treaty any willing buyer can approach the bank and a sale takes place.

Mr Kulubya says balance is returned to the borrower after clearing advertisement costs, bailiffs or external debt collectors as in accordance to the law.

Just like Mr Kulubya, Mr Basoga says the Courts are very stringent on these requirements and for any proposed sale of mortgaged land, banks should comply with the detailed notice procedure under the Mortgage Act.

“These include, a demand notice, a statutory notice and notice for sale, all these have specific timelines within which they must be made,” he says.

He explains that property must be valued and if sale will be by public auction, it must be published in a newspaper of wide circulation.

Mr Basoga admits that the valuation of land is usually controversial, especially where land is sold below its market price.

“Selling the mortgaged land is sometimes preferable for lenders, because it allows the lender to recover the credit wholly compared to a court action for recovery of money, which is lengthy,” he says.

Mr Basoga adds; “Litigants use deliberate delaying tactics, for example, adjournments, and partial incomplete payments to delay the process.”

Key points to look out for borrowers

Mr Basoga advises that mortgagors must be keen on the date when payment becomes due on the mortgage. Attention must be drawn to the terms of the mortgage deed and agreement.

He further explains borrowers must be keen on any notices received from the lender. Whenever a borrower receives a legal notice in relation to a loan, they must seek the advice from their lawyers on its implication.

“Most people are unaware of the implications of the expiration of such notices,” he says.

Mr Mukasa cautions; “What the banks do is that they connive with the seller, bailiffs and sell your property at a throw-away price and sometimes they continue demanding from you.”

He also advises that if the property is to be sold privately, that should be in the agreement at the beginning.

“Banks are selling property without advertising and yet in the agreement, it was agreed differently. This is because sometimes banks fear to open up because I can get better money and they will be forced to give me the balance,” he says.

Mr Mukasa also advises that people should be allowed to sell their property in public since there are chances of getting better prices.