Rarely do people go to the bank to borrow money with clear intentions of never paying back the money. However, issues often arise and the borrowers feel shortchanged by their lender. Sometimes it is a matter of miscommunication between the lender and the borrower especially regarding interest rates and restructuring of the loans. Often times it could be due to lapses in the due diligence conducted before lending. For example, where the Lender did not sufficiently establish the identity of the borrower, their credit-worthiness and the extent of their ownership of the intended mortgage property. It could be a case of customary land owned by a family, yet the consent of the children and spouse of the borrower was not sought. It could also be a case of a matrimonial home, yet genuine and informed consent of the spouse was not given. In some cases, not being a 3^rd party mortgage, the mortgaged property may never have belonged to the borrower at all! It could also be a case where such due diligence was done but after default on the loan, the Lender has not complied with the mandatory procedures and notice periods stipulated by law before the mortgage property can be sold.

Well, whatever the case may be, if a situation arises where a borrower’s property is going to be sold and many are going to arise because of the terrible economic effects of COVID 19 pandemic, get armed with knowledge of what to do.

If a borrower feels aggrieved about the intended sale or foreclosure, the aggrieved borrower or any other interested party can seek court relief to stop, delay or postpone the sale. It should be noted that previously, Mortgage law did not specifically prescribe any special procedure for such stoppage.

As a result, Courts applied the general rules for the grant of a temporary injunction unconditionally and one could easily get a court order stopping a sale, to the frustration of Banks.

A specific legal framework has however since been put in place to specifically govern the stoppage of sale of mortgage property. The law is now that no person can stop a sale of Mortgage property by temporary injunction unless they have first complied with the condition in the Mortgage regulations. The Mortgage Regulations introduced a precondition of payment of a security deposit of 30% of the forced sale value of the mortgaged property or the outstanding amount, whichever is higher. This security deposit must first be paid to the person conducting the sale, by whoever is applying to stop the sale. There is an exemption to this requirement to first pay 30% of the loan amount before halting the sale. The Mortgage Regulations give wide discretion to the Court to dispense with this condition if the person applying to stop the sale is the spouse of the defaulting borrower.

From the Bankers’ point of view however, the Uganda Bankers’ Association has proposed that this security deposit of 30% should be increased to at least 50%. To Mr Wilbrod Owor, the Executive Director of the Uganda Bankers Association, this proposal should not worry a genuine borrower doing business with good intentions, since they can always negotiate for a restructuring of their loan repayment. The Bankers’ justification for the 50% security deposit proposal is pegged on the alleged growing trend of defaulting borrowers filing multiple court cases calculated to merely frustrate the Lenders’ attempts to recover the loan.

From the banks’ point of view, injunctions to stop a sale of the mortgaged property is an abuse of Court process which has locked up trillions of shillings of Depositors’ money with a direct impact on the Lenders’ risk rating, risk appetite and the pricing of interest rate. The ultimate victim is said to be the would-be genuine borrowers with good intentions intending to access financing in a very expensive credit market. To curb this trend, the Bankers argue that a 50% security deposit requirement would give them substantial cover by forcing a defaulting borrower to think twice before attempting to stop a sale by Court injunction.

While these concerns are noteworthy, one can still successfully stop, delay or postpone the sale of mortgage property, if they instruct a Lawyer early enough to do the following:

• File a civil suit against the lender challenging the sale;
• File an application seeking orders for a temporary injunction to stop, delay or postpone the sale;
• The affidavit in support of the application must show evidence of readiness to pay the security deposit of the 30% of the outstanding sum or the forced sale value, to the Lender.
• The affidavit in support of the application must additionally show reasonable cause why the sale should be stopped, including any faults of the Lender.
• If the applicant for stoppage of sale is a spouse of the borrower, the affidavit must expressly:
  • State the fact of marriage and attach evidence of a valid marriage that was subsisting at the time the property was mortgaged.
  • State and show that the aggrieved spouse was not aware of the Mortgage and their consent was never given, if indeed.
  • Show the aggrieved spouse’s financial circumstances demonstrating his/her inability to pay the security deposit of 30%.
  • Show the extent of injury to her legal rights and convenience that would be occasioned if the sale is not stopped.

So, after the sale has been halted, then you can bring all your evidence and grounds of challenging the sale to court. Then we hope at that point the rule of law will prevail.

FOR MORE ON THIS PUBLICATION:

Claire Amanya Rukundo-Kakeeto

Claire is the Founder & Managing Partner of CR Amanya Advocates & Solicitors. She is a Rotarian, a UK trained lawyer, Advocate, a Commissioner of Oaths, a Notary Public, Insolvency Practitioner and a Certified Chartered Secretary with over twelve years’ experience in legal practice. Claire has previously acted as counsel and relationship manager to a number of leading multi-national companies operating and/or engaged in transactions in Africa such as Standard Chartered Bank, Barclays Bank, Lloyds TSB, African-Import Export Bank (Afrexim Bank). Not to mention regional companies like SABMiller, Tullow Oil Operations Pty, Total E& P Uganda B.V, Toyota Uganda, Helios Towers, AECOM Government Services et al.

Email: claire.amanya@cramanya.com Phone: +256772484003

Frank Rovin Wadidi

Frank is a lawyer working with CR. Amanya Advocates & Solicitors. He holds a Bachelor of Laws Degree from Makerere University, Kampala, and is currently a candidate for the Postgraduate Diploma in Legal Practice of the Law Development Centre. He joined the firm in November 2021, and his work at the Firm spans across the Litigation & the Corporate & Commercial Departments.

Email: frank.wadidi@cramanya.com Phone: +256705444656