Mortgage changes in different countries come with ups and downs.
Over the past years, enforcing and executing orders relating to mortgages has been a problem attributed to defaulting customers who may not even understand what a mortgage entails. However, stakeholders from various mortgage sectors have reacted to the Mortgage Act 2009, which has created more diverse issues in the process of fulfilling their responsibilities.
During a discussion about ‘Challenges arising out of Enforcement and Execution of orders relating to mortgages in Kampala District’ held at Imperial Royale on Tuesday, March 16 this year, Mr Bruce Kyerere, the President of the Uganda Law Society said, “The law amendment was done without due regard to the ongoing process of formulating a National Land Policy and we are now seeking ways of avoiding the legal and administrative mayhem that has since ensued in challenge to the law.” Various changes have been made to the Mortgage Act, 2009.
Notice period in default
The notice period has changed from a 30 day notice to a 45 working day notice of default. Mr Philip Karugaba, a senior advocate at Masembe, Makubuya, Adriko, Karugaba & Ssekatawa Advocates (MMAKS), explains that the 45 days are meant to help the customer repay the money upon failure to fulfill the loan repayments.
Sale of mortgaged land
The borrower must be issued a notice of sale for 21 working days which was not the case in the old law where there was no further notice necessary after the 30 day notice. Additionally, this requires a colour advert in a newspaper.
Powers of court
Court is empowered to grant relief to the borrower. However, Mr Karugaba says the grounds of intervention are not yet specified. According to Justice Anna Magezi, a high court judge in the Land Division, land issues are still contentious, especially at family level, for instance customary land, which is unregistered. She further attributes this to the high population increase because people don’t seem to have enough cultivable land at family level, resulting into crimes and displacement. Justice Magezi adds that some of the people give away land for business that may take long to yield value. She stresses that all family members should be informed about mortgages; lest conflicts ensue.
According to Section 20 of the Land Amendment Act 2004, it is not allowed to sell, exchange, transfer, pledge and mortgage or lease any family land without prior consent of spouses. However, few players in land transaction take that into consideration. Justice Magezi therefore advises people to carefully scrutinise proof of ownership and closer investigations into the modes of mortgages’ acquisition.
Legislation impediments from the law reform
The Mortgage Act 2009 has some limitations on the banks’ rights to engage in mortgaging. This has been attributed to the long periods of about 160 days that the customer has in order to recover the loan once the specified period of 30 days is over. Mr Kyerere says there are conflicting interests in land such as bonafide tenants and occupants. “The ultimate involvement of multiple state players such as the Directorate of land, RDCs and Police who are all claiming to act in the interest of the people has led to a muddled-up justice delivery system,” he says. He adds that state actors have taken judgements and substituted them with their own and that some people may have difficulties in having faith in the institutions they create.
Determining the spouse sustained by the land
There is still difficulty in determining who ordinarily resides on the family land together with his wife or her spouse and derives sustenance because of the inadequate meaning of a spouse, especially in polygamous or customary marriages. Despite changes in the mortgage act, there are still problems arising in the real estate industry.
Fake land titles
According to Mr John Nambale, the legal officer in charge of Debt Recovery with Equity Bank (U) Ltd, some people have fake land titles. So far, this has largely been attributed to the involvement of some customers with local council leaders to sneak in wrong titles; sometimes the documents may side with the customer. “When you find such a document and inform the related people, they connive with the customers such that when it’s time for sending the bailiff, he accepts a token of appreciation suggesting that the customer is given more time,” he says.
Unsecured loans
These are usually given to customers who don’t have security such as unregistered land and salary loans. Mr Nambale explains that such customers pledge land sale agreements or lease offers to banks as a form of security, making it tough to recover from such. “Most customers pledge non-existent land or if at all it exists, it is family land and they may disappear from their residences without a trace,” he says. This has left banking institutions in a dilemma of either applying for foreclosure or suing such individuals to recover those loaned monies.
Inefficient land registry process
Some searches at the land registry are issued with a disclaimer rendering the relevant certificate issued suspect. The disclaimer worded as follows has raised a number of questions As only personal searches of the register are provided for in the Registration of Titles Act, (Cap 230), the above information is given on the understanding that its accuracy is not guaranteed and that no liability whatsoever shall be accepted if loss or damage results from any error, omission, or mis-statement therein. “There is no one to blame for the title deed that has been provided as a security for the loan yet the customer has disappeared. So, how does one authenticate the provided document?” Mr Nambale says.
Verification and approval of court orders before execution
He adds that during execution of such bailiffs, police and RDCs interfere. “You may have a court order but can’t attach a warranty because of the high costs of recovery as LCs may vanish, making the loans written off; hence losses in the banking institutions,” he explains. Initially, RDCs and police require verified and approved court orders before execution by bailiffs, complicating the recovery process and making it more costly.
Delays in the court procedure
According to Mr John Eudes Keitirima, the deputy registrar at the Anti-Corruption Division of the High Court, there is a backlog of cases with only two judges in the region. “In the land division, there are over 400 cases, yet there is a high demand of having them disposed as soon as possible,” he says.
False accusations
The public has accused courts of siding with banks to rip off their property because of the value attached to it. “At times we are guided by the value attached to the property at the time of borrowing from the bank. Such property is usually overvalued and when we discover that, the blame goes to the courts of law,” Mr Keitirima explains.
Limited access to customers’ property
Property evaluation is based on the neighbourhood such that if it’s located in a prominent place, the building acquires a higher value compared to when it’s built in a slum. Mr Solomon Arinaitwe, a valuer, says getting the house owner’s consent to value the property is difficult. “It’s hard to explain to someone who has spent a lot on residential units claiming that they have a lower value,” he says. Consequently, the only resort they have is to judge by comparison or study the surrounding areas.
By all means, people want to hold on to valuable assets even when they know that they have breached the agreement. Mr Keitirima says such customers seek refuge from court so as to increase their time for paying the debt.
Way forward
To address these issues, the banking institutions resolved to adjust their procedures to reflect the new Act and strengthen their due diligence in making sure that clients understand the consequences of their transactions. Mr Lazarus Owakubahiro, the Executive Director of African Community Initiative for Social-economic Transformation (ACIST) says the concerned stakeholders hope to partner with various law enforcers to ease administration of mortgages