Banks feel the pinch of new tight collateral laws

A Commercial Court judge has just stopped Equity Bank from selling a house valued at Sh43.2 million to recover Sh6 million. FILE

By RICHARD MUNGUTI,

Banks are starting to feel the pinch of the Land Act and Matrimonial Property Act as restrictions on selling homes used as collateral begin to bite.

Under the new laws, no bank can sell any secured property before a fresh valuation, extending the period of notice by 90 days and honouring matrimonial property rights.

In the most recent development, a judge in the commercial division has stopped the sale of a home in Ngong valued at Sh43.2 million to recover Sh6 million from a defaulter.

The public sale of the property advertised by Antique Auctioneers was stopped by Justice Jonathan Havelock, saying Equity Bank did not comply with the new land law in its pursuit of businessman David Gitome Kuhiguka.

Justice Havelock said the bank did not comply with Section 97(2) of the Land Act which came into force in May 2012, providing for banks to allow a loan defaulter time to redeem the outstanding amounts within 90 days after expiry of sale notice.

Under the said Act, a financial institution is supposed to carry out a fresh valuation before sale.

The judge said the court was properly guided by lawyer Titus Koceyo for the plaintiff who termed the intended sale illegal since the value of the property had appreciated due to its location.

The lawyer had told the judge valuation of the land in Ngong was done on March 15 2012 when it advanced Mr Kuhiguka Sh5.5million.

The bank moved to recover its money in April 2013, one year after.

“With the property in and around Nairobi affected by the current property boom, it may as well be the suit property could have vastly increased in value even for forced-sale purposes in the 14 months period,” the judge said.

“As a result I find that the defendant bank has not complied with Section 97(2) of the Land Act in this connection.”

The judge added that the balance of convenience tilts in favour of preserving the property as it was worth Sh43.2 million while the loan advanced in March 2012 was only Sh5.5 million.

He said the bank stands no chance of losing as opposed to the plaintiff who may lose his matrimonial home. Under the law, it is the obligation of the chargee (bank) to ensure that a forced sale valuation is undertaken by a valuer before executing its mandate.