Court Guidelines to Mortgage Property in Uganda

In an article dated October 2019 where a recent Ugandan High Court decision, Sendagire Stephen and Nanyombi Gladys v DFCU Limited, KabiitoKaramagi and Kirumira Godfrey Kalule  HCCS No. 26 of 2008, set out good practice requirements for a mortgagee in exercising their right to sell mortgaged land upon default by a mortgagor.

The statement states that the plaintiffs borrowed money from the defendant bank, against a mortgage over property developed with a school (the “ mortgaged property ”). The plaintiffs defaulted and the defendant bank appointed a receiver to recover the loan. The property was advertised for sale and eventually sold to the third defendant.

In deciding whether the suit property was lawfully sold, the judge held that the relationship between a bank and customer was one of close proximity based on trust and confidence and premised on a duty of care and mutual benefit. As such, there are common rules to be applied to safeguard the interests of both parties in this relationship. The right of the mortgagee to sell the mortgaged property is not absolute; it is caveated by the duty to exercise care in the following ways:

The mortgagee should act in an honest manner and obtain the best price and in good faith

In some scenarios where a mortgaged property is taken under receivership by the financing institution due to default of payments, Information has to be clear in terms of bids proposed by intended buyers, so that in the event that the highest bidder is offering over and above what the financial institution wants then the rest can be given to the mortgagor hence pleasing both parties.

He/she must value the property before the sale

This helps to know the current market value and forced sale value as well as the good price. He should never sell under forced sale value arrangement or a very lower price.

One important requirement is for the mortgagee to take all measures to get the true market value of the mortgaged property at the date on which he intends to sell it. The courts have hitherto not prescribed a minimum price.

The property must be advertised after a notice

The sale of the mortgaged property should be advertised after the mortgagor has been notified.

It’s the obligation of the three parties to be in the know. The receiver Mortgagee and Mortgagor all need to have notifications of the intention to sell the Mortgaged Property. It is advisable for the receiver also to notify the plaintiffs of the sale by public auction and in addition advertise the sale in a local newspaper.

Sale by public auction through the bidding process

Usually, some people prefer formal settlement but remember selling of mortgage property has to be carried through the bidding process. This process is recommended as its more competitive and more transparent as it entails a private treaty is used, the best price and involvement of the mortgagor is preferable, especially through the access process. It must also be in terms of appointment of the receiver to clearly state that the sale of the mortgaged property has to be by public auction and that no sale would be conducted by private treaty without the prior consent of the defendant bank.

The sale of the mortgaged property under the Mortgage act include the sale of the movable properties thereon

In some cases Mortgaged property could be in possession of the movable property such as furniture and fittings, livestock among others.

Sale by the mortgage is the most common means of debt recovery in Uganda. It is therefore crucial that the mortgagee and all the parties involved in a sale get it right from the outset. This decision is significant as it provides guidance for parties to safeguard themselves against liability through emphasizing good faith, transparency, and the involvement of the mortgagor in every step of the sale.