At the fall of the hammer

Owning a house especially in the urban areas is every resident’s grand dream. However, some have plunged into the deep end while overlooking the property market fundamentals. As ALLAN OLINGO found out, auctions from foreclosures are the latest trend hitting distressed home owners.

The real estate market was abuzz, fuelled by attractive loans and mortgage products. Then no one ever thought about the illiquid nature of real estate properties and the high financial risks. Suddenly, without warning, the situation reversed and homeowners have found themselves with unserviceable mortgages and loans leaving the lenders with no alternatives but the last resort —foreclosures.

The winners have been auctioneers, who have had a field day executing foreclosure orders from their clients. Hardly does a day pass without tens of auction advertisements in the dailies over properties, an indication that the real estate market has been hit hard.

A 2010 report by the Central Bank of Kenya showed that the number of outstanding mortgage accounts had double since 2006 from 7,275 to 15, 095 in 2010. The current default rate on mortgages hangs at around six per cent and with the current economic trend; this is bound to worsen even further as mortgage holders struggle to service them.

According to Charles Mwangi of Ruby Land, a valuation company, most homeowners are now defaulting on their development loans and this is what the banks are now foreclosing on.

“The reason most homeowners are in this state is because interest rates are quite high yet their income has not really improved. They are strained and hence default. The home owners who went the mortgage way are the ones hardest with high interest rates that made the monthly repayments impossible,” says Mwangi.

Auctions sanctioned

When such homeowners default, their lenders decide to foreclosure on their property explaining the reasons on the rise of auctioned properties.

Foreclosure is the legal process by which a registered owner’s right to property is terminated due to default. In most cases, it involves the forced sale of the said property with the proceeds therein being applied to the loan.

Conveyance lawyer Muthoni Wagenga says that when a bank forecloses on a property, it principally means that the developer’s rights on that property cease to exist, an occurrence homeowner’s dread.

“Where there is default on the borrowers end on repayment, a bank will ordinarily pursue such a borrower and issue reminders, demands and notices to the non payment default,” says Muthoni.

Muthoni says that it’s important that a homeowner servicing a mortgage always places repayment of the loan as their?first priority because the interest on the loan keeps computing running and when you fail, foreclosure beckons.