High Court punishes lender for recalling loan before expiry period

The High Court has punished Kenya Commercial Bank for terminating a 10-year mortgage loan ahead of its expiry period.

Instead, the bank was ordered to pay its client, Peter Mathenge, Sh1.5 million plus interests after the court found that it used unorthodox ways to recover unpaid loan arrears.

Mathenge borrowed Sh2.94 million to buy a plot in Nairobi back in 2000 and was required to pay Sh65,885 every month, which was to be spread across 10 years.

But in November 2007, he received a call from the lender notifying him that he had defaulted for two months and was required to settle Sh254,000 within a month. He paid the amount. Things turned for the worse on January 28, 2008 when the lender demanded payment for the remaining Sh1.45 million or else it would dispose of the property. The court was told that the man had to find a way of saving his property from auction and had to settle the amount within a month.

High Court judge George Odunga found it unprofessional for KCB to exert pressure on the client in a bid to recover the amount it had lent him over a 10-year period.

The judge found that the man was required to pay the outstanding amount within a period of three months but the bank ought to have held its horses up until the loan term lapsed.

“It is my view that once the chargee opts for one remedy, it must comply with all the relevant legal provisions relating to that remedy. It cannot unless it expressly abandons that remedy, jump midstream for alternative remedy. In this case since the defendant had chosen the path of notification, the notice had to comply with the relevant statute. It is however clear that there was no such compliance,” ruled judge Odunga.
“It follows that the whole process of realisation of the charged property was unlawful and by insisting on the recovery thereof, the defendant acted with due disregard to the law hence improperly compelled the plaintiff to pay the outstanding amount. The answer to this issue is therefore that the defendant did no exercise its statutory power of sale lawfully.”
The bank defended its action, saying that Mathenge’s account was perpetually in arrears hence it was within its rights to demand the balance.
According to KCB, the mortgage facility was not operated satisfactorily and that the client did not adhere to the terms thereof. It argued that he came to court with dirty hands and was therefore underserving of the court’s mercy.

The judge however declined to give any remedy for alleged mortgage overcharge, saying that the lender did not demonstrate to the court that there was any fault.