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Help! We're about to lose our family home over a bank loan our dad took

MONEY
By Harold Ayodo | November 1st 2021

My father took a loan from a commercial bank with our family home as security, three years ago. He was steadily repaying the loan as agreed in writing until he fell sick and has been bedridden. We have been receiving letters from the lender, which we have also been responding to – requesting for grace periods, hoping that he will be back on his feet. Unfortunately, the last letter we received stated that the bank is considering other means – including invoking the powers of statutory auction – to sell the property and recover their money. Does this mean that we will walk out of our house penniless should we not pay up?

Okello, Nairobi

 

There have been recent attempts by some banks to use friendlier ways to recover money owed to them, especially after Covid-19 struck.

Some even employ alternative dispute resolution methods to ensure the client and bank are satisfied.

Legally, commercial banks are compelled to sell the property of a defaulter at the highest market value. Before the passing of the Land Act 2012, there were cases of financial lenders auctioning property below 29 per cent of their market value.

In daily practice, lenders preferred to dispose of property at public auctions because they sold like hotcakes. Traditionally, there were no legal requirements that the lenders recover specific amounts from auctions of defaulters’ property.

But now, property that fails to register a specific market value cannot be sold for a song, therefore, making it harder for lenders to recover debts. Lenders are barred from selling property below 75 per cent of the prevailing market price.

A valuation must be undertaken or else the bank, mortgage firm or financial institution will have broken the law.

The intention of this law is that the bank sells the property at the highest market value to settle the outstanding balance and the defaulter pockets the balance.

Furthermore, tenants will also not be waking up to auctioneers on their doorsteps after their landlord defaulted on loans. The law now requires that banks involve tenants, spouses and other guarantors before selling off property that was used as security for a loan.

However, even before the passing of the new law, some banks opted for out-of-court settlements before selling property of defaulters.

For instance, Absa Bank Kenya (formerly Barclays Bank of Kenya) not long ago advertised the sale of the prestigious Hillcrest Group of Schools associated with late politician Kenneth Matiba.

The bank and the Matiba family reached an out-of-court settlement to sell the institutions, which were under receivership over a Sh620 million debt.

In 2001, the bank unsuccessfully tried to sell Matiba’s five-star hotels that included Jadini, Africana and Safari Beach over a Sh1.8 billion debt.

But the process stopped after the family lodged an appeal with Barclays Plc — the mother company of Barclays Kenya Limited even as the matter turned political.

 

- Harold Ayodo is an Advocate of the High Court of Kenya 

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