Housing Finance Bank has suffered a legal setback after the High Court found that it unlawfully sold a customer’s mortgaged property at a price that was more than UGX 100 million below its market value, in a ruling that raises questions about how the HFB exercises its powers over distressed borrowers.
In the judgment, Justice Susan Odongo ruled that the bank acted unlawfully, negligently and in breach of mandatory mortgage laws when it sold a property belonging to Barnabas Samuel Aliku and wife, Christine Mutesi Aliku in Najjera.
The dispute arose from a loan facility of UGX 119 million that the married couple obtained from HFB in 2009, a loan which was secured by a legal mortgage over their property on Kyadondo Block 219 Plot 1138 in Najjera, and was to be repaid over a period of 20 years through monthly instalments of UGX 1.6 million.
When the Alikus allegedly fell into default (as allegedby the bank), HFB moved to sell the property under its statutory powers as a mortgagee. However, the borrowers challenged the transaction, accusing the bank of fraud, unlawful conduct and breach of contract.
After examining the evidence, the High Court found that the sale process fell far below the standards required by law.
Court heard that the property had been valued at UGX 135 million. Yet the owners had identified a willing buyer who was prepared to purchase the same property for UGX 235 million.
The difference of UGX 100 million became a central issue in the case, with Justice Odongo describing it as an alarming undervaluation that could not be justified, and that the discrepancy of UGX 100 million is not a mere margin of error but a gross undervaluation that shocks the conscience of her Court, according to her ruling.
The court further found that the transaction violated mandatory provisions of the Mortgage Act and accompanying regulations designed to protect borrowers from unfair disposal of their property.
The ruling effectively vindicates the couple’s long-running complaint that the bank failed to act in good faith and didn’t take reasonable steps to obtain the best possible price before disposing of their property.
The judgment sends a strong warning to financial institutions that mortgage powers are not a licence to sale people’s assets carelessly or at prices that disadvantage property owners.
For the Aliku couple, the judgment marks a significant victory after years of challenging a transaction they maintained was unfair from the outset, while for the HFB, the ruling represents a damaging judicial rebuke, with the court effectively finding that the bank’s handling of the sale failed both the legal and ethical standards expected of a bank of HFB’s level.
