Court Orders Housing Finance Bank to Pay Shs 28 Million in Controversial Property Sale

The Commercial Division of the High Court has faulted Housing Finance Bank Ltd and ordered it to pay Shs 28 million in damages following the controversial sale of a borrower’s home at a price far below its market value.

In 2009, Barnabas Samuel Aliku and his wife, Christine Mutesi Aliku, purchased an incomplete property in Najeera from the registered proprietor, Tumwine Eriot, for Shs 115 million.

To finance the purchase and complete construction, the couple executed a legal mortgage with Housing Finance Bank Ltd in September 2009 for a principal sum of Shs 119 million, using their residential property as collateral.

The mortgage terms stipulated a repayment period of 15 to 20 years at an initial interest rate of 16% per annum, requiring monthly installments of approximately Shs 1.6 million.

However, after falling into arrears, the bank proceeded to sell the property in a move the court later found to be flawed and negligent.

According to court findings, the property was sold for Shs 135 million, despite evidence indicating it could fetch up to Shs 235 million on the open market. The couple had reportedly identified a willing buyer at the higher price before the bank finalized the sale.

In a shocking twist, the property was purchased by the couple’s own tenant, who was found to have had prior knowledge of the owners’ financial struggles and their efforts to sell the house privately.

Court proceedings revealed that the sale process lacked transparency and may have been conducted without proper notice to the property owners.

Evidence showed that the plaintiffs were still making efforts to service their loan and were unaware that the property had already been sold. Critical notices were either not effectively communicated or deliberately withheld, denying the couple a fair opportunity to redeem their property or complete a better sale.

A valuation expert testified that the property’s true value was significantly higher than the price at which it was sold.

The court ruled that the bank failed in its duty to obtain the best possible price, thereby causing financial loss to the borrowers.

The judge further noted that the alleged outstanding loan balance claimed by the bank arose from its own failure to act prudently during the sale process.

In its ruling, the court dismissed the bank’s claim that the couple still owed money after the sale.

“The alleged debt is not a true debt but a result of a negligent and unlawful sale,” Justice Susan Odongo ruled.

The judge cautioned that financial institutions must exercise their powers within the law and act in good faith when dealing with borrowers’ property.

The court also examined the role of the buyer, who was the sitting tenant at the time. It found that the circumstances surrounding the purchase pointed to possible bad faith, including the use of insider knowledge and the timing of the transaction.

“A purchaser cannot claim innocence if they had knowledge of irregularities or participated in actions that undermine the rights of the property owner,” she ruled.

This brings the total award to Shs 28 million, payable by Housing Finance Bank Ltd. The damages included; Shs 3 million for travel expenses incurred during the case; Shs 20 million for mental anguish, loss of use of the property, and breach of statutory duty and Shs 5 million as punitive damages.

The case highlights growing concerns about how banks handle mortgage recoveries and underscores the need for strict adherence to legal procedures.

Legal experts say the judgment sends a strong message that lenders must act fairly and cannot benefit from their own negligence or misconduct.

For Barnabas and Christine, while the property may be gone, the court’s decision clears them of any outstanding debt, restoring a measure of justice after a deeply contested loss.

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