Taking security in Uganda: New developments in Uganda’s Mortgage Regulations

Rachel Musoke, MMAKS Advocates

Introduction

The Mortgage Regulations, 2012 (the “Regulations”) have recently come into force in Uganda and introduce some changes to the creation, registration and enforcement of mortgages. These are expected to have a significant impact on the banking industry.

Mortgages over Matrimonial Property

Amongst other things, the Regulations require a mortgagee to take steps to inquire into the marital status of a mortgagor. The mortgagor must state by way of statutory declaration whether he or she is married or not. Where the mortgagor is married, his or her spouse is also required to make a statutory declaration to that effect.

The mortgagor and spouse are additionally required to attach a certified copy of their marriage certificate or other evidence of marriage to the declaration. Where the property being mortgaged is a matrimonial home, the consent of the mortgagor’s spouse must be obtained in order for the mortgage to be valid.

Mortgagee’s Right to Tack

The English law concept of right to tack has been introduced in legislation. This right relates to the ranking of various mortgagees and a mortgagee who has a right to tack is able to make further advances to the mortgagor and rank prior to a subsequent mortgagee on the same property.

The Regulations require a mortgage deed to specifically be labelled “Mortgage with right to tack”. This is unlikely to have much effect in practice as the title deed would be held by the first mortgagee who would therefore have to consent to the creation of the subsequent mortgagee’s security, on specific terms, including the right to advance further monies and secure them using the same property prior to the subsequent mortgagee.

Provisions relating to Realisation of a Mortgage

The Regulations require that the address to be used by the mortgagee when serving notice to the mortgagor is the address that the mortgagor gave at the time of entering into the mortgage. Where no address was given, the mortgagee is to publish notice to the mortgagor in a newspaper of wide circulation in the area where the property is situated.

A mortgagee is required, before selling mortgaged property upon default, to value the  property to ascertain the current market value and the forced sale value of the property. The valuation should not be made more than six (6) months before the date of sale and should contain the current pictures of the property, including the front view of the property, the side view of the property and detailed description of the property.

The Regulations also have a significant effect on the right to exercise the statutory power of sale. The Regulations provide that on the application of the mortgagor, spouse, agent of the mortgagor or any other interested person, the Court may, for reasonable cause, adjourn a sale by public auction to a specified date and time upon payment of a security deposit of 30% of the forced sale value of the mortgaged property or outstanding amount, whichever is higher. The Court will however decide whether or not a spouse who seeks to stop the sale should make the 30% payment. This discretion is very troubling as there is no guidance on how this wide power is to be exercised.

This may create avenues for corruption. Where the adjournment is for more than 14 days a fresh public notice is to be given unless the mortgagor consents to waive this requirement. A sale by private treaty may only be conducted with the written consent of the mortgagor, which consent cannot be retrospective. In practice, this consent is given by the mortgagor in the deed at the onset.

Forms of Documents

The Regulations provide for various forms such as the spousal consent form, release of mortgage form, transfer of mortgage form, notice of default form and notice of appointment of receiver.

Conclusion

The creation of mortgages is an essential part of the banking industry in Uganda and plays a vital role in the financial sector as it is the creation of securities, such as mortgages which forms the backdrop of financing transactions. The changes introduced by the Regulations, especially in relation to creation of mortgages over matrimonial property and the court’s powers to adjourn or stop the exercise of the statutory power of sale by financiers have a resounding effect on the industry. The new Regulations create additional obligations of diligence on the part of financiers to ensure that that there are no factors which could invalidate their security or act as a fetter to enforcement and banks and financial institutions should take note of the new developments.

This information was provided by MMAKS Advocates.  The contents of this article are intended to be of general use only and should not be relied upon without seeking specific advice on any matter.  For more information on new developments related to Uganda’s mortgage regulations please contact the author listed below or info@mmaks.co.ug

Rachel Musoke                                                                    

musoke@mmaks.co.ug

+256 414 259 920

MMAKS Advocates is one of the largest firms in Uganda with a well developed client base of high profile local and international entities. Leading legal directories such as Chambers Global, IFLR 1000 and PLC Which Lawyer?  all regard MMAKS Advocates as a Tier 1 law firm within Uganda.