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Banks can no longer sell your property to recover loans

Banks can no longer sell your property to recover loans

Due
to the economic impacts of Covid-19 during the last two years, many homeowners
have defaulted on their mortgage payments.

However,
some banks have resorted to settling such defaults outside of court because
even auctions do not return much because consumers do not have money to buy at
the fall of the hammer
.

Furthermore,
the law currently prohibits lenders from recovering debts by selling private
property at a low price.

The
Land Act of 2012 mandates that banks sell a defaulter’s property at the maximum
market value possible, or at least 75% of the current market value.

Prior
to the law’s passage, there were reports of financial lenders auctioning
property for below 29% of its market value.

Because
it was quick, lenders liked to sell property at public auctions. To date, many
would-be homeowners search the classified ads of auctioneers in the newspapers
in the hopes of finding a good offer.

At
public auctions, land or houses might sell for as little as 40% of their
current market worth.

Nyeri’s famous White Rhino Hotel has been put up for auction.

There
were no legal restrictions in the past that a lender recovers a specified
amount from an auction of a defaulter’s property.

A
new appraisal must be performed before
selling a charged property to determine the current market worth;

otherwise, the lender will have broken the law. The goal of this law is to
ensure that the bank sells the property for the maximum market value in order
to pay off the remaining debt, and that the defaulter keeps the difference.

Banks
must also engage tenants, spouses, and other guarantors before selling property
used as security for a loan, according to the law. However, even before the law
was passed, some “humane” banks chose out-of-court settlements over
selling defaulters’ property.

Commercial
banks have struggled to auction properties seized from loan defaulters since
potential buyers are hesitant to pay more than the law’s minimum bid price.

The
reality is that a large number of potential buyers are willing to pay the
mandatory buying price of 75%, forcing auctioneers to advertise in mainstream
newspapers as a hobby.

Due
to the slowing economy, a growing number of distressed borrowers are having
their assets repossessed by new aggressive lenders.

Ironically,
auctioneers are not selling as quickly as they are repossessing properties,
resulting in a surplus of repossessed land and residences as cash-strapped
bidders look for bargains.

The
author is a High Court advocate.

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