Uganda's High Court has ruled that banks cannot automatically seize and sell mortgaged property when borrowers fall behind on payments, establishing a landmark framework for how lenders must handle foreclosures. In the case of Barnabas Samuel Aliku and Another v. Housing Finance Bank Ltd and Others (Civil Suit No. 0021 of 2019), Justice Susan Odongo distinguished between a borrower simply missing payments and a legal default that actually allows a bank to proceed with seizure. The judgment clarifies that while missed repayments create a factual default, a bank cannot move to foreclosure unless it first issues a formal notice of default followed by a notice to sell. A related ruling in Alps Investments v. Bank of India (Originating Summons No. 0001 of 2024) by Justice Patricia Mutesi stated that issuing only a notice of default is insufficient. The notice to sell is what crystallises the borrower's imminent loss of property, and proceeding to a sale without it amounts to circumventing the borrower's legal right to redeem the mortgage.
Banks also bear a statutory duty of care to obtain the best possible price when selling mortgaged property. In the Aliku case, the bank valued a property at UGX 135 million but dismissed a private buyer offering UGX 235,000,000 and rushed the forced sale at the lower price. Justice Henry Kawesa's earlier judgment in Bbaale S. Walukira v. Cairo International Bank (Civil Suit No. 149 of 2013) held that failing to revalue property before sale and relying on outdated reports, given that real estate naturally appreciates, evidences bad faith and an intent to sell at a giveaway price.
The Aliku ruling established four mandatory guidelines for any mortgagee sale, as formulated by Justice Elizabeth Jane Alividza in Afro Motors v. Barclays Bank (Civil Suit No. 189 of 2010). Banks must not act in secret or bad faith, conduct an accurate valuation within six months to establish both market and forced-sale values, properly advertise the property after giving notice, and ensure competitive bidding or involve the mortgagor if selling by private treaty. The judgment found that the bank in Aliku published a newspaper advertisement in July 2012 but conducted the sale in February 2013 without fresh publication. An advertisement published months earlier becomes stale and fails to generate active public interest, breaching the lender's duty to obtain the best price.
Banks must also maintain detailed records proving they conducted a proper public auction. The court found that the bank in Aliku could not produce any documentary evidence of competing bids and claimed the sale was an internal process, which the judgment rejected as invalid. Additionally, a successful auction bidder must deposit 30 percent of the purchase price within one working day, citing the precedent in Mashunga Enterprise v. Opportunity Bank. In the Aliku case, the bank accepted a bid from a purchaser whose financing loan from Diamond Trust Bank was executed weeks after the auction date, violating this rule and rendering the sale void. The court concluded that where a mortgagee's sale is characterised by negligence, secrecy and undervaluation, the borrower's liability for any shortfall is entirely negated.
For borrowers with mortgages in Uganda, this judgment means banks must follow strict legal procedures before foreclosing and cannot sell property at artificially low prices without facing court challenges and potential reversal of the sale. For lenders, it establishes that cutting corners on valuation, advertising and auction procedures will result in invalid sales and loss of legal standing to pursue borrowers for any remaining debt.