The requirement that a borrower seeking to postpone the sale of his mortgaged property must deposit 30% of the debt has long been the bane of many distressed borrowers. A recent Supreme Court ruling has raised market hopes that the deposit requirement could be waived. However, on a closer reading of the case, the ruling was a legal oops!
Background
In Sentongo v I & M Bank, the borrower sued his bank, alleging several wrongs and challenging the sale of his valuable mortgaged property. The bank, in turn, sued the borrower successfully to recover the loan. The borrower appealed. Pending the hearing of the appeal, the borrower sought a stay of execution of the judgment against him and a temporary injunction to restrain the bank from interfering with the mortgaged property.
At this point, the bank held both a judgment for the debt and still had a mortgage over the borrower's property.
The bank sought the court to order the borrower to deposit 30% under Regulation 13 of the Mortgage Regulations. This regulation requires that a borrower seeking to postpone a sale of mortgaged property must deposit 30% of the forced sale value of the property or the outstanding amount, whichever is lower. As the jurisprudence from our courts shows, this deposit requirement has been the rock on which many borrower ships have sunk.
The Supreme Court, however, ruled that Regulation 13 was not mandatory. It waived the deposit requirement and granted the injunction against the bank. The court did not mention the stay of execution. Let's unpack why this hyped ruling is a little odd!
Stay of Execution: Pausing money decrees the right way
A money judgment, like the one held by the Bank, allows recovery through several means. For instance, by attachment and sale of property, bank accounts, or monies due to the debtor, or even arrest and detention of the debtor.
A stay of execution is like hitting snooze on a court's decree, while you appeal. The Civil Procedure Act and Civil Procedure Rules call the shots, not mortgage laws. To win a stay, the appeal needs a real chance of winning, not just a stalling trick. The debtor must prove that the decree would cause big trouble, like losing a home or valuable property for good. The court weighs who would be hurt more, the debtor or the creditor, and might ask the debtor to deposit cash to pay the creditor in case the appeal is lost.
Regulation 13: Postponing a sale
On the other hand, Regulation 13(1) of the Mortgage Regulations specifically addresses the conditions for adjourning a sale by public auction of mortgaged property. It is a rule tailored only for the direct process of selling a specific mortgage security, under the powers in the mortgage deed. It requires that the borrower seeking to stay the sale of mortgaged property deposit 30% of the outstanding sums or the forced sale value, whichever is lower. It is this rule that the Court considered in granting its injunction against the Bank.
Supreme Court's misstep: Wrong rule, wrong play
As if with a wave of a magic wand, the Supreme Court wiped away a long line of authorities that held Regulation 13(1) mandatory. Key among these is the seminal decision of Hon. Justice Mubiru in Housing Finance Bank v Silk Events. In his characteristic inimitable style, Justice Mubiru laid out the whole A-Z on Regulation 13, describing the deposit requirement of "pay now, argue later" as arising from the need to limit the ability of recalcitrant debtors to use objection and appeal procedures strategically to defer the payment of borrowed funds. It just goes against the grain to just wipe out all this judicial ink without a similar counter-treatise on why the deposit request is not mandatory.
The Supreme Court faulted the bank for not having done a valuation of the mortgaged property in preparation for the sale, and therefore, the deposit requirement in Regulation 13 could not be applied. This very point was thoroughly addressed by Hon. Justice Mubiru in Silk Events, finding that the valuation report to consider under Regulation 13 was the valuation at the time of taking the mortgage. Justice Mubiru called it disingenuous to grant a stay on such grounds. That aside, if nothing else, the 30% could be taken against the amount owed.
Also, Regulation 13 also requires that the postponement of the sale be to a specified date and time. Instead, the Supreme Court granted an injunction for 4 months or until the disposal of the appeal, whichever comes first.
The anguish here is the need for legal certainty. The citizen, banks or other lenders in this case, need first to know what the law provides, then to know how the courts have applied the law. The citizen is then entitled to make commercial and private decisions on that information and on the expectation that, upon similar facts, the courts will apply the same position as previously. For a court to pay scant regard to long-standing jurisprudence is unsettling.
But that's not all, by proceeding under Regulation 13, the Court restricted its orders to only the mortgaged property. The orders made upon a consideration of Regulation 13 are incapable of stopping the execution of the Bank's decree by any other means, for instance, attachment of other properties, of bank accounts or by arrest and detention of the debtor.
If the Bank chooses to attach the mortgaged property under a money judgment, instead of realising the property under the Mortgage Act, the Mortgage Regulations do not apply.
The Court did not make any order for a stay of execution against the Bank. It is therefore open to the Bank to seek recovery of its debt against other properties of the debtor or against his very person.
The road ahead
The Supreme Court's ruling made headlines for helping borrowers, but it is a misapplied rule in this context. More concerning is the failure to recognise the jurisprudence on Rule 13 and the lack of substantive reasoning for its departure.
Even though it is from the highest court, Sentongo's decision should not be regarded as establishing any new principle of law. The lower courts should distinguish it for its unexplained departure and decline to apply it.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
