1.1 Introduction

A mortgage is a legal agreement by which the mortgagee (a bank, building society or money lending company) lends money at an interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of the title becomes void upon the payment of the loan.[1] Default on the side of mortgagor entitles the mortgagee the rights to appoint a receiver, take possession of the property, and lease the property or even sale off the property.[2]

The mortgage Act, 2009 which is the major law governing mortgages in Uganda defines a mortgage to include any charge or lien over repayment of an existing or future or contingent debt or other money’s worth or performance of an obligation and includes a second or subsequent mortgage and a third party mortgage.[3]  A charge as used in the definition is defined as a right created by the borrower on the property to secure the repayment of a debt (principal sum and the interest thereon) in favor of the lender (mortgagee) that advanced funds to the mortgagor.[4] The creation of a charge on property gives the charge holder (mortgagee) the right to sell or transfer the property of the charge creator (mortgagee). Section 3 of the Act[5] gives powers to any person holding land under any form of tenure to mortgage his/her interest in land or part of it to secure the payment of a loan. The power to create a mortgage is exercised upon executing the duties under the law. This article will discuss the duties of both the Mortgagor and Mortgagee in creating a legal mortgage.

1.2 Duties of the Mortgagor

A mortgagor is a person who has mortgaged land or an interest in land.[6]  The person who gives in his/her land as security to secure a loan is the one referred to as the mortgagor while the bank or any financial institution that advances the loan is referred to as the mortgagee. These terms are sometimes confusing and therefore they need to be understood from the beginning.  The duties of the mortgagor include:

1.2.1 Duty to disclose information

The mortgagor has the duty to act honestly and in good faith and disclosing all relevant information relating to the mortgage.[7] The mortgagor has the duty to disclose to the mortgagor whether the property intending to be mortgaged is comprises matrimonial or family home and whether he/she is married for purposes of obtaining Spousal consent which is an important requirement when it comes to mortgaging matrimonial property.

1.2.2 Duty to disclose whether property subject to the mortgage comprises of a matrimonial home or Family land

To execute this duty, what constitutes family land and matrimonial home ought to be understood and by way of definition, Family land means the land that enjoys statutory proportion of a spouse who is not the owner or registered proprietor on which is situate the ordinary residence of the family and from which the family derives substance.[8]Matrimonial home on the other hand is defined as a building or part of a building in which a husband and wife or, as the case may be, wives, and their children ordinarily reside together and this includes where a building and its curtilage are occupied primarily for residential purposes. It also includes where a building is on or occupied in conjunction with agricultural land or pastoral land, any land allocated by one spouse to his or her spouse or in the case of a husband,  the spouse for his or her exclusive use.[9] 

Lawyers have interpreted differently the phrase “a building or part of a building in which a husband and wife….” As used in the definition of a matrimonial home under section 2 of the Act.[10] The lawyers seem to suggest that if a husband and a wife occupy one apartment on a block comprising four apartments then the whole of the block is matrimonial property. Indeed their reasoning is supported by the case of Kinzler Vs. Kinzler[11] where court found that a whole of the hotel not only the living quarters occupied by the couple to be matrimonial home since the whole hotel had only one door and one kitchen. However Judge Owiny-Dollo ( As he then was) in the case of Hellen Kipsoy Wafula V Equity Bank & Anor[12] gives the proper interpretation as he notes;

“There is one point of law I need to clarify here, as is shown above, section 2 of the Act clearly states that marital home is “a building or part of a building in which a husband and wife….the law refers to a building and in the alternative part of the building. it does not say a building or part which a husband and wife…. This is quite instructive. The plain meaning of the phrase ‘part of a building’  in the provision of the law is that it envisages a situation where a family may occupy only part of a building and as such, it is not the whole of the building so occupied that qualifies as matrimonial property.

This therefore means that if a family occupies an apartment on a block of four apartments, the whole Block is not matrimonial property but rather the part that is occupied by the family is what is termed as matrimonial property in the context of section 2 of the Mortgage Act, 2009.[13]

The mortgagor therefore has the duty to disclose to the Mortgagee that the property intended to be mortgaged is a matrimonial home or family land and this explain the reason to understand the definitions of both family land and Matrimonial home as discusses above.

1.2.3 Duty to disclose his or her marital status

An intending mortgagor has the duty to make full disclosure to the intending Mortgagee his or her marital status. This is mandatory under section 5(2) (b) of the Mortgage Act, 2009.  This duty is to ensure that spousal consent is obtains in case the land to be mortgaged is a matrimonial home or family land. Who then is the Spouse of a mortgagor?  A spouse is a husband or wife recognized by law. This means that for anyone to qualify as a spouse in Uganda he/she must be married in accordance with the marriage laws of Uganda. The forms of marriage recognizes in Uganda include Civil and Church marriage celebrated under the Marriage Act,[14] Customary Marriage under the Customary Marriage (Registration) Act,[15] Mohammedan Marriage under the Marriage and Divorce of the Mohammedans Act[16] and Hindu Marriage under the Hindu marriage and Divorce Act.[17] It should therefore be noted that if you are not married in accordance with the above laws you do not qualify as a spouse for purpose of giving spousal consent.

1.2.4 Legal effect of none disclosure

The Mortgagor who fails or neglects or refuses to disclose relevant information to a mortgage and which is in his or her possession commits an offence and is liable on conviction to a fine not less than 960,000 but not exceeding 2,400,000 Ugx or Imprisonment of 24 months but not exceeding 64months.[18] In Natty Ntare V Equity Bank & Anor[19] A mortgagor who lied about her marital status and that the property to be mortgaged is not matrimonial home to the mortgagee was found liable under section 4(2) of the Mortgage Act, 2009.

1.2.5 Duty to inform the Mortgagee on the intention to commence a suit

A mortgagor who intends to commence a suit or action in court in respect of the mortgaged land has the duty to notify the mortgagee. The mortgagee is informed through a notice in writing of the intentions and the nature of action which is to be commenced by the mortgagor.[20]

1.3 DUTIES OF A MORTGAGEE

A mortgagee is a person in whose favor a mortgage is created or subsists and includes any person deriving title under the original mortgage.[21] A mortgagee may mean an institution that advanced a loan to the mortgagor for example it can be a bank or a company licensed to carry out a money lending business. The Mortgagee has duties to perform before advancing a loan to an individual and these include;

1.3.1 Duty to conduct Due diligence 

Due to fraud associated with land transactions, the mortgagee is under duty to carryout due diligence before advancing the loan to ensure that it does not involve legal risks.  The mortgagee has the duty to conduct a search at the land registry to help to confirm the authenticity of the information on the title. The search at the registry helps to ascertain the right property ownership, identifying conditions on the land, pending rates or finding out if there is any other encumbrance on the title. The Mortgagee is also duty bound to visit the land intending to be mortgaged to see if there is any body in occupation of the land other than the mortgagor or if there are people with adverse interests on the land. This visit offers an opportunity to gather some information that the Registrar might not provide especially in regards to the history of the land.

1.3.2 The duty to ascertain whether the intended mortgager is married or not

This duty is intended for purposes of ascertaining Spousal Consent. Spousal consent is an important aspect as it provides for the security of occupancy of the spouse. As already discussed a spouse is on that is married under the marriage laws of Uganda. Where the Mortgagor discloses that he or she is married, the mortgagor is required to state the name and address of his/her spouse in a statutory declaration.[22] Similarly where the mortgagor states that he/she is married, the spouse of the person is required to make a statutory declaration to that effect. The mortgagor is then required to attach a copy of the marriage certificate or any other evidence of the marriage in the declaration.[23] In a similar way, when the mortgagor informs the mortgagee that he or she is not married, this information is given in a statutory declaration. The duty to find out whether the intended mortgagor is married extends to visiting the mortgagor’s home and surrounding areas to inquire in the marital status of the mortgagor. It also involves inquiries from local leader (LC leaders) on the marital status in the village where the mortgagor resides.[24]

1.3.3 The Duty to Ascertain Whether Or Not the Property Intended to Be Mortgaged Is Matrimonial Home or Family Land

The purpose of ascertaining whether property is matrimonial home is to enable the mortgagee obtain spousal consent which is very important issue when it comes to mortgages. Many banks have lost cases in courts of law for failure to obtain spousal consent which is a mandatory requirement when dealing with matrimonial property. This is because many intending mortgagors lie about their marital status while mortgaging matrimonial property and the bank do not carry out their due diligence to find out whether the properties subject to the mortgage is matrimonial property and therefore go ahead advance loans to such mortgagors. In the end the Mortgage is nullified by court and the banks suffer loss.[25]   It is therefore paramount that banks effectively execute their duties in ascertaining that property is matrimonial property and obtain the necessary spousal consent.

1.3.4 Duty to provide independent Advice

In instances where matrimonial home is subject to an application for mortgage, the mortgagee has the duty to provide independent advice to the mortgagor’s spouse(s) for purposes of obtaining spousal consent. This duty is deemed to be executed when the mortgagee explains the terms and conditions of the mortgage in the presence of an independent person and when the Mortgagee advises the mortgagor that he or she should ensure that his/her spouse received independent advice on the terms and conditions of the mortgage which is being applied for and the spouse signed and witnessed documents to the effect that they received independent advice.[26] Not everyone is qualified to give independent advice, independent advice can only be given by an officer of the government, a justice of the peace, an advocate, a notary public, a bank manager, a minister of any religion authorized to celebrate marriages and a medical practitioner.[27]

1.3.5 Duty to disclose information

The mortgagee like the mortgagor has the duty to act honestly and in good faith and to disclose all the relevant information relating to the mortgage. The Mortgagee who fails or neglects or refuses to disclose relevant information to a mortgage and which is in his or her possession commits an offence and is liable on conviction to a fine not less than 960,000 but not exceeding 2,400,000 Ugx or Imprisonment of 24 months but not exceeding 64months.[28]

1.3.6 Duty to notify the mortgagor in case of default

A mortgagee is under duty to server a notice of default where a mortgagor fails to meet any obligations to pay the principal sum on demand or interest after a period of 30 days from the date when the obligation to pay becomes due.[29]The notice of default stipulates the nature and extent of default made by the mortgagor, the amount that must be paid to rectify the default, and the time in which the default must be made[30] and this time must not be less than 21 days.[31]The notice must be in writing and requiring the mortgagor to rectify the default in 45 working days.[32]

1.4 Conclusion

In conclusion to minimize the risk of losing money to dishonest mortgagors who fail to disclose vital information relating to the mortgage for example those who tell lies about their marital status and whether property to be mortgaged is matrimonial property, the mortgagees have to take all reasonable steps to investigate all information relating to the mortgagors including finding out if they are married and if the property to be mortgaged forms part of matrimonial home or family land. This means mortgagees have to move an extra mile of visiting the local areas of the mortgagor to ascertain whether they are married and whether the property intending to be mortgaged is matrimonial home to avoid financial risk.   

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[1] Oxford Dictionary

[2] Rights of the Mortgagee under section 20 of the Mortgage Act, 2009

[3] Section 2 of the Mortgage Act, 2009

[4] www.keydifferences.com/difference-between-mortgage-and-charge.html

[5] The Mortgage Act, 2009

[6]Section 2 of the Mortgage Act, 2009

[7] Section 4 of the Mortgage Act, 2009

[8]Section 38A (4) of the Land Act, Cap 227 as Amended

[9] Section 2 of the Mortgage Act, 2009

[10] Mortgage Act, 2009

[11] [1985] Fam Law 26 CA

[12] HCCS No. 153 of 2013

[13] Hellen Kipsoy Wafula V Equity Bank & Anor (HCCS No. 153 of 2013)

[14] Cap 251

[15] Cap 248

[16] Cap 252

[17] Cap250

[18] Section 4(2) of the Mortgage Act, 2009

[19] HCMA No. 16 of 2015

[20]Section 13 of the Mortgage Act, 2009

[21] Section 2 of the Mortgage Act, 2009

[22]Regulation 3 of the Mortgage Regulations, 2012

[23]Regulation 3 of the Mortgage Regulations, 2012

[24]Julliet Dushabe Twongyeire Vs. Orient Bank and 2 others ( HCCSNo. 131 of 4014)

[25] ibid

[26] Section 6(1) of the mortgage Act, 2009

[27] Section 6(2) of the Mortgage Act, 2009

[28] Section 4(2) of the Mortgage Act, 2009

[29] Section 19(2) of the Mortgage Act, 2009

[30] Section 19(3) of the Mortgage Act, 2009

[31] Section 19(2) (a) and (b) of the Mortgage Act, 2009

[32] Section 19(1) of the Mortgage Act, 2009