In 2009, Barnabas Samuel Aliku and his wife, Christine Mutesi Aliku, purchased an incomplete house in Najeera for Shs 115 million.
To finance the purchase and complete construction works, they obtained a mortgage loan of Shs 119 million from Housing Finance Bank.
The loan was repayable over 20 years at an initial interest rate of 16%, with monthly instalments of about Shs1.65 million.
However, the couple’s financial troubles began around 2010 after the economic downturn in Europe and the loss of employment by Christine Mutesi Aliku in the United Kingdom.
After several reminders, Housing Finance Bank moved in to sell the property and recover its money.
At that point, the house was being rented out to Tony Lugayizi Mulinde.
The Alikus allege that Mulinde secretly took advantage of information about the impending sale of the house and ultimately acquired the property through his company, Speke Uganda Holidays Ltd.
The Alikus argued that even though they had experienced repayment difficulties, the bank failed to follow the law before selling their property.
They took Housing Bank and Mulinde to court, arguing that the bank never properly served the statutory notices required under the Mortgage Act.
They also argued that the bank ignored efforts they were making to find a buyer willing to purchase the property at a much higher price.
Housing Finance Bank, represented by Doreen Nangwala of Nangwala, Rezida & Co. Advocates, denied wrongdoing.
The bank argued that notices had been sent to the postal address provided by the Alikus and that the sale was conducted through a lawful public auction.
It maintained that the borrowers remained indebted to the bank by Shs 15.57 million after the auction proceeds were applied to the loan account.
Tony Mulinde said he was an innocent party because he merely sought to protect his family from eviction after learning that the property was being auctioned.
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Justice Susan Odongo, after examining all the submissions, found serious flaws in the way the sale was conducted.
One of the central complaints was that the property was sold for only Shs 135 million despite evidence that the owners had identified a buyer willing to pay Shs 235 million.
She described the difference as shocking.
“This discrepancy of Shs 100 million is not a mere margin of error but a gross undervaluation that shocks the conscience of this court,” she ruled.
She also found that Housing Finance could not adequately prove that proper notices had been served.
During cross-examination, the bank’s witness, Fred Ssenyonga, conceded he could not confirm the contents of envelopes allegedly sent to the borrowers.
Justice Odongo was equally critical of the auction process because it showed there were only two bidders and the bank failed to produce documentation showing how the bidding process was conducted.
She concluded that the sale was “not open as the law requires, but was conducted privately and secretly that disadvantaged the Alikus.”
She said Mulinde and Speke Uganda Holidays Ltd were not innocent purchasers.
“The sale was not an arms-length transaction but a collusive arrangement designed to strip the Alikus of their equity. The stench of this collusion is too strong to be washed away by the waters of a purported public auction,” she said, using strong language.
Having found the sale unlawful, she rejected Housing Finance Bank’s counterclaim for Shs 15.57 million.
Justice Odongo said the alleged debt arose from the bank’s own negligence and failure to obtain the best possible price for the property.
In the final orders, the court declared the sale unlawful, cancelled Speke Uganda Holidays Ltd’s title and directed the Registrar of Titles to restore the Alikus as the registered owners.
The company was ordered to hand over vacant possession within 60 days.
The court awarded the Alikus special damages of Shs 3 million, general damages of Shs20 million and punitive damages of Sh s5 million against Housing Finance Bank, together with interest.
So, the total monetary award to the Alikus was Shs28 million, excluding interest and costs.
