New mortgage laws tie down spouses

All mortgage charges will ensure that spouses assent to the borrowing. Photo/Alexander Porter C
All mortgage charges will ensure that spouses assent to the borrowing. Photo/Alexander Porter C 

A marriage certificate is now a critical document for anyone applying for a mortgage loan thanks to new land laws that require the involvement of spouses in property acquisition.

So dire are the consequence of missing this documentation that a mortgage charge is deemed to be incomplete and would be actually declared null and void by a court of law in the event that a husband or wife feels overlooked in the initial negotiation with the lender.

And for the prospective home buyers still in the singles’ club, a sworn declaration of their status would be required as new legislation - intended to protect the interests of the borrowers’ spouse, takes effect.

The demand that the spouse is involved in the acquisition of property financed by a lender, as envisaged in the Lands Act, is aimed at ensuring that the immediate family is aware of any loans sought to either acquire matrimonial property or where the property has been given as security for a loan.

For the longest time, lenders did not require borrowers to disclose their marital status, a provision that opened an avenue for either spouse to access to loans to acquire property independently.

In the dark

A much bigger concern for borrowers who had kept their spouses in the dark over such loans, is that the new laws will apply to existing and new mortgages, meaning less obscurity about financial dealings in the family setting.

So far, mortgage lenders have said that thousands of home loan borrowers will be required to re-draft their loan agreements to comply with the regulations which make a spouse’s consent critical in accessing credit.

“All mortgage charges will be re-drafted to ensure that spouses assent to the borrowing,” said Frank Ireri, the managing director at mortgage lender Housing Finance.

“Borrowers will have to file their marital status while applying for home loans,” he added, citing that the new laws may render mortgage charges where such paperwork is not filed null and void.

Though information of the social profiles of home buyers remains scanty, developers have noted a growing trend where women are increasingly participating in property acquisition; a trend linked to a growing number of female professionals across different careers and in business.

In the event of default while one of the interested parties, including a spouse, did not consent to mortgage arrangement or where there’s a charge on matrimonial property, the lenders would be heavily exposed to losses of the unpaid amounts.

Mr Ireri explained that the laws were aimed at protecting the borrowers, where lenders have had a free hand in dealing with the mortgaged property with little regard to the interests of the borrowers and the immediate dependants.

“Financiers and banks have to fully explain the implications and costs of the borrowing,” he said in My 15 minute chat with a bank CEO- an interactive session between bank clients and banking executives ran by the Kenya Bankers Association.

It is the reality of losses presented by the new regulation that will prompt the lender to draw up new mortgage charges on all home loans, which the Central Bank of Kenya estimates at about 16,200 as at December last year.

Before this, all a borrower needed to qualify for a home loan was to show the ability and commitment to service the mortgage while the lender retained the title deed until the loan was fully recovered.

The raft of changes introduced by the new laws, however, place a requirement that is over and above the ability to service the home loan, where the spouse has to consent to the borrowing, while both partners need to understand what defaulting on the home loan would mean.

That means that the loan application forms will now have every detail in full print, including what steps the bank will take in the event that the borrower is not able to settle the loan in full, eliminating the ‘dangerous clauses’ contained in the fine details that most borrowers do not need.

HF reckons that the details in fine print are often overlooked even though their ramifications are obviously disastrous to the borrower. 

Other regulations introduced in the new laws make it a requirement for banks to find the highest possible value when selling a defaulter’s property and upon receiving the sales proceeds, they would deduct whatever the borrower owes and remit the rest to the property owner.

The new regulations are currently awaiting the appointment of Commissioners to the Lands Commission by Parliament, a move expected to be executed in the current session.

Previously, there has been no legal requirement on lenders to recover any amounts from the sale of an asset above the outstanding loan amounts.