Some 100 homeowners at Greatwall Gardens in Athi River risk losing their units after the developer failed to convince the Court of Appeal to temporarily stop KCB Bank from auctioning the houses to recover a loan of Sh1.9 billion.
Pleas by the developer - Erdermann Property Ltd- to the court that home owners were innocent purchasers and that the units were sold by mistake, were dismissed by a bench of three judges.
Justices Gatembu Kairu, Jessie Lesiit and Grace Ngenye Macharia ruled that there was no suggestion that the lender would not be able to compensate the property developer.
"Ultimately, we find that the application is unmeritorious. We hereby dismiss it with costs to the respondent (KCB)," the judges ruled on Friday last week.
The court was informed that the property in Athi River was charged to KCB but that they sold it to innocent third parties who already occupy the houses.
In an affidavit, the firm's managing director Zeyun Yang said it started construction of the Greatwall Gardens 1 Project, consisting of 2,190 units, in October 2015. It then borrowed Sh1.3 billion on August 28, 2017, for the project.
The property was charged as security with another known as River Estate Project in Ngara, which is partially developed and estimated to be worth Sh5 billion.
The loan repayment, the court heard, was rescheduled following the outbreak of the Covid-19 in early 2020.
The bank later amalgamated all the existing loans, which culminated in the creation of a charge for over 100 unsold units for Sh425.7 million.
In 2019, Erdermann said it advertised for the sale of some units on the property where the 100 units are charged but allegedly later realised that its sales department erroneously sold the charged units alongside 500 others it had placed on offer.
It contended that it informed the bank through a letter on June 14, 2021.
The property developer then offered an alternative security to KCB, being the retention of the suit property valued at Sh3.5 billion or in the alternative, the substitution of the 100 apartment units with another one in Shanzu, Mombasa whose market value was more than Sh500 million.
Unable to meet its loan obligations, KCB then issued a demand on December 15, 2021, recalling a balance of Sh1.9 billion and putting up for sale the 100 housing units.
KCB opposed the application arguing that the sale was deliberate and intended to defeat its interest.
The application was dismissed by High Court judge Dora Chepkwony in December forcing the developer to move to the Court of Appeal.
The developer argued that the judge erred in failing to find that the purchasers of the 100 units and another 281 units at Ngara sold-off plan were innocent and that the intended sale was illegal and unprocedural.
The home owners have since filed another petition before the High Court in Machakos and the case is set for hearing on May 23.
