New hometruths for married loan seekers
Posted Monday, June 11 2012 at 15:57
The institution of marriage may be under attack, but it has never been as important to financial institutions as it has now become.
On May 2, President Kibaki gave life to new land laws that require banks to ensure that borrowers get the consent of their spouses before using family homes as collateral for loans.
His assent to the law repealed seven statutes governing land and consolidated them into two Acts — the Land Registration Act 2012 and the Land Act 2012.
To protect families when a spouse uses their home to secure borrowing, the new laws give financial institutions a bigger responsibility of seeking the approval of the official spouse of the borrower.
“Banks will be forced to go beyond the call of duty in establishing if the land owner is indeed telling the truth about his or her marital status,” said Mr Kenneth Odhiambo, a lawyer at Omwancha Mukiri & Onyango Advocates, a law firm specialising in commercial and land disputes.
“This may prove a daunting task, bearing in mind the fact that the seller or borrower may not be willing to disclose such information. There are also no existing structures or offices where such rights can be verified independently.”
The law will also apply to land to be classified as community, where approval by the community will be required before one can secure a loan using such land.
A number of financial institutions have already tasked their legal teams to study the new laws and develop new measures to circumvent the looming legal land mine.
The law provides that borrowers must file a written consent from their spouses before walking into banking halls to apply for loans to be secured by family homes.
“Bank documentation will have to include an affidavit or declaration to provide for spousal consents in respect of all types of marriages, be they Christian, customary, Mohammedan or Hindu and community consent wherever it is applicable,” Housing Finance’s company secretary Joseph K. Kania told Smart Company.
As a mortgage lender, Housing Finance is among financial institutions that will be affected by the new land laws, given that its business revolves around land titles.
According to Mr Kania, the document will also have a declaration from the borrower indicating whether or not the property to be charged constitutes matrimonial, communal, or trust property.
But herein lies the challenge for banks, given that it is not just difficult to prove that indeed an individual is married or not on the face of it.
The existence of a mix of marriages, especially the customary ones, complicates their due diligence procedures as some of the unions are not listed with the Attorney General.
“Banks are exposed, given that they are both the recipient of wrong information and also the ones that will end up with unsecured loans if it is eventually found that the property was used without spousal or community consent,” said lawyer Vincent Mwangi.
“Proving that one is married under customary law is usually evidence-based. For instance, one is required to visit the community, find out if they paid bride price, held a ceremony, and ask around if they have lived together and, of course, the existence of children. It will be a tough act for banks to follow,” Mr Mwangi added.
The new law also seems to recognise marriage by cohabitation, a situation that will complicate the situation.
With no register for marriage under customary law and those by cohabitation, the alternative will be to place media advertisements, asking anyone with an interest in such land to come forward and declare it before lending, an expensive and almost impossible task.