KAMPALA – Housing Finance Bank has suffered a major legal blow after the Commercial Court found that the bank unlawfully sold a family’s mortgaged property through what the judge described as a flawed, negligent and bad-faith foreclosure process that violated Uganda’s mortgage laws.
In a landmark judgment delivered on May 31, 2026, the Commercial Court ruled in favor of Barnabas Samuel Aliku and Christine Mutesi Aliku, finding that although the couple had fallen into loan arrears, Housing Finance Bank illegally exercised its power of sale and failed in its statutory duty to protect the borrowers’ interests.
The court accused the bank of conducting a foreclosure process riddled with procedural irregularities, including defective service of notices, reliance on a questionable valuation, stale advertisements, lack of transparency during the auction process and selling the property at what the court termed a gross undervalue.
At the center of the dispute was a residential property that Housing Finance Bank sold for UGX 135 million after claiming the borrowers were in default on their mortgage repayments. The bank later asserted that even after the sale, the borrowers still owed it UGX 15.5 million.
However, the court found that the bank’s own conduct created the alleged deficit.
The judgment revealed that the Alikus had identified a buyer willing to purchase the property for UGX 235 million, a figure that would have fully cleared the loan and left them with a substantial surplus. Yet Housing Finance Bank proceeded with a sale at UGX 135 million, effectively accepting a price that was UGX 100 million lower than an available offer.
The judge did not mince words.
“This discrepancy of UGX 100 million is not a mere margin of error but a gross undervaluation that shocks the conscience of this Court,” the ruling stated.
Notices Questioned
A major issue in the case was whether Housing Finance Bank properly served statutory notices before selling the property.
The borrowers argued they never received the notices required by law and maintained that the bank continued sending correspondence to an old Ugandan postal address despite being informed that they were living in the United Kingdom.
During cross-examination, the bank’s witness admitted he could not confirm the contents of envelopes allegedly sent through registered mail. The court found this evidence insufficient and ruled that the bank failed to prove proper service of critical foreclosure notices.
The judge observed that ambushing borrowers with news of a completed sale without properly notifying them undermines their legal right to redeem mortgaged property.
Auction Process Under Fire
The court also questioned the transparency of the auction process itself.
Evidence showed that only two bidders participated in the auction. More damaging for Housing Finance Bank was the revelation that it failed to produce documentary records of competing bids when challenged in court.
According to the judgment, the bank’s witness admitted that the auction was essentially an “internal process” and could not produce bid documents to verify how the winning bidder was selected.
The court found such conduct inconsistent with the transparency required in mortgage sales and concluded that the bank had failed to demonstrate that it obtained the best possible price for the property.
Tenant’s Role Raises Suspicion
Adding another controversial twist, the property was ultimately purchased through a company linked to the family’s tenant.
The court noted that the tenant had prior knowledge of the owners’ financial struggles and their efforts to secure a higher-paying buyer. Evidence showed that shortly after receiving notice of impending vacant possession, the tenant moved swiftly to submit an offer for the property.
The judgment stated that the rapid sequence of events created an overwhelming appearance of collusion and suggested the sale resembled a negotiated private transaction disguised as a public auction.
The court observed that the tenant appeared to have benefited from insider knowledge regarding the foreclosure process while the property owners remained unaware that their home had already been sold.
Bank’s Claim for Outstanding Debt Rejected
Perhaps the most devastating blow for Housing Finance Bank was the court’s rejection of its claim that the borrowers still owed more than UGX 15 million after the sale.
The judge held that the alleged debt was entirely a product of the bank’s failure to obtain the property’s true market value. Had the bank exercised reasonable care and sold the property at its demonstrated value, the mortgage would have been fully extinguished and the borrowers would likely have received a significant balance from the proceeds.
“The alleged debt is not a true debt but a negligence-induced deficit,” the court ruled.
In a stinging rebuke, the judge concluded that Housing Finance Bank “cannot recover that which it lost through its own howlers and recklessness.”
The court further found that the borrowers had continued making payments in good faith and were actively seeking ways to redeem the property when the bank proceeded with the sale.
Landmark Ruling
In the final decision, the court declared the sale unlawful, describing it as negligent, conducted at a gross undervalue and in breach of mandatory provisions of the Mortgage Act and accompanying regulations.
The bank’s counterclaim for the alleged outstanding balance was dismissed in its entirety, with the court ruling that the borrowers were no longer indebted to Housing Finance Bank.
Instead, the judgment suggested that the bank’s actions had deprived the homeowners of substantial equity that should have accrued to them had the property been sold at its proper market value.
The ruling is expected to send shockwaves through Uganda’s banking and mortgage sector, serving as a stern warning that financial institutions cannot ignore statutory safeguards when enforcing mortgages and must act transparently, fairly and in good faith when disposing of borrowers’ properties.
Legal observers say the judgment reinforces the principle that while banks have a right to recover loans from defaulting customers, that power is not absolute and must be exercised within the strict confines of the law. Failure to do so can render an entire foreclosure process unlawful and expose lenders to significant legal consequences.
