{"id":73438,"date":"2019-11-13T12:52:36","date_gmt":"2019-11-13T12:52:36","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=73438"},"modified":"2019-11-13T12:52:41","modified_gmt":"2019-11-13T12:52:41","slug":"overhauling-pakistans-foreclosure-laws","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/overhauling-pakistans-foreclosure-laws.html","title":{"rendered":"Overhauling Foreclosure Laws in Pakistan: The July 2019 Presidential Ordinance"},"content":{"rendered":"\n

The unavailability of mortgage finance in\nPakistan continues to pose a challenge to the government’s efforts to provide affordable housing for\nthe vast majority of the country’s low-income groups. According to a recent\nState Bank report, Pakistan has an annual housing demand of nearly 700,000\nhomes \u2013 only one-half of which is met by the market. The remainder appends\nitself, in its unfulfilled capacity, to the unmet demand; creating a housing\nshortage of approximately 10 million residential units.<\/p>\n\n\n\n

This dearth of mortgage financing facilities has stemmed,\nprimarily, from the ineffective foreclosure laws in Pakistan – should the matter be encased in a\nnutshell.<\/p>\n\n\n\n

On July 29, President Arif Alvi promulgated\nan ordinance aimed at addressing the hurdles that have impeded mortgage financing in the\ncountry for quite some time. The law, titled \u2018An ordinance to provide for the\nefficient recovery of mortgage-backed securities by financial institutions\u2019\n(Ordinance No. IX of 2019), was one of the 11 legislations approved by the\nNational Assembly on November 7. <\/p>\n\n\n\n

As its name suggests, the ordinance aims to\nensure the efficient recovery of ‘mortgage-backed security’ or financial\nassistance provided by the country\u2019s financial institutions. Its preamble\nproclaims that it has been formulated \u2018for\nthe purposes of facilitating financial institutions in granting those\nsecurities\u2019;<\/em> so that it \u2018ultimately\nacts as a catalyst for satisfying the housing needs of the people of Pakistan\u2019<\/em>.<\/p>\n\n\n\n

Several measures, facilitating recoveries\non default, were introduced through the ordinance. These include: <\/p>\n\n\n\n

1.    <\/strong>An option for recovery\nwithout recourse to a court or tribunal<\/strong><\/h2>\n\n\n\n

Previously, one of\nthe major hurdles that impeded mortgage financing in Pakistan had to do with the banks not\nbeing able to pursue non-judicial foreclosures. This option had been provided\nunder Section 15 of ‘The Financial Institution Recovery Ordinance, 2001. The\nSupreme Court, however, in a 2014 case titled \u2018National Bank of Pakistan v Saif Textile Mills\u2019,<\/em> had declared the\nsection to be in violation of the borrower\u2019s constitutional right of \u2018due\nprocess of law\u2019.<\/p>\n\n\n\n

Section 3 of the ordinance on mortgage-backed\nsecurities, reinstated the legal applicability of the said non-judicial\nforeclosure process \u2013 provided that it is done in accordance with its other\nprovisions. This section states that any legal right (including those created\nthrough the mortgage) relating to a property, created in favour of a ‘secured\ncreditor’ (a bank or a financial institution), can be enforced by them \u2018without the intervention of any court or\ntribunal\u2019<\/em>. <\/p>\n\n\n\n

In simpler words, a bank, acting under the\nprovisions of this ordinance, is now allowed to recover the mortgage money or\nrelevant interest without requiring recourse to a court or tribunal for\nintermediary facilitation.<\/p>\n\n\n\n

Furthermore, the ordinance allows a bank to\nproceed with foreclosure procedures under Subsection (4) of Section 3 after the\nelapse of 60 days since its issuance of a notice requiring the defaulter to pay\nhis\/her secured debt or any of its instalments.<\/p>\n\n\n\n

2.    <\/strong>Banks’ permissibility to\navail the state’s assistance<\/strong><\/h2>\n\n\n\n

Not only does the new ordinance allow banks\nto take possession of properties for the recovery of their dues, it also\nenables them to approach the state to facilitate their control of such assets.<\/p>\n\n\n\n

To practically pursue such concerns, the\nbank or financial institution involved in the proceeding is required (under the\nordinance)  to make a written request to\nthe state authority requesting it to take possession of any secured asset or a\ndocument related to it. The state authority will then take the necessary\nmeasures to ensure compliance of such a request.<\/p>\n\n\n\n

Further, the ordinance stipulates that the\ngovernment will announce the relevant authority through the rules to be made\nunder this ordinance. It also declares that no action performed by the state\nauthorities in compliance with these sections of the law can be questioned \u2018in\nany court of law or before any authority.\u2019<\/p>\n\n\n\n

\"People
Home loans are a convenient way to meet the housing demand <\/figcaption><\/figure>\n\n\n\n

3.\u00a0\u00a0\u00a0 A limited right of appeal<\/strong><\/h2>\n\n\n\n

Initiating frivolous cases in courts to\navoid accountability on defaults is a commonly used method pursued by\nloan-borrowers in Pakistan. These cases, as is generally observed, are then\nseen to ‘crawl’ their way through the overburdened judicial system; making for\nlong and unnecessary delays, as per their original intent.<\/p>\n\n\n\n

The president’s ordinance, however, has\nlargely done away with this loophole.<\/p>\n\n\n\n

Under its meticulous framework, a borrower\nis only allowed an appeal against an action taken under Subsection (4) of  Section 3 (referenced  above) if<\/em>\nhe\/she submits 75% of the amount claimed in the notice of recovery sent to him\nby the lending bank. In other words, the borrower may challenge the action\npertaining to the sale or possession of his property by the bank only if he\nsubmits 75% of the payable amount to the court.<\/p>\n\n\n\n

This deposit requirement only applies to\nthe borrower, however. Any other aggrieved person affected by the action of the\ncreditor need not make any such submission in order to raise an appeal. <\/p>\n\n\n\n

Additionally, the banking court (or High\nCourt:  the upper court of appeal) can\nonly stop the sale of the mortgaged property if it is satisfied that:<\/p>\n\n\n\n

  1. No mortgage\nagreement is in place;<\/li>
  2. All\nthe mortgage money has been paid back;<\/li>
  3. The\nmortgagor, or any other person raising such an appeal, has deposited the\noutstanding mortgaged money to the court.<\/li><\/ol>\n\n\n\n

    4.\u00a0\u00a0\u00a0 The \u2018Due Process of Law\u2019 and protection of the borrower<\/strong><\/h2>\n\n\n\n

    Since the ordinance is intended to\nencourage banks to provide mortgage\nfinancing facilities to the general public, it comes as no surprise that\nits tenets dole out immense protection to their interests. But the framework\ndoes come with a number of necessary stipulations to safeguard the rights of\nborrowers. <\/p>\n\n\n\n

    The ordinance makes it mandatory, for\ninstance, for lending financial institutions to register any relevant agreement\nwith the Central Depository Company (CDC). Any borrowing arrangement, as such,\ncan only be made valid once it has been so officiated. Further, the\nregistration applications will need to include all the details of the\nagreement; including the written indication of its validity and monetary value.\n<\/p>\n\n\n\n

    Further, the ordinance also makes it essential\nfor the mortgaged property to come with a \u2018reserve price\u2019. This price has to be\nequal to the interest secured by the borrower under the agreement – with the\nproperty only allowed to be sold through a public auction and at a price higher\nthan its reserve price. <\/p>\n\n\n\n

    The law also makes the provision for the\nborrower to receive compensation and cost, but only in the case of wrongful\npossession by the bank.<\/p>\n\n\n\n

    \"A
    Appropriate foreclosure laws in place would benefit the overall market <\/figcaption><\/figure>\n\n\n\n

    Other important\nprovisions<\/strong><\/h2>\n\n\n\n

    Some of the other important provisions that\nform part of the ordinance are as follows:<\/p>\n\n\n\n

    1. A suit or\nlegal action cannot be instituted against a creditor (bank or financial\ninstitution) for any of its actions taken in ‘good faith’ under the ordinance.<\/li>
    2. Civil\ncourts will have no jurisdiction over any<\/em>\nmatter(s) pursued under this ordinance. <\/li>
    3. The\nordinance overrides<\/em> any other law\ninconsistent with its legal provisions.<\/li><\/ol>\n\n\n\n

      When considered in retrospect, and over the\nsocioeconomic changes wrought under the few months since its announcement, this\nordinance has been a much-awaited law for Pakistan\u2019s banking sector – a\npractical guarantor, in effect, of the success of mortgage financing in the country. <\/p>\n\n\n\n

      The legislation changing foreclosure laws in Pakistan is also expected to facilitate the development of Prime Minister Imran Khan\u2019s Naya Pakistan Housing Programme (NPHP)<\/a> to provide affordable housing to lower income groups; which relies (for the most part) on private sector funding. <\/p>\n\n\n\n

      On an overall footing, the far-reaching impact of this law would definitely help in changing the dynamics of the country\u2019s housing sector.<\/p>\n\n\n\n

      In case of any queries or suggestions regarding the topic, drop us an email at blog@zameen.com<\/a>. Stay connected to Zameen Blog \u2013 the leading real estate and lifestyle blog in Pakistan<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

      The unavailability of mortgage finance in Pakistan continues to pose a challenge to the government’s efforts to provide affordable housing for the vast majority of the country’s low-income groups. According to a recent State Bank report, Pakistan has an annual housing demand of nearly 700,000 homes \u2013 only one-half of which is met by the market. The remainder appends itself, in its unfulfilled capacity, to the unmet demand; creating a housing shortage of approximately 10 million residential units. This dearth of mortgage financing facilities has stemmed, primarily, from the ineffective foreclosure laws in Pakistan – should the matter be encased in a nutshell. On July 29, President Arif Alvi promulgated an ordinance aimed at addressing the hurdles that have impeded mortgage financing in the country for quite some time. The law, titled \u2018An ordinance to provide for the efficient recovery of mortgage-backed securities by financial institutions\u2019 (Ordinance No. IX of 2019), was one of the 11 legislations approved by the National Assembly on November 7. As its name suggests, the ordinance aims to ensure the efficient recovery of ‘mortgage-backed security’ or financial assistance provided by the country\u2019s financial institutions. Its preamble proclaims that it has been formulated \u2018for the purposes…<\/p>\n","protected":false},"author":85,"featured_media":73442,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11053],"tags":[43215,19524,30884,43213,43214],"persona":[32414],"class_list":{"0":"post-73438","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-july-2019-presidential-ordinance","9":"tag-laws-and-taxes","10":"tag-laws-and-taxes-in-pakistan","11":"tag-overhauling-foreclosure-laws-in-pakistan","12":"tag-presidential-ordinance","13":"persona-laws","14":"cat-11053-id"},"acf":[],"yoast_head":"\nChanges Made to Foreclosure Laws in Pakistan During 2019 | Zameen Blog<\/title>\n<meta name=\"description\" content=\"The National Assembly in November 2019 passed an ordinance to change the foreclosure laws in Pakistan in order to 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