{"id":74959,"date":"2019-12-02T13:03:54","date_gmt":"2019-12-02T13:03:54","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=74959"},"modified":"2019-12-05T06:00:26","modified_gmt":"2019-12-05T06:00:26","slug":"analyze-mortgage-backed-security-ordinance-2019","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/analyze-mortgage-backed-security-ordinance-2019.html","title":{"rendered":"The Legal Stumbling Blocks Towards Affordable Housing"},"content":{"rendered":"\n

By Zeeshaan Zafar Hashmi<\/strong><\/p>\n\n\n\n

Zeeshaan\nZafar Hashmi is an Advocate of the High Courts of Pakistan with a Masters in\nConstitutional Law from Harvard Law School. He is a partner at the law firm\nShujra, Farooq & Hashmi (SFH) which is a full-service law firm with offices\nin Lahore, Islamabad, and Multan. <\/strong><\/p>\n\n\n\n

SFH\nis working in collaboration with Zameen.com to conduct research and advocacy on\nPakistan\u2019s property and banking laws in relation to affordable housing such as\nthe Naya Pakistan Housing Scheme.<\/strong><\/p>\n\n\n\n

Straight from its inception, the present government led by the Pakistan Tehreek-e-Insaf has declared its laudable intention to provide affordable housing for the people of Pakistan. It is in this vein that the government set up the Naya Pakistan Housing and Development Authority<\/a> in May of this year under the Naya Pakistan Housing and Development Authority Ordinance, 2019. <\/p>\n\n\n\n

There was, however, one major niggle in the affordable housing scheme of the government: How would it be financed? The world over, such housing schemes are financed by banks through mortgage finance. The system of mortgage finance has not taken root in Pakistan, though, because until recently, banks were not entitled to foreclose on mortgages without the intervention of a Banking Court.<\/a> <\/p>\n\n\n\n

This purportedly changed on 22nd<\/sup> July 2019, when the President of Pakistan promulgated the Recovery of Mortgage-backed Security Ordinance, 2019 (the \u201cNew Ordinance<\/strong>\u201d), which empowers banks to foreclose on mortgages without the intervention of a Banking Court. <\/p>\n\n\n\n

This\nis not the first time that such a law has been made in Pakistan. In the past,\nlaws on non-judicial foreclosure have been struck down by the Supreme Court and\nHigh Courts for being in derogation of the fundamental rights guaranteed by the\nConstitution of Pakistan. <\/p>\n\n\n\n

The\nfirst part of this article will discuss the recent history of mortgage\nforeclosure laws in Pakistan and the second part will discuss whether the New\nOrdinance can pass constitutional muster before the Courts. <\/p>\n\n\n\n

Section 15 and SAF Textiles <\/strong><\/h2>\n\n\n\n

The Financial Institutions (Recovery of Finances) Ordinance, 2001 (\u201cFIO<\/strong>\u201d) was promulgated primarily for efficacious disposal of cases related to the recovery of banking finance filed before specialized Banking Courts. <\/p>\n\n\n\n

According\nto the State Bank of Pakistan, however, this objective has not been achieved\nbecause cases before Banking Courts are lingering on and pending for years. <\/p>\n\n\n\n

As determined by the State Bank of Pakistan, 19,866 suits for recovery worth Rs.264,474.22 million had been filed before the Banking Courts and the High Courts under the FIO as on 30th<\/sup> June 2016. <\/p>\n\n\n\n

By the same date, 30,959 execution applications had been filed as well. Any suit brought before the Banking Courts or the High Courts in banking jurisdiction is defeating the primary purpose of the FIO, which was to provide for the speedy recovery of finances.<\/p>\n\n\n\n

Section\n15 of the FIO was a very contentious provision. Section 15 provided for a bank\nto recover mortgage money without the intervention of a Court after issuing\nthree notices to the mortgagor. The first two notices had to provide fourteen\ndays\u2019 time for compliance by the mortgagor, and the final (third) notice had to\nprovide thirty days. <\/p>\n\n\n\n

In particular, sub-section 4 of section 15 provided, \u201cWhere a mortgagor fails to pay the amount as demanded within the period prescribed in sub-section (2), and after the due date is given in the final notice has expired, the financial institution may, without intervention of any Court<\/strong>, sell the mortgaged property or any part thereof by public auction and appropriate the proceeds thereof towards total or partial satisfaction of the outstanding mortgage money <\/em>\u201d (emphasis supplied).<\/p>\n\n\n\n

The\nHigh Courts are vested with the power to strike down laws if they curtail the\nfundamental rights guaranteed in the Constitution under Article 8 read with\nArticle 199 of the Constitution. Many mortgagors challenged the\nconstitutionality of section 15 before the High Courts of Lahore and Baluchistan,\nand both High Courts struck down section 15 as unconstitutional. <\/p>\n\n\n\n

By\nthe time the case was brought before the Supreme Court in appeal in the form of\nNational Bank of Pakistan v. SAF Textile Mills <\/em>(PLD 2014 Supreme Court\n283), the 18th<\/sup> Amendment to the Constitution added Article 10A to\nthe Constitution, which provided specific protection to the rights of fair\ntrial and due process. <\/p>\n\n\n\n

It\nwas this right to due process that the Supreme Court focused on in upholding\nthe judgements of the High Courts and declaring that section 15 was indeed\nunconstitutional. <\/p>\n\n\n\n

After\nthe sale of the mortgaged property took place through public auction as stated\nin section 15(4), the Supreme Court noted that any objections to such sale\nwould be fruitless as the property would have come to rightfully vest with the\nauction purchaser. <\/p>\n\n\n\n

Thus,\nthe Supreme Court held that section 15 effectively denuded mortgagors of the\nright to agitate their grievances and get their day in Court, which is\nessentially what the fundamental right to due process provides for. <\/p>\n\n\n\n

Moreover, section 15 did not provide for the concept of a reserve price in the auctions for sale of the mortgaged property, which the Supreme Court held to be essential to prevent walkover auction sales. Section 15 also provided for the bank itself to buy the mortgaged property, which the Supreme Court stated effectively put the banks in the position of judge, jury, and executioner, which in turn provides for an exploitative environment which the State is under a constitutional duty to prevent under Article 3 of the Constitution. <\/p>\n\n\n\n

In\nsummary, the Supreme Court struck down non-judicial foreclosures under section\n15, FIO because of the mortgagor\u2019s lack of access to courts, the lack of\nreserve price, and the ability of the bank to acquire the property itself\nwithout the reserve price. <\/p>\n\n\n\n

In\nthe end, however, the Supreme Court did not completely close the door on\nnon-judicial foreclosures, stating that \u201c\u2026the contentions\u2026 that a sale of\nmortgaged property without the intervention of the Court is per se unconstitutional\nis not sustainable.<\/em>\u201d The question, then, is how exactly can non-judicial\nforeclosures be enacted without offending the holding in the SAF Textiles case?\n<\/p>\n\n\n\n

Stay\ntuned for Part 2 of this series. <\/p>\n\n\n\n

Disclaimer: The views and opinion expressed by the author are solely of the individual and do not necessarily represent those of Zameen.com and its employees.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By Zeeshaan Zafar Hashmi Zeeshaan Zafar Hashmi is an Advocate of the High Courts of Pakistan with a Masters in Constitutional Law from Harvard Law School. He is a partner at the law firm Shujra, Farooq & Hashmi (SFH) which is a full-service law firm with offices in Lahore, Islamabad, and Multan. SFH is working in collaboration with Zameen.com to conduct research and advocacy on Pakistan\u2019s property and banking laws in relation to affordable housing such as the Naya Pakistan Housing Scheme. Straight from its inception, the present government led by the Pakistan Tehreek-e-Insaf has declared its laudable intention to provide affordable housing for the people of Pakistan. It is in this vein that the government set up the Naya Pakistan Housing and Development Authority in May of this year under the Naya Pakistan Housing and Development Authority Ordinance, 2019. There was, however, one major niggle in the affordable housing scheme of the government: How would it be financed? The world over, such housing schemes are financed by banks through mortgage finance. The system of mortgage finance has not taken root in Pakistan, though, because until recently, banks were not entitled to foreclose on mortgages without the intervention of a…<\/p>\n","protected":false},"author":97,"featured_media":74961,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11053],"tags":[45413,24607,19524,30884,43961,10649],"persona":[32414,32411,35639],"class_list":{"0":"post-74959","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-affordable-housing-in-pakistan","9":"tag-affordable-housing-options","10":"tag-laws-and-taxes","11":"tag-laws-and-taxes-in-pakistan","12":"tag-lob","13":"tag-naya-pakistan-housing-program","14":"persona-laws","15":"persona-property-investment","16":"persona-property-management","17":"cat-11053-id"},"acf":[],"yoast_head":"\nThe Legal Stumbling Blocks towards 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