{"id":75121,"date":"2019-12-05T05:43:46","date_gmt":"2019-12-05T05:43:46","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=75121"},"modified":"2019-12-05T05:59:40","modified_gmt":"2019-12-05T05:59:40","slug":"recovery-mortgage-backed-security-ordinance-2019","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/recovery-mortgage-backed-security-ordinance-2019.html","title":{"rendered":"The Legal Stumbling Blocks towards Affordable Housing Part 2"},"content":{"rendered":"\n

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. <\/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

The first part of this article discussed the recent history of mortgage foreclosure laws in Pakistan<\/a>. The second part discusses whether the Recovery of Mortgage Backed Security Ordinance 2019, hereon referred to as \u2018New Ordinance\u2019,<\/em> can pass constitutional muster before the Courts. <\/p>\n\n\n\n

The New Section 15 and the New\nOrdinance <\/strong><\/h2>\n\n\n\n

Through the Financial Institutions\n(Recovery of Finances) (Amendment) Act, 2016, the government inserted a new\nsection 15 into the FIO, this time purportedly in compliance with the judgement\nin the SAF Textiles case. <\/p>\n\n\n\n

Without the possibility of non-judicial\nforeclosures, banks were reluctant to invest in the housing sector, so the new\nsection 15 attempted to fall within the scope of a constitutional non-judicial\nforeclosure as mentioned at the end of the SAF Textiles judgement. <\/p>\n\n\n\n

The new section 15 includes the\nprovision of a reserve price and further provides that a bank can only buy\nforeclosed property at an auction if it pays an amount ten percent higher than\nthe highest bidder. <\/p>\n\n\n\n

It also provides for objections to be\nfiled after an auction but before the property vests with the auction\npurchaser, upon deposit of twenty-five percent of the reserve price with the\nBanking Court. <\/p>\n\n\n\n

The new section 15 is certainly much\nless harsh for mortgagors than the old section 15, but it was still challenged\nbefore the Lahore High Court in 2016. All actions taken by banks under the new\nsection 15 have been stayed till the final judgement in the case. It took over\nthree years for the case to be finally argued, and judgement was reserved on 7th<\/sup>\nNovember, 2019. <\/p>\n\n\n\n

Yet another development took place\nlate at night on 7th<\/sup> November: twelve different Ordinances,\nincluding the New Ordinance, were placed before the National Assembly and published\non the website of the National Assembly. This is significant because the New\nOrdinance contrasts with the new section 15 in a number of ways, and the\nchallenge to the new section 15 before the Lahore High Court did not consider\nthe effect of the New Ordinance. <\/p>\n\n\n\n

The New Ordinance has a contradiction\nthat needs to be addressed. It provides for two different methods of\nforeclosure. Under section 3, a bank can, after serving a 60 day single notice\nperiod upon the mortgagor, take possession of mortgaged property without the\nintervention of a court. <\/p>\n\n\n\n

However, section 5 states that to\nrecover mortgaged property, the bank needs to send three notices of 14-14-30\ndays as stated in section 15, FIO. The New Ordinance also only provides for a\nlimited scope of appeal against actions taken in section 3 where effectively\nsuch actions can only be challenged by a mortgagor by depositing in the Banking\nCourt the entire mortgage money in cash. <\/p>\n\n\n\n

Interestingly, both the new section 15\nas well as the New Ordinance state that they have overriding effect over any\nother law for the time being in force. <\/p>\n\n\n\n

It appears that the New Ordinance contrasts\nwith the ruling in SAF Textiles, and therefore might undergo significant judicial\nscrutiny. In particular, the limited scope of appeal against actions taken without\nthe intervention of a court under section 3 of the New Ordinance, that too ex\npost facto<\/em> the bank taking possession of mortgaged property, might be found\nto be against the right to fair trial and due process under Article 10A of the\nConstitution. <\/p>\n\n\n\n

The jury is still out on the new\nsection 15, but it is a possibility that the New Ordinance will be severely\nscrutinized following SAF Textiles. <\/p>\n\n\n\n

Another legal issue that the New\nOrdinance will face is that Ordinances only last for 120 days. After 120 days\nof an Ordinance\u2019s promulgation, it can be extended for a further 120 days by\nthe National Assembly or the Senate, but after a maximum of 240 days, an\nOrdinance lapses and ceases to be a law under Article 89 of the Constitution. <\/p>\n\n\n\n

The New Ordinance, promulgated on 22nd<\/sup>\nJuly, 2019, has already passed the 120-day deadline. The government withdrew\nall the Ordinances it laid before the National Assembly on 7th<\/sup>\nNovember, including the New Ordinance. This means that the New Ordinance has\nnot received an extension of 120 days by the National Assembly, so currently,\nthe New Ordinance has lapsed i.e. it has ceased to have legal effect. <\/p>\n\n\n\n

It will need to be enacted by\nParliament to continue to have effect, and even if it is enacted, it most\nlikely will need to be amended so as not to fall afoul of the judgement in SAF\nTextiles. <\/p>\n\n\n\n

An interesting challenge has been\nmounted against the all of the Ordinances recently promulgated by the\nPresident. This year alone, more than twenty Ordinances have been promulgated\nby the President. <\/p>\n\n\n\n

The general legal understanding is\nthat an Ordinance can only be promulgated when the National Assembly is not in\nsession and an emergency situation has arisen after the prorogation of the last\nNational Assembly which needs to be responded to immediately by making a law\nwithout going to the National Assembly. <\/p>\n\n\n\n

A member of the National Assembly is\narguing before the Islamabad High Court that the Ordinances passed over the\ncourse of this year do not meet this criterion and therefore should be annulled.<\/p>\n\n\n\n

The Naya Pakistan Housing Scheme is\nindeed a laudable initiative for affordable housing. Whether this will be brought\nto fruition is something that remains to be seen as the Recovery of\nMortgage-backed Security Ordinance, 2019 needs to be enacted by Parliament and will\nundergo judicial scrutiny before the Courts on a number of grounds unless it is\namended by Parliament. <\/p>\n\n\n\n

Until then, the search will have to\ncontinue for a way to fit a non-judicial foreclosure around the judgement in\nSAF Textiles so that banks are more confident in backing affordable housing. <\/p>\n\n\n\n

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

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. The first part of this article discussed the recent history of mortgage foreclosure laws in Pakistan. The second part discusses whether the Recovery of Mortgage Backed Security Ordinance 2019, hereon referred to as \u2018New Ordinance\u2019, can pass constitutional muster before the Courts. The New Section 15 and the New Ordinance Through the Financial Institutions (Recovery of Finances) (Amendment) Act, 2016, the government inserted a new section 15 into the FIO, this time purportedly in compliance with the judgement in the SAF Textiles case. Without the possibility of non-judicial foreclosures, banks were reluctant to invest in the housing sector, so the new section 15 attempted to fall within the scope of a constitutional non-judicial foreclosure as mentioned at the end of the SAF…<\/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":[2169,45671,43961,10649,45672],"persona":[32414,32411,35639],"class_list":{"0":"post-75121","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-laws-taxes","8":"tag-affordable-housing","9":"tag-financial-institutions-ordinance","10":"tag-lob","11":"tag-naya-pakistan-housing-program","12":"tag-non-judicial-foreclosures-and-fundamental-rights","13":"persona-laws","14":"persona-property-investment","15":"persona-property-management","16":"cat-11053-id"},"acf":[],"yoast_head":"\nAffordable Housing in Pakistan & Legal Stumbling Blocks: Part 2 | Zameen Research<\/title>\n<meta name=\"description\" content=\"Analyzing the recovery of Mortgage-Backed Security Ordinance 2019. 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