Loan issuance and the risks to charging property
Financial institutions that have issued loans on the basis of Title deeds as collateral will face (unknown) losses after the National Land Commission issued a gazette notice of revoked titles across the country.
In a special Kenya gazette issue dated 17th July 2017, the National Land Commission made determinations with respect to the grants/titles and orders for revocation, regularisation and upholding titled deeds.
This issue highlights the use of charging property and as such the use of Title deeds as collateral/security for various loans issued by financial institutions.
When applying for a loan, most financial institutions require proof of ownership for the property being charged by requesting for an official lands search, original title deed and official property map (among other requirments).
NB: The property charged will not operate as a transfer but will only be used as collateral/security.
This may sound swell and dandy but with the recent awareness of the issuance of fake title deeds whereby multiple original title deeds are issued for one property… then this announcement from the National Land Commission will be important for financial institutions to take note of.
This is because in the event of borrower default, the financial insitutions concerned will be unable to realized any value from the sale of the charged property if the title deeds have been revoked.
With the present slow down in private sector credit, this may contribute to a further slow down if financial institutions hesitate in the issuance of loans on the basis of Title deeds over fears that the titles mat not be authentic.