When Ernest Migambi and his wife Anqelique Mungabire, residents of Rugerero Sector in Rubavu District, acquired a mortgage loan from a local bank in 2012, they hoped to build an amazing life for their family.
What they didn’t know is they would end up being victims of fraudulent practices that involved their own bank and an organised group of brokers.
Migambi acquired a mortgage loan worth Rwf12.2 million from BPR Atlas Mara, with a maturity of 8-years at an annual interest rate of 18 per cent.
In 2014, the family’s ability to repay the loan dropped until the bank decided to auction their property.
"Somehow I became confused when the property that was supposed to be sold at least not below Rwf16 million was sold at only Rwf6 million,” the husband recounts.
Stamped papers shared by Migambi indicate that the property valuer (Trust Property Consultancy) had valued the 881-square-metre house at Rwf22.9 million (open market price).
In a worst-case scenario (forced sale value), the house would sell for Rwf16 million according to the valuer’s estimates.
"In the end, we left counting losses,” he notes, revealing that he went ahead to file the complaint at Rwanda Development Board (RDB) only to be told to take it to court.
RDB oversees public auctions that arise from bank foreclosures.
The process
Normally, when a client defaults on a bank loan, the bank files intent for foreclosure of the property at RDB, which then takes a period of at least 30 days to give the green light to the bank to go ahead with the auction process.
State law requires that foreclosed properties are offered at a public auction, to give buyers a level playing field, but buying a foreclosed house at auction generally requires a good amount of knowledge for negotiation.
Market analysts suggest since not everyone has that knowledge, people resort to using agents who understand the market well and can negotiate a good deal on your behalf.
Anastase Balinda, the Executive Secretary of the Professional Bailiffs Association – says this has given rise to fraudulent brokers in the country.
"Brokers are at the centre of the rise of these deceitful practices because they disguise as bidders, undervalue the properties on auction in the interests of one of the businessmen and women, and the properties end up being sold at the lowest prices possible,” he explained.
In August 2018, Rwanda Investigation Bureau (RIB) paraded individuals accused of being members of a network of dishonest auctioneers and business people involved in fraudulent auctioning practices.
The two suspects were accused of having received payments so they can pretend to be bidders at a public auction in Kigali City’s Kicukiro area where a petrol station valued at Rwf850 million was bought at Rwf330 million.
According to Balinda, brokers have formed a ring that attends all public auctions and deal on behalf of other business people who may want to buy the properties at a cheap price.
"We have realised that they even go further to intimidate and threaten those who are not part of them,” the representative of court bailiffs who auction properties on behalf of banks, notes.
Implications
Fraudulent auctioning practices have been hurting many people and businesses, especially defaulters of home mortgage loans whose properties are sold at peanut prices during dishonest auctions.
Balinda indicates that there are possibilities to address the issue, including to digitize the whole auctioning process, in addition to reviewing the rules that concern valuers.
He asserts that valuers sometimes inflate the value of properties, in the beginning, to help customers secure better loan packages, which later becomes problematic when the same property is being auctioned.
"If you give high value to a property that is not worth it, you risk complicating the whole process. That is where it all begins. Valuers do that in the name of helping people secure large sums of money,” he explains.
When failure to pay comes, he adds, both the bank and the owners will struggle to sell the property at the right price because in the first place its value was inflated.
Balinda also wonders why the digitization of the whole process of public auctioning has taken longer even after many occasions the suggestion has been put forward by court bailiffs.
"We think if the process is expedited, the issue would be solved because it means we shall be able to detect who comes at these auctions. If one name appears in more public auctions, we shall be able to investigate what kind of business that person is,” he says.
For now, businesses and property owners will have to wait until the government takes the right step towards addressing the issue.