A recent court ruling has cast a spotlight on long-standing practices within Kenya’s banking and legal sectors following the collapse of a mortgage transaction built on a fraudulent title. The case, which involved a property title later found to be fake, has ensnared a licensed valuer, a conveyancing advocate, and bank officials, raising serious concerns about professional accountability and the procedural gaps that allowed the transaction to proceed unchecked.
At the heart of the matter was a loan facility advanced by a commercial bank to a borrower who presented a title deed as security. The loan, amounting to tens of millions of shillings, was issued after the bank received legal and valuation reports indicating the property was legitimate and adequately secured. It was only after the borrower defaulted and the bank moved to recover the property that it emerged the title was fraudulent.
In seeking legal redress, the bank sued several parties, including the lawyer who handled the transaction. The bank argued that the lawyer had a professional obligation to verify the authenticity of the title and ensure the bank’s interests were protected. However, the court held that the lawyer did not owe the bank any legal duty of care. The reasoning was simple but significant: the bank had not paid the lawyer in accordance with the Advocates remuneration schedule for the services rendered.
It emerged that the borrower, not the bank, had paid the legal fees, a practice not uncommon in the local mortgage market where banks often allow borrowers to meet the cost of external professional services. The court ruled that in the absence of procedural payment, no duty of care could be inferred.
An investigations report, which was tabled in court, confirmed that the lawyer had been paid exclusively by the borrower. It provided detailed findings on how the forged title passed through various verification stages without detection and pointed to a breakdown in institutional controls.
The ruling calls into question the prevailing model in which lenders allow borrowers to pay legal and valuation service providers on their behalf. Without a direct compensation, professionals may not be held accountable to the banks in the event of a dispute or malpractice. It is a legal and procedural blind spot that has now been brought into sharp focus.
Also under scrutiny is the valuer who prepared the report supporting the property’s alleged inflated value. However, the court also declined to assign liability to the valuer involved in the transaction. In its final ruling, the court observed that the bank had not furnished any evidence to show that it had paid for the valuation services, as required under the Valuers Act and accompanying regulations. The court held that no professional duty of care was owed to the bank by the valuer. As with the advocate, the valuer had been compensated by the borrower, leaving the bank without legal standing to claim professional negligence.
