A). Steps the Bank Should Take and When KB Will Be Considered in Default

Under the Home Mortgage Finance Act, 2008 (Act 770), the process for handling a missed installment payment is clearly outlined to ensure fair notice to the borrower while protecting the lender’s interests. This Act provides a structured approach to default, emphasizing notification and opportunity for remedy before escalating to default status. In practice, Ghanaian banks like Ecobank Ghana or GCB Bank adhere strictly to these provisions to maintain compliance with Bank of Ghana (BoG) oversight and avoid potential disputes that could lead to costly litigation or regulatory penalties.

• Initial Step: Issue Notification of Default
  When KB fails to make an installment payment on the due date, XYZ Bank Limited must issue a notification of default to KB within 14 days after the due date. This notification serves as an official alert and typically includes a demand note for the outstanding arrears. The purpose is to give the borrower an early opportunity to rectify the situation, aligning with ethical banking practices that prioritize customer retention and recovery over immediate enforcement. In real-world operations, banks document this step meticulously, as improper service can invalidate subsequent actions under the Act.
• Service of Notice
  The bank must deliver the notification and demand note to KB’s provided address through one of the following methods:
  • By hand, with receipt acknowledged in writing by KB.
  • Through a person apparently over 18 years old at KB’s address, with acknowledgment.
  • By registered mail or courier.
    If KB were a company or partnership, delivery would be to the registered or principal place of business, acknowledged by an officer. This ensures proof of service, which is crucial for BoG audits and potential court proceedings if the matter escalates.
• Opportunity to Remedy
  KB has 7 days after the date of issue of the demand note to pay the total outstanding arrears. This grace period reflects the Act’s balance between lender protection and borrower fairness, similar to how banks handled defaults during the 2017-2019 banking sector cleanup, where clear communication helped mitigate losses.
• When Default Occurs
  If KB fails to pay the arrears within the 7-day period, he will be considered in default as soon as the third succeeding month’s installment also falls into arrears. For example, if the missed payment is for January, and arrears are not cleared within 7 days of the demand, default triggers when the April installment becomes due and unpaid. This threshold (effectively three months in arrears post-notice) prevents premature enforcement and allows time for negotiation, a practical measure seen in post-DDEP recovery efforts where banks restructured loans to support economic resilience.

This process underscores the Act’s integration with broader Ghanaian banking laws, such as the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), ensuring actions are feasible for BoG approval and promoting sustainable lending.

B). Remedies Available to XYZ Bank Upon KB’s Default

Once KB is in default, XYZ Bank has several remedies under Act 770 to recover the loan, focusing on efficient realization of security without unnecessary court involvement. These remedies are designed for practicality, drawing from Basel II/III principles adapted in Ghana for operational risk management. Banks like Stanbic Bank Ghana have utilized these in mortgage portfolios to minimize non-performing loans, especially amid digital banking trends and fintech integrations under the Payment Systems and Services Act, 2019 (Act 987).

• Sue on Personal Covenant
  The bank can sue KB personally on any covenant in the mortgage agreement to perform obligations, such as repayment. This is a direct legal action for the debt, often used when the property value may not cover the full amount or for additional claims like interest. In practice, this is weighed against costs and publicity, as per BoG’s Corporate Governance Directive 2018, which encourages cost-effective recovery.
• Realize Security in the Mortgaged Property
  The bank may enforce security through processes in the Act, including:
  • Right to Possession: XYZ Bank is entitled to possession of the residential property without court proceedings, peaceably if possible. If resistance occurs, the bank can obtain a court warrant for police-assisted eviction. This remedy allows the bank to manage or rent the property to offset losses, a common step in Ghanaian foreclosures post-2022 DDEP, were banks prioritized asset control for profitability.
  • Appointment of Receiver: The bank can appoint a receiver to manage the property, acting as the bank’s agent, without court action. The appointment can be revoked in writing. This is useful for ongoing income-generating properties, aligning with liquidity risk guidelines from BoG.
  • Sale of Mortgaged Property: XYZ Bank can sell the property by public auction or private contract, without court recourse. For auctions, the Auction Sales Act, 1989 (P.N.D.C.L. 230) applies, with auctioneer’s commission capped at 2.5% of the sale price. Proceeds are applied to the debt, with surplus returned to KB. This is the ultimate remedy, seen in historical cases like the UT Bank collapse due to unrecovered loans, emphasizing ethical sales to avoid undervaluation claims.

These remedies provide flexibility, but banks must exercise them diligently to comply with BoG’s sustainable banking principles, avoiding undue influence or misrepresentation. In comparisons, global banks like Barclays use similar mortgage enforcement but with stricter consumer protections; in Ghana, the focus is on regulatory feasibility for economic stability.