Mortgage valuation disputes stall recovery of Tk85,000cr in default loans

Infographic: TBS

More than 2,150 writ petitions challenging banks' takeover or auction of mortgaged properties in loan default cases have remained pending with the High Court since early 2021, involving more than Tk8,500 crore.

According to information obtained from the Supreme Court, 2,154 writ petitions filed by individuals and businesses between the beginning of 2021 and May 2026 are awaiting disposal before the High Court.

Court officials said the market value of the underlying collateral is, in many instances, nearly twice the outstanding loan amounts.

The legal backlog continues to grow, with 239 new writ petitions filed between January and May this year alone, alongside 141 appeals awaiting disposal in the Appellate Division involving a further Tk2,500 crore in non-performing loans.

Speaking to The Business Standard, experienced bankers and banking law specialists said such disputes reflect a broader weakness in the banking system, arguing that both deliberate overvaluation and undervaluation of mortgaged assets may violate banking regulations and can distort loan recovery.

They called for mandatory forensic audits or special inspections to determine the true quality and market value of collateral before banks enforce security.

Systemic legal loopholes

The surge in litigation stems from structural gaps in how the Money Loan Court Act is implemented. Out of the 2,154 pending writ petitions, 1,359 directly challenge the legality of banks taking over ownership after court verdicts when the property value exceeds the defaulted debt, while another 759 petitions contest foreclosure auctions targeting highly valuable assets.

Banking law expert Imran Ahmed Bhuiyan noted that under the Money Loan Court Act, courts are supposed to appoint a receiver to manage and assess the actual market value of a mortgaged property once a loan suit is filed.

"However, banks rarely apply for receivers, prompting courts to issue verdicts based solely on the claims submitted by lenders, meaning properties are auctioned or seized using outdated market values without calculating the excess equity that should legally be refunded to the borrower," he said.

The practical impact of this loophole is illustrated by the case of Munshiganj-based businessman Sheikh Azhar Uddin, who took a Tk41 crore loan from a private commercial bank in 2008 to buy a ship, pledging an eight-bigha land plot with a cold storage facility, a three-storey commercial building, and a residential property, according to his lawyer Tasmim Hossain.

When the loan defaulted at Tk68 crore in 2014, the bank filed a lawsuit and eventually took absolute possession of the assets in February 2020 after failing to find bidders at an auction, valuing the properties exactly equal to the debt despite the market value soaring past Tk150 crore.

Although the High Court ruled in August 2023 that the local administration must assess the actual market price and return any surplus funds to the businessman, the bank successfully stayed the order in the Appellate Division, arguing that the asset takeover reflected fair values, inclusive of accumulated interest that pushed the liability to Tk80 crore. 

A similar case was filed by Chandpur-based cloth merchant Mominul Haq Milon, whose property was seized by Agrani Bank at 2012 valuation rates despite its current market price doubling the Tk1.98 crore default claim.

Demands for forensic audits

The broader financial system remains heavily weighed down by such disputes, with approximately 75,000 loan recovery lawsuits involving nearly Tk5 lakh crore currently pending across various Money Loan Courts. 

Analysts argue that the failure to regularly reassess asset values can unfairly penalise legitimate borrowers facing business setbacks.

Muhammad A (Rumee) Ali, former deputy governor of Bangladesh Bank and current Chairman of AB Bank, stressed that asset quality reviews, forensic audits, and special audits must be made mandatory for mortgaged properties. 

He noted that while the central bank's off-site supervision department is legally mandated to verify the quality and value of bank collateral annually, political interference has long stalled proper inspections.

Central bank officials, however, point to the logistical constraints of enforcing these rules uniformly. 

Bangladesh Bank spokesperson Arief Hossain Khan said commercial banks bear the primary responsibility for verifying their own auxiliary collateral, adding that it is highly expensive and time-consuming for the regulator to audit every mortgage, suggesting that the judiciary should proactively initiate independent property valuations during ongoing court proceedings.