Highlights

• Statutory Power of Sale for Mortgagees
• Procedural Safeguards
• Legal Remedies for the Mortgagor and Interested Parties
• Duties of the Mortgagee in Sale Execution
• Allocation of Sale Proceeds
• Restrictions on Self-Purchase by the Mortgagee
• Effect of the Sale
• Conclusion.

The legal basis and scope of the mortgagee’s power of sale

Under Tanzanian law, specifically Section 132 of the Land Act, Chapter 113, Revised Edition of 2019, a mortgagee (lender) possesses the statutory power of sale, which is enforceable upon the borrower’s (mortgagor’s) default. This right is not merely contractual but statutory, granted to facilitate the recovery of debts by enabling the lender to sell the mortgaged property without needing judicial intervention. The exercise of this power is triggered when the borrower fails to comply with the loan obligations, and a statutory default notice has been served and remains unaddressed for a minimum of sixty days after receipt.

A critical aspect of the mortgagee’s power of sale is its autonomous nature, meaning it does not constitute a “disposition” or “transfer” that requires prior consent or approval from the Commissioner of Lands. This autonomy is vital in preventing unnecessary delays in realizing secured debts and ensuring the expeditious recovery of loans. Section 51 of the Land Registration Act, Chapter 334, Revised Edition of 2019, further clarifies that the Registrar of Titles is not obligated to inquire into the validity of the mortgagee’s right to exercise the power of sale. The purchaser, therefore, acquires a clean title, free from liability for the mortgage or any subsequent encumbrances.

Procedural Safeguards in the Exercise of the Power of Sale

Registrar’s Notice and Suspension of Transfer

Upon the presentation of transfer documents by the mortgagee, the Registrar must issue a notice to the mortgagor, informing them of the impending transfer of the property. Under Tanzanian law, this notification process serves as a safeguard, providing the mortgagor with an opportunity to contest the sale. The Registrar is required to suspend the registration process for a period of thirty days from the date of the notice, during which the mortgagor may seek legal redress, including applying for an injunction from the High Court of Tanzania.

Mortgagee’s Statutory 10-Day Notice

When a sale is to be executed through private treaty, rather than by public auction, the mortgagee is legally bound to issue a notice of at least ten (10) days to the mortgagor and any third party with a registered interest in the property, as provided under Section 12(2) of the Auctioneers Act, Chapter 227. This requirement ensures that interested parties are fully aware of the intended sale and are given an opportunity to protect their interests, either by settling the debt or taking legal action to challenge the sale.

Legal Remedies Available to the Mortgagor and Third Parties

The mortgagor, or any third party with a legitimate interest in the property, has the legal right to challenge the exercise of the power of sale. During the thirty-day notice period issued by the Registrar, the mortgagor or interested party may file an application with the High Court of Tanzania, seeking an order of injunction to temporarily halt the sale. The High Court may grant such an injunction if it is satisfied that there has been a breach of procedural fairness, such as improper service of notices, lack of good faith in the exercise of the power of sale, or an undervaluation of the property.

Moreover, if the mortgagor can demonstrate that the outstanding loan has been fully or partially repaid, the Court may set aside the sale. It is worth noting that once a sale has been concluded, the mortgagor’s legal remedies are severely limited, and the mortgagor’s right of redemption is extinguished upon the registration of the transfer in the purchaser’s favor.

Incidental Powers and Duties of the Mortgagee during the Sale

Where the sale is conducted via public auction, the mortgagee must adhere to specific legal requirements to ensure transparency and fairness. The auction must be advertised publicly for at least fourteen (14) days before the auction date, in accordance with Section 12(2) of the Auctioneers Act. The notice must be prominently displayed in the principal town or district where the property is located, as well as at the intended place of sale. Failure to comply with these advertising requirements could render the sale voidable, as it constitutes a breach of the mortgagee’s duty to act in good faith and in the best interest of both the mortgagor and the public.

Additionally, the mortgagee must ensure that the property is sold at a reasonable market value. Tanzanian courts have held in numerous cases that a mortgagee cannot sell the property at an artificially low price, as this would breach the fiduciary duty owed to the mortgagor. The courts may intervene if the sale price is grossly inadequate compared to the market value of the property at the time of sale.

Allocation of Proceeds from the Sale

The proceeds from the sale of a mortgaged property are subject to a strict order of priority as mandated by law. First, any unpaid rates, rents, taxes, or statutory charges related to the property must be settled. Second, the proceeds are applied to discharging any prior encumbrances or mortgages that were registered before the mortgage under which the sale is conducted. Third, the mortgagee is entitled to recover all reasonable expenses and costs incurred during the sale process, including legal fees, auctioneer’s fees, and valuation costs.

Only after these preliminary obligations have been met can the mortgagee apply the remaining proceeds toward settling the outstanding debt under the mortgage. If any surplus remains after the mortgage debt has been satisfied, subsequent encumbrancers are entitled to their share in order of priority. Lastly, any remaining balance is returned to the mortgagor or their legal representatives.

Legal Restrictions on Self-Purchase by the Mortgagee

Under Tanzanian law, a mortgagee is generally prohibited from purchasing the mortgaged property unless they have obtained express approval from the court. Section 136 of the Land Act stipulates that the mortgagee must demonstrate to the court that selling the property to themselves is the most advantageous option for all parties involved. The mortgagee must act in good faith and show that no better price could be reasonably obtained from another buyer. Any breach of this provision may lead to the sale being set aside and the mortgagee being liable for damages.

Legal Effect of a Sale under the Power of Sale

Once a sale has been conducted, and the transfer is registered, the property is vested in the purchaser free from all liabilities associated with the mortgage and any subsequent encumbrances. However, exceptions are made for leases to which the mortgagee has given written consent or leases that do not require the mortgagee’s approval. The purchaser acquires an indefeasible title, and the mortgagor is forever barred from claiming any right to the property, including the right of redemption.

Conclusion

The mortgagee’s power of sale in Tanzania is an efficient tool for debt recovery when a borrower defaults. Governed by clear statutory provisions, it allows lenders to sell mortgaged property without needing approval from the courts or land authorities. While the process is streamlined, it includes important safeguards to protect borrowers, such as notice requirements and the obligation to act in good faith. Once the sale is finalized, the purchaser obtains a clear title, and the borrower’s rights are extinguished. This framework ensures fairness while facilitating swift resolution of mortgage defaults.

Disclaimer: This article is authored by Khalifa Rukazibwa, Associate Trainee from Rive & Co, a new and innovating law firm as a result of the partnership between ABC Attorneys, Sepia Attorneys and Stallion Attorneys, built on the foundation of trust, credibility, and novelty, offering expert legal solutions.  This Article is for informational purposes only and should not be construed as legal advice. It is recommended to consult with a qualified legal professional for advice specific to your situation.