Tanzanian court cements mortgage arrangements

The Tanzanian Court of Appeal has presented a judgment in relation to the right of financial institutions to claim the outstanding loan balance from borrowers after sale of the mortgaged properties. In a Lexology analysis, Brian Mambosho, Gerald Shita Nangi and Jeremia Tarimo (Clyde & Co) note that the court has expressly cemented on the position that a mortgagee who fails to realise the full loan amount from the proceeds of the mortgage through a valid sale or auction, is not barred from claiming the outstanding loan balance from the mortgagor. The judgment subject to this update is in respect of an appeal registered as Civil Appeal No 29 of 2019 which was between CRDB Bank PLC (CRDB Bank) v True Colour Limited (TCL) and James Vicent Mgaya (the Purchaser).

TCL had filed a suit in the High Court of Tanzania against CRDB Bank and others regarding the sale of mortgaged properties which had a forced sale value of more than 1.9bn Tanzanian Shillings ($821 000). In the lawsuit, TCL sought an order for nullification of the sale of the mortgaged properties and in the alternative, to be relieved from liability to pay the loan balance. The High Court of Tanzania dismissed the claim for nullification of sale for want of proof, and further, on the alternative claim, it discharged TCL from further liability. The authors notes that the Court of Appeal’s decision confirms that financial lenders are allowed to claim outstanding loan balances from defaulting borrowers, in the event that the sale of the mortgaged properties does not yield the amount owed. This decision also sets a precedent to be used by all Tanzanian courts by clarifying the conflicting High Court's decisions on the same issue.