Mortgage Enforcement in Tanzania: Valuation Failures, Undervalued Sales, and Risks to Bona Fide Purchasers

The Court of Appeal of Tanzania (CAT) has recently reaffirmed the strict statutory standards governing mortgagee sales under the Land Act, Cap. 113 [R.E. 2023] in its decision in CRDB Bank PLC & Others (the Appellant / Mortgagee) vs Jonas Marco Mgeni (the Mortgagor / Respondent) (Civil Appeal No. 355 of 2024) [2025 TZCA 1246] (10 December 2025). This case highlights the consequences of mortgage enforcement conducted without proper valuation and due diligence.

Background of the Case

The appeal arose from a TZS 50,000,000 (approx. USD 19,650) loan facility extended to the Mortgagor in 2016, secured by a legal mortgage over the Respondent’s property to finance a trading business in Mbeya City. The facility was initially granted for 12 months at an interest rate of 20% per annum. In 2017, the parties restructured the loan, extending the repayment period to 72 months, with maturity scheduled for 30 December 2023. Despite the revised arrangement, the Respondent defaulted on repayment.

Following default, the Mortgagee issued a notice of default and appointed an auctioneer to sell the mortgaged property without obtaining a fresh valuation report. The property was eventually sold at public auction to the third appellant for TZS 22,500,000 (approx. USD 8,843), a sum not only below market value but also insufficient to meet statutory expectations of obtaining the best price.

The Respondent challenged the sale before the District Land and Housing Tribunal (the Tribunal) seeking nullification of the auction and reinstatement of the revised loan terms. The Tribunal declared the auction and sale illegal on grounds of undervaluation while affirming that the Mortgagee had breached the loan agreement.

The Mortgagee appealed to the High Court (Mbeya Registry), which dismissed the appeal with costs. Dissatisfied, the Mortgagee lodged a further appeal to the CAT.

Court of Appeal Decision

In upholding the lower court’s findings, the CAT addressed two key issues:

1. Whether the Mortgagee discharged its statutory duty to ascertain the value of the mortgaged property before sale; and 
2. Whether the purchaser qualified as a bona fide purchaser entitled to statutory protection.

Regarding statutory duty to ascertain value, the CAT emphasized that sections 143(1) and (2) of the Land Act Cap 113 R.E 2023 (the Land Act) set strict conditions for the exercise of a mortgagee’s rights of sale. These conditions are:

1. The mortgagee must exercise a duty of care towards the mortgagor and obtain the best price possible for the property at auction;
2. The property must be sold for not less than 25% of its market value; and
3. A fresh valuation report must be prepared by a professional valuer and approved by the Chief Valuer to ascertain the current market value and ensure compliance with the 25% rule.

In this case, the amount owed at the time of sale was approximately TZS 20,000,000 (approx. USD 7,860). The property had been valued at TZS 68,000,000 when the loan was granted in 2016. It is an undisputed fact that the value of landed property generally appreciates rather than depreciates over time. Accordingly, the sale of the property in 2021 for TZS 22,500,000, without any evidence of an updated market valuation, amounted to a gross undervaluation and was contrary to the statutory duty imposed on a mortgagee. The CAT stressed that before exercising the right of sale, the Mortgagee had a legal obligation to ensure a proper valuation to establish both the market value and forced sale value of the property.

Regarding bona fide purchasers, the CAT clarified that statutory protection under section 145(3) of the Land Act is conditional, not absolute. While the provision may cure certain procedural defects, such as serving notice, it does not protect a purchaser where the sale is affected by illegality, fraud, or dishonest conduct.

The CAT found that the sale process was marred by misconduct, including:

1. Failure to conduct a fresh valuation;
2. Sale at a gross undervalue;
3. Irregular handling of purchase monies; and
4. Failure to account to the mortgagor.

Importantly, the CAT noted that the purchaser had actual or constructive notice of these defects and therefore, could not claim to have acquired the property in good faith within the meaning of section 145(1)(b) of the Land Act.

Conclusion

This decision sends a clear message to financial institutions: mortgage enforcement must strictly adhere to statutory safeguards. Conducting a fresh valuation and complying with the 25% rule are legal prerequisites, not optional risk-management tools. Failure to observe them exposes lenders to litigation and potential invalidation of sales.
For purchasers of mortgaged property, the case serves as a cautionary tale. Due diligence extends beyond attending an auction and paying the purchase price. Where a sale is fundamentally unlawful, statutory protection will not rescue a purchaser who knew, or ought to have known, of material irregularities.