Lenders (including banks and financial institutions) who require security in the form of mortgages when issuing loan facilities, have received, with optimism and open arms the recent landmark decision by the Court of Appeal of Tanzania (the Court of Appeal), comprising of Honourable Justices of Appeal Mziray, Mwambegele and Mwandambo in Civil Appeal Number 135 of 2017 between Hadija Issa Arerary (Appellant) and Tanzania Postal Bank (Respondent) (the Case).
Before getting into the gist of how the Court of Appeal moved to address this conundrum, which has been a thorn in the banking industry for quite some time, we must first understand that, in order for a lender to legally create a mortgage over a matrimonial property, it must as a matter of law, obtain consent to mortgage the matrimonial property from the mortgagor’s spouse (Ref Section 59 of the Law of Marriage Act, Chapter 29 of the laws of Tanzania, Revised Edition of 2019 (the Law of Marriage Act)).
That is, if you wish to get a loan facility from a lender, and you wish to use the house you occupy as your matrimonial residence with your better half (whether it is in your name or not), your spouse will have to either co-sign or consent to the mortgage.
The reason behind this provision of the law is that, there is a very high possibility that if a matrimonial residence is lost through a sale by a lender, then, it is highly likely to disrupt the welfare of the mortgagor, his/her spouse and dependents.
In that regard, the legal requirement for spousal consent is meant to protect the sanctity of the matrimonial institution, and further, protect the matrimonial residence against risks of losing it in the event of a default.
Prior to the intervention by the Court of Appeal, lenders faced an uphill task when enforcing mortgagee’s remedies under Section 126 of the Land Act, Chapter 113 of the laws of Tanzania, Revised Edition of 2019 (the Land Act), including entering possession or disposing of a matrimonial residence.
It was common for mortgagor’s spouses to seek courts’ intervention, by way of injunctive orders, on the basis that the mortgage lacked spousal consent (whether out of fraudulent actions of their spouses or where there was an affidavit issued proving that the mortgagor was not married or where consent was properly issued but its existence is being disputed), thereby giving rise to unending frivolous and vexatious civil suits. This, in turn, has adversely affected many lenders in the process of mortgage recoveries, as a result, considerably increasing their Non-Performing Loans ratios.
In its welcomed intervention, the Court of Appeal in the Case stated, among others, that: “since the Mortgagor had stated by way of affidavit that he was not married, and the bank had taken reasonable steps to verify this, the Appellant who claimed to be the wife of the Mortgagor cannot now benefit from the Law of Marriage Act where a spousal consent is required before registration of a mortgage.”
Facts:
In brief, the facts leading to the Case indicate that the Respondent advanced a loan facility to F. B. Manuke (the Borrower) using the title deed of Julius Andrea Pangani (the Mortgagor) over his house located on Plot No. 10, Block “V”, Ilala in Iringa Municipality as collateral. The title deed was registered in the name of the Mortgagor.
Further, the Mortgagor swore an affidavit showing that his marital status was single. Sometimes later, the Borrower defaulted on the loan facility, and the Respondent consequently, exercised her right to sell the mortgaged property. Cognizance of the impending action of the Respondent, the Appellant, claiming to be the wife of the Mortgagor, sued the Respondent, first, at the District Land and Housing Tribunal (DHLT), alleging among others that, her consent to create the mortgage was not obtained.
The Appellant was successful at the DHLT, whereby the sale of the mortgage property was halted, and she also obtained a declaration that, the mortgage property was indeed a matrimonial residence over which a mortgage could not have been created without her consent.
The Respondent being aggrieved by the decision at the DHLT, appealed to the High Court of Tanzania, whereby in its reasoned decision, it held that the Appellant failed to establish that she was the spouse of the Mortgagor on account of the mortgage property. As a result, the Respondent was entitled to sell the mortgage property to recover the loan. The Appellant was aggrieved by this decision, and hence, appealed to the Court of Appeal.
The Court of Appeal Decision:
In its landmark decision, the Court of Appeal framed the issue for its scrutiny and ultimately determination, as being whether the mortgage of the suit property was proper in law?
In addressing the above issue, the Court stated that prior to the amendment of Section 114 of the Land Act which was effected through Section 8 (2) and (3) of the Mortgage Financing (Special Provisions) Act, No. 17 of 2008 of the laws of Tanzania, as amended from time to time (the Mortgage Financing Act), the duty was imposed on the mortgagee under Section 59 (1) of the Law of Marriage, Chapter 29 of the laws of Tanzania, Revised Edition of 2019 (the Law of Marriage Act), which compelled any party who had an interest over a property to be mortgaged, to register a caveat so as to preserve his/her interest.
After the above amendment, the lodging of a caveat was no longer a requirement of the law as per Section 8 (2) and (3) of the Mortgage Financing Act, which has shouldered that responsibility to the mortgagor to disclose the information of his/her spouse.
For ease of reference, Section 8 of the Mortgage Financing Act reads as follows: -
“….it shall be the responsibility of the mortgagor to disclose that he has a spouse or not and upon such disclosure the mortgagee shall be under the responsibility to take reasonable steps to verify whether the applicant for a mortgage has or does not have a spouse.”
The Court of Appeal stated that the above is the position of the law as afar as the issue of disclosure is concerned, and that, the mortgagor is required to depone an affidavit to express his/her marital status as required by regulation 4 (1) (c) of the Land (Mortgage) Regulations, 2005 which reads as follows: -
“if the applicant states he or she is not married and the mortgagee has reasons to believe that, the statement might be incorrect, the mortgagee may require the applicant to produce an affidavit to the effect that the applicant is not married.” In the Case, it was undisputed that the Mortgagor did provide an affidavit proving that he was single. With that information, the Court of Appeal held that the Respondent had no reasons to disbelieve him, and it was on the strength of the information which the Respondent believed it to be true, that is why she disbursed the loan to the Borrower.
Further the Court of Appeal stated “…since it was sufficiently proved that the mortgagor was not married and there was no any caveat whatsoever registered, then the Appellant cannot benefit from the provisions of Section 59 (2) of the Law of Marriage Act and Section 161 of the Land Act on account of the fact that she did not have a registrable interest in the mortgage property.”
The Court of Appeal dismissed the Case on the basis that, the Respondent was in order to rely on the affidavit, trusting that there was no any other third-party interest on the mortgage property.
Conclusion:
This landmark decision comes at the right time for lenders who rely on matrimonial mortgages as collateral for their loan facilities. This, will now, be both a sword and shield, against those ‘alleged spouses’ who resurface only when a lender is in the process of recovery, and with a mischievous intent to only frustrate the recovery process.
For lenders relying on matrimonial mortgages, it is important to ensure that due diligence processes are constantly upheld, including, obtaining affidavits from mortgagors who claim not to have spouses.
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
