FROM ABC ATTORNEYS
Hi ABC Attorneys! I’m Damian. I want to get a loan from a bank. However. I do not have a security for it. Is it possible for a friend of mine to provide security for my loan? Another thing I would like to know is when a house is put up as security, does it mean it becomes the property of the bank?
Damian, it is possible since the law regulating mortgage transactions in Tanzania provides for what is known as “third-party mortgage”.
According to section 112(2) of the Land Act (CAP 113), a third-party mortgage means a mortgage, which is created or subsists to secure the payment of an existing or future or contingent debt or other money or money’s worth or the fulfilment of a condition by a person, who is not a mortgagor, whether or not in common with the mortgagor. What is meant under this section is that a person other than a borrower may provide security for the loan and that transaction will be termed as a third-party mortgage.
However, other requirements of creating a valid mortgage must be adhered to, for example, if your friend’s property is a matrimonial property, then the requirements put forth under section 114 of the Land Act must also be complied with. That is, the consent of the spouse must be obtained.
With regard to your second question, section 116 of the Land Act (CAP 113) provides for an answer. That a mortgage shall have effect as a security and shall not operate as a transfer of any interests or rights in the land from the mortgagor to the mortgagee but the mortgagee shall have all the powers and remedies in case of default by the mortgagor and be subject to all obligations that would be conferred or implied in a transfer of an interest in land subject to redemption.
Thus, for all intent and purposes, a mortgage is not a transfer, it is only a security and as a security, the property remains in the hands of the mortgagor. Only when there is default in payment of the loan, that is when the bank (lender) can exercise the remedies spelled out under the provisions of section 126 of the Land Act. Remedies include appointment of a receiver, lease or sublease a mortgaged land, entering into possession of a mortgaged land or as a final remedy, sell the mortgaged land. However, the exercise of these remedies is subject to the right to redeem the mortgaged property, and such a right can be exercised at any time before the sale is complete.
In the upshot, it is possible for you to get a loan while the security comes from your friend, as the law allows it, but compliance with other provisions relating to mortgages must be complied with. Furthermore, mortgaging the property does not mean transfer of ownership to the bank, it is only meant as security for the repayment of the loan, thus the property will remain in the hands of the mortgagor. For further information contact your lender or your lawyer.
Hello! I’m Maria. I would like to know if there are any formalities to consider when disposing a registered land.
Well, Maria, as a matter of fact, there are formalities, which must be adhered to in the process of selling registered land as provided for under the Land Act, 1999.
First, the law requires that the commissioner for land be notified whenever any disposition is to take place as per section 36(3) of the Land Act. The law also empowers the commissioner to consider and approve certain kind of dispositions as provided for under section 37 of the Land Act. The notification and request for approval must be in prescribed forms. In addition to the above requirements, the law also makes it mandatory for instruments affecting any disposition to be registered if the instruments are to be effective. Such instruments must also be executed by each of the parties consenting to them. Furthermore, a contract for disposition or a right of occupancy must be in writing or at least there should be a written memorandum of its terms, and must be signed by a person against whom it is sought to be enforced, for it to be enforceable in a proceeding.
The requirements of registration, execution and enforcement of only written contracts, implies that any instrument affecting disposition to land must be in writing. These formalities are required by the law, failure to comply will render disposition either ineffectual or void depending on the circumstance. A disposition will be ineffectual if it fails to comply with the requirements of the land Act pertaining to disposition of land as per section 61(1) of the Land Act. However, there are formalities which if not complied with will render the disposition altogether void as per section 36(1) (b) of the Land Act.
Thus, in disposition of a registered land, compliance with the provisions of the Land Act is of utmost important for the disposition carry out the intended goal, that is, transfer the interest in land from one person to another. Failure to comply with the formalities will render the transfer inoperative. Please contact a lawyer for further clarification.
