Property sold at below market by bank

I borrowed money from a bank and secured the loan with my house. Due to financial difficulties, I failed to repay the loan on time and the bank decided to auction my house. The house was sold at a very low price compared to its actual value. I have also been informed that no recent valuation was conducted before the sale. The buyer is now claiming that he is a bona fide purchaser and that the sale cannot be challenged. Can I challenge the auction and have it set aside?

WR, Arusha

The law governing mortgages imposes a duty of care on a mortgagee (such as a bank) exercising its statutory power of sale to obtain the best price reasonably obtainable at the time of sale. This means that the bank must ensure that the mortgaged property is not sold at an undervalue. The Court of Appeal of Tanzania has reaffirmed that where a property is sold at a price which is 25% or more below its market value, there ensues a presumption that the mortgagee has breached its statutory duty of care. To comply with this duty, the mortgagee must conduct a fresh valuation of the property prior to sale by a qualified valuer and be approved by the Chief Valuer. The burden of proving that such valuation was conducted lies with the mortgagee.

In your case, if no valuation was conducted, or if the bank cannot produce evidence of such valuation, the sale may be declared unlawful. Additionally, if the property was sold at a price significantly below its market value, specifically if the sale price was 25% or more below the market value, the Court is likely to find that the bank breached its duty of care. Regarding the purchaser’s claim as a bona fide purchaser, the law offers protection only where the sale is lawful. Should it be tainted with illegality, including non-compliance with statutory requirements such as proper valuation, such protection is not available. A purchaser cannot obtain a valid title from an unlawful auction. Therefore, you can institute proceedings in Court to challenge the auction. If the Court is satisfied that the statutory requirements were not complied with, it may declare the auction unlawful and set it aside, notwithstanding the purchaser’s claim of being a bona fide purchaser. Considering the intricacies involved you should consult your lawyer.