Can the bank sell your house for a fraction of its worth

Can the bank sell your house for a fraction of its worth

Until recently, court rules have allowed for banks to sell repossessed homes for next to nothing at auctions. This was possible as no reserve price was required to be set. Naturally, this led to ‘fixed’ auctions and property enthusiasts quickly capitalising on those who defaulted on their home loans.

Let us rewind. The majority of South Africans purchase their homes (residential immovable property) with the assistance of a home loan provided from a bank. This entails the bank registering a mortgage bond over the property as security for the bank in situations (more often than not) where a debtor fails to repay the initial loan granted and finds himself in default. Where the debtor defaults on his monthly instalments, the bank (now a secured creditor) can by way of legal proceedings attach the debtor’s assets (the immovable property) and sell the property at an auction to the ‘highest bidder’ without a reserve price and claim the outstanding amount owed by the debtor.

In light of the abuse that was taking place, together with the numerous court cases opposing this hardly fair process, in December 2017, the court rules were amended. The newly amended rule, namely rule 46A of the Uniform Rules of Court, applies whenever creditors seek to execute (attach and sell) a debtor’s residential immovable property. The rule provides that a court must first consider alternative means by the debtor in satisfying the debt, other than by way of execution against the debtor’s primary residence and further, not order the execution of the property unless after having considered all of the relevant factors, execution against the debtor’s residential immovable property is warranted.

Where the execution is warranted, the Rule allows for the court to set a reserve price when the property is to be sold in execution.

Whilst the amended rule makes provision for a reserve price to be set, it also provides that alternatives must still be considered when deciding whether the execution is warranted and as such, the setting of a reserve price is not mandatory. Unfortunately this lead to inconsistency in judgments involving the repossession of homes as some of the courts were still ordering the execution of primary residences without a reserve price. The most popular of these judgments was the case of Given Nkwane, whose repossessed home valued at R470 000.00 was sold for just R40 000.00

As a result of the inconsistencies in judgments, a Directive issued by the Judge President of the South Gauteng High Court ordered a full bench of the High Court to remedy the abovementioned inconsistency and ultimately determine the circumstances under which a court should set a reserve price in the execution of primary residences.

The landmark case of ABSA Bank Limited v Mokebe did just that. The Court held inter alia that:

  • save for in exceptional circumstances, a reserve price should be set by a Court in all matters where execution is granted against immovable property, which is the primary residence of a debtor, where the facts disclosed justify such an order
  • The amended rules reinforced with the aforementioned precedent intends to thwart the abuse experienced by many South Africans and further regulate the manner in which primary residences are now declared executable. Only Judges will have the authority to declare residential immovable property executable and only after all the alternatives are explored and all the relevant legal factors are considered, will the property, in most instances save for exceptional circumstances be declared executable with a reserve price being set. However, if a reserve price is not met, the court still has the discretion to make an order as to how execution is to proceed.

    There is hope!

    Hope is not lost as a number of remedies are available to the struggling debtor before the execution stage. These include applying for a debt review under the National Credit Act, whereby the debtor under review may receive a new and affordable payment plan. Generally, at the first sign of a repayment issue, Banks endeavour to engage with the debtor in an attempt to assist the debtor in meeting the debtor’s monthly instalments. Most banks also offer ‘help you sell’ or ‘easy sell’ programmes, further assisting debtors in selling their houses more speedily and at prices better than what would’ve been achieved at auction. We suggest that should you find yourself being served with a summons, that you should seek legal advice with a view to ascertaining whether there are any grounds upon which the summons can be defended. It has been our experience that certain of the summonses issued by banks against defaulting debtors are laden with mistakes and inaccuracies in that the Banks attempt to claim for the payment of inflated costs and interest that they are often not entitled to.

    The new court rules and case law ultimately makes it more difficult for banks to take advantage of the ignorance of their clients and their financial situations by repossessing their clients’ homes and selling them for next to nothing.

    Author: Ryan Bouwer

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