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Banks to face R60 billion class action suit

Home loan providers’ sale in execution tactics questioned.

South Africa’s largest banks stand to face a R60 billion claim related to their conduct in attaching and selling the homes of defaulting debtors at prices below market value.

Advocate Douglas Shaw filed an application on Wednesday for direct access at the Constitutional Court (ConCourt) on behalf of 219 people nationwide and “the country as a whole”. It is to be argued that going through three courts (Magistrates Court, High Court and Supreme Court of Appeal) is inappropriate as the case is being brought by people who are “exceptionally poor” and have been made “even poorer by the unconstitutional actions of banks”.

Listen: Banks to face R60bn class-action claim

Court papers shared with Moneyweb list Nedbank, Absa, FirstRand, Standard Bank, Changing Tides 17 – a trustee of the SA Home Loans Guarantee Trust – Investec, the National Credit Regulator, the South African Human Rights Commission, The Rules Board and the Minister of Justice and Constitutional Development as respondents.

Allegations

The case seeks to establish whether South Africa’s current law of sale in execution – whereby properties are sold at a public auction held by a Sheriff of the Court – is unconstitutional. For a sale in execution to take place, a bank must first obtain a court order to attach and sell the property so as to recover home loan repayments that are in arrears.

Shaw argues in a 151-page application that this process is not constitutionally sound in that it allows properties to be sold for less than their market value “which is against the rights to property and housing”, as defined by the Constitution.

Furthermore, it terms a previous ConCourt order that stated that banks must only sell a property as a last resort “a dead letter”. Domestic banks are said to sell property five times more frequently than international norms and in some cases for only 50% of market value. As such, the applicants want the court to explain what is meant by “last resort”. Shaw argues that the High Court should not issue an execution order if the loan can be rescheduled or if there is sufficient equity to allow for the resolution of payments in arrears, as well the possibility of renting the property out and using the proceeds to cover bond repayments and the ability of the owner to sell the property or have the site developed.

The papers refer to one case where a bank attached and sold a property thought to have been financed by a R300 000 loan, when the actual loan amount was only R30 000. “Despite this being drawn to their attention, they went ahead and sold the property. They sold it for R236 000 when it was worth R700 000 at the time,” the papers state. “It is now common cause and the bank admitted it did so wrongfully. No compensation has been forthcoming from the bank to date. This is typical of bank ethics (or lack thereof). Even when there is a clear bank mistake, it is necessary to sue them in order to recover the funds. Most people do not have the resources. Therefore, regulation is necessary.” The former property owner is said to have lost out on the returns from a 14-unit development due to the bank error.  

The applicants also want the court to order that no debt shall be reclaimable from a creditor when a property is sold for less than the value of the bond. They would also like to establish that attached properties may be sold by estate agents rather than the sheriff to maximise sales prices for the benefit of debtors and creditors. 

Liability in delict

The case also seeks to hold the banks and home loan providers liable when they sell properties at prices far below their market value. “Banks are liable in delict (or tort) in all other countries studied for selling property for less than it is worth. It would be strange, with our Constitution, if we were the only country where banks could act with impunity regardless of the damage done,” the papers state. Shaw said these countries include England, Scotland, New Zealand and Australia.

In arriving at the R60 billion figure, he explained that around 100 000 homes have been sold in execution since 1994. It is estimated that 10% of these homes were sold for close to market value and as a last resort, with the remaining 90% sold below prevailing market values. “The average house price in today’s money is about R1 million and the average discount that properties have been sold for appears to be around 50% of market price. Thus, the damage done to these 100 000 people is expected to be R500 000 times 100 000, which is R50 billion.” The maximum damages that could be awarded if every person affected since 1994 joined the claim would be R60 billion, which is equivalent to around one year’s income generated by the big four banks, the papers sate. 

Criminal liability

The applicants also want the Director of Public Prosecution to look into the criminal liability of the directors of each respondent bank for “knowingly selling properties for less than their value after the Constitution was introduced”. It stipulates that a report should be presented to the court within six months.

Banks respond

The vast majority of claims are leveled against Absa, FNB, Nedbank and Standard Bank.

Prior to the filing of the court papers, representatives from FNB and Standard Bank told Moneyweb that they were aware of intentions to launch proceedings against various banks and that the allegations would be formally reviewed and addressed once tabled before a court.

Nedbank also confirmed it had seen a draft version of the papers, and that it would defend the matter.

Case funding

Shaw said only some of the applicants in the case have paid him fees. In cases related to township homes, of which there are around 100, people have paid him R1 000 each. He said he has received 10% to 20% of “normal fees” for the work that he has done and is pursuing the case as he thinks it is right.

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One can only wish Advocate Shaw the best of luck in this endeavour and hope that other legal counsel offer their services to right this wrong which has deprived thousands of their homes in the chase to make profits for shareholders and earn bonuses. These sales in execution operate in a tight bubble where collusion between Sheriffs,banks and property speculators is carried on in a protected environment which means that the homeowner is the loser in every instance.

the tyranny of the banks soon may it be destroyed
a queen once when told about the peasants saying they had no bread retorted let them eat cake she was eventually beheaded. the crass
attitude of these institutions needs to be addressed and their beheading be the penalties they should pay plus interest(they love this word)
many thanks Mr Shaw

……. and years will go by and nothing will happen to these so called “too big fail” banks. or they will be fined 10% of the sixty billion rand and the poor home owners will get “ziltch”. As it always happens in this country. more eazy money for the government

It is a well known fact that the biggest criminals on this planet are the banks. South Africa is no exception.

After the banks are brought to heel. Next to be targeted is the cell phone companies and thereafter D.S.T.V and their strangle hold on sports rights.

I think South Africa has become the paradise for White Collar Crime as criminal elements in our financial system infiltrated our law enforcement system which is degenerating daily
Why would Investec want to keep Kebble’s rotten empire (JCI) afloat?
Kebblegate set a precedent for institutional take-overs, as Investec was at it a decade ago already when it bagged the NPA in order to control which cases don’t get heard in court and remain covered-up forever.
On September 15, 2017, I sat through this North Gauteng High Court case, where a group of Randgold minority shareholders, by a landmark ruling, got permission to proceed with a claim in open court against Investec Bank for at least R 1.30 billion.
We are bombarded by the #Guptaleaks emails every day and wonder why no action is taken etc. Exactly the same thing happened in this case as the JSE (of which Investec CEO – Koseff was then a director) stood passively by!
Investec spent a decade demonstrating that it has no respect for regulations, law, or common decency (as extensively reported in the public domain – and…Week 199) . Investec has come short of the 11 th Commandment : don’t get caught!

Investec did not disappoint me either by being included in a list of local Banks that are being investigated by the Competition Commission for exchange rate fixing etc…

”Thou shalt not steal: an empty feat, When it is so lucrative to cheat” Arthur Hugh Clough (1819-1861)

Its very true. I have been buying properties in Sheriffs since 2007, There were times where i bought property in Magabheni (Sheriff Umbumbulu) for R200.
Most of the township property have no reserve price, which means the bank is accepting anything because they consider properties in township as high risk
Its very unfair to sell property valued at R250.000.00 for R1000

It is so personal to me this situation, I relate in every way. This would really go a long way to assist home owners. Out of these options if it was law, I would have been saved due to these factors;
I’m sure the house was worth more than the money they sold it for
In three months after my maternity leave, I was going back on my normal salary, so attaching it for arrears amount would have been paid off in 2years minimum.
Plus I wasn’t yet on 90% of property value in owing amount.

Those banks, those banks. Who will stop this decimation of our struggling economy. Who will stand up and FIGHT and stop this financial carnage. The extraction of so much of our cash from our hard earned GDP that ends up in the banks none productive pockets. Dear God have mercy on us. The banks would have us think we are a 3rd world people living in a 3rd world country and deserve to pay high interest rates. Is there not a man among us who can be counted to put an end to this finance, banking, insurance, system that will make sure we remain near the most unhappy country in the world.

How can we get in and add SAHL too.

In 2007, we applied (and started) debt counceling, only to discover over a year later that SAHL never agreed to the terms and caused the debt counceling to fail. We then applied for sequistration, which SAHL also apposed.
We moved out of our flat when I got retrenched and started renting it out to fill the void, but we could not make payments. SAHL appointed then got a firm to auction our flat but we received an offer that would have covered the whole outstanding amount. SAHL or their lawyer declined the offer we received and sold the unit on auction way below what we owed. We have been struggeling to make payments for the last 7 or 8 years, we are paying them, but what we can afford.
After I appealed about a year ago, SAHL dropped all the interest for the entire period.
We would like to add SAHL to the list of the banks being sued.

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