Banks hit with class action suit over ‘unlawful’ home foreclosures

Dispossessed homeowners demand billions in damages from major banks for selling their properties at a fraction of their worth.
All the major banks in SA are cited as respondents, and could be facing claims of R60bn or more. Image: Shutterstock

Hundreds of dispossessed homeowners filed a class action suit in the South Gauteng High Court on Tuesday (February 10), claiming damages from the major banks for foreclosing and then selling their properties for a fraction of their market value.

The applicants attempted to have the case heard directly in the Constitutional Court in 2017, but the judges ruled it should be heard in the normal way in the High Court.

The dispossessed homeowners are asking to be recognised as a class of applicants with substantially the same complaints. Many are clients of the Lungelo Lethu Human Rights Foundation, which is an applicant in the case.

The court application asks the court to recognise several different classes:

  • Those whose properties were sold for more than 10% below market value since the Constitution came into effect in 1994;

  • Those whose properties were sold by the banks in a manner that was not a “last resort” as required by law;

  • Those who remain in debt to the bank after their properties were sold at prices below market value; and

  • Those who were overcharged on their bond fees in the course of legal action.

All the major banks are cited as respondents, as well as the National Credit Regulator, the SA Human Rights Commission and the Minister of Constitutional Development.

It is estimated that up to 100 000 South Africans have lost their properties through foreclosure since the Constitution came into effect.

Opt-out case

This is an opt-out class action, meaning that anyone who fits within one of the class categories is automatically assumed to be part of the action unless they specifically opt out.

It has been estimated that dispossessed homeowners have suffered a 35% loss of home equity through the foreclosure process, which means the banks could be facing claims of R60 billion or more.

Advocate Douglas Shaw, legal representative of the applicants, says the mortgage banks have routinely claimed they use foreclosure as a last resort, but the evidence suggests otherwise.

“Foreclosure, as it was practised by the banks in SA before the current reforms, was cruel and inhumane.”

“It has resulted in tens of thousands of families being rendered homeless at a time of financial distress, and most never recover from this. We are saying that the banks have violated the Constitution by arbitrarily depriving South Africans of their properties when alternative means of recovering their loans were available to them, and by stripping them of dignity.

“The result was a massive transfer of wealth to property speculators and the banks. This case is intended to right this wrong.”

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, says the case is vital to restoring human rights and dignity for those stripped of their homes.

“Most of those affected are from poor communities. SA has a shocking history of property deprivation and eviction.

“In the 1980s it was the apartheid government that was doing the evicting, but this was child’s play compared to what the banks have managed to accomplish over the last 25 years. It is beyond argument that the banks have abused the court processes to have people thrown out of their homes, often for trivial arrears. The evidence is incontrovertible.

“Most of our applicants were not even informed that there was a judgment against them. They only found out when the new owner turned up with an eviction order. The banks are violating the human rights of their customers and they are abusing our court system. This must stop.”

Until December 2017, foreclosed properties were sold at sheriffs’ auctions without a reserve price, which resulted in some properties being sold for as little as R100 (and even R10), leaving the defaulting homeowner with a substantial debt to the bank.

The high courts in 2018 changed court rules to allow reserve prices to be imposed by judges. The widespread sale in execution of homes at below market price violates Constitutional rights against arbitrary deprivation of property, argue the applicants.

Many properties have been sold for “50% or even 90% less than they were worth,” according to the court papers.

Syndicates

It has long been claimed that criminal syndicates comprising bank representatives and property buyers operated unimpeded from the sheriffs’ offices, with bid rigging and unlawful sales in execution being rammed through even when the homeowners were in the process of appealing court judgments against them, or making arrangements to catch up on arrears.

Some of the applicants had their properties sold at auction for a fraction of their market worth even when they had better offers from private buyers.

Others had judgments issued against them even though they were up to date on their monthly mortgage instalments. Some attempted to have their arrears spread over the remaining term of the mortgage loans, a routine practice in the UK, but SA banks are seldom willing to do this, says Shaw.

Some of the applicants lost their houses even though they had rescission applications or appeals pending before the court – which should freeze any attempt to sell the property.

Many of those whose properties were sold in the foreclosure process lost most or all of the equity in the home – their life savings in most cases.

Focus

The applicants are asking that the court trial focus “on the questions of whether the witness’s property was sold for substantially less than value and whether the sale was a last resort and thus whether the bank is liable to that class and to avoid issues extraneous to those issues”.

Victory for the applicants would result in financial compensation for their losses, the rescinding of any judgments against them and the expunging of adverse listings with credit bureaus.

One of the deponents in the case, Innocent Gwisai, says banks have a common law duty of care to take reasonable measures to only sell as a last resort and to minimise the damage to the client when it does sell in execution (SIE). They also have an obligation to respect the right to housing and other constitutional rights such as property, dignity, just administrative action, and life.

The banks have shown a pervasive disregard for these rights over a prolonged period, even though they may have been in possession of a court order, says Gwisai.

At a Wits University presentation last year, on the problems surrounding sales in execution, Wits School of Law associate professor Jackie Dugard said courts were still pursuing SIEs on an ad hoc basis and there was no guidance regarding what reserve price to set in which circumstances.

“As a result, people are still losing their homes to sales in execution that are not the last resort and where there is an arbitrary/no reserve price set.”

Stephan van der Merwe, senior attorney at Stellenbosch University’s Law Clinic, says although SA has some excellent statutes and case law in defence of consumers, including the National Credit Act and the Consumer Protection Act, enforcement of these laws in the courts remains a problem.

“There is huge inequity between consumers and creditors when it comes to courts. Banks are able to outlast consumers when it comes to litigation because of their vast financial resources. Consumers rightfully complain that they are denied justice in a system so heavily weighted in favour of the banks.”

International trends

The class action suit comes at a time when judiciaries around the world are coming out in favour of distressed consumers.

Last year the European Union issued the Unfair Contract Terms Directive to tilt the scales of equity more in favour of consumers. This came after an avalanche of complaints that borrowers and consumers were being required to sign agreements heavily weighted in favour of creditors.

“Contract terms are unfair and, therefore, not binding on consumers if, contrary to the requirements of good faith, they cause significant imbalance in the parties’ rights and obligations to the detriment of the consumer,” says the EU directive.

Read:
Congratulations, your mortgage arrears have been extinguished
Forgive them their debts

Legal bias

Many South African consumers have complained of a legal bias towards creditors with regards to both unfair contract terms and the ability of deep-pocketed banks to out-litigate their customers in court.

Thousands of Europeans have lost their houses in recent years due to mortgage loans priced in Swiss francs. Some Polish homeowners ended up owing twice the original amount borrowed due to the doubling in value of the Swiss franc since 2008. The European Court of Justice last year ruled that local courts could substitute the terms of contract and allow payment in local currency.

In Romania, the Datio in Solutum (DIP) law allowed overindebted consumers to hand back their homes to the bank and walk away free of debt under certain circumstances, one of which was financial hardship. This point was routinely challenged by the banks in court.

Like many other European countries, many Romanians had taken out mortgage loans in Swiss francs. The Romanian Constitutional Court last year made it easier to plead financial hardship, and therefore satisfy the requirements of the DIP law, which means customers will have the choice of returning their homes to the bank free of debt, or adjusting the mortgage repayments on terms that are affordable to them.

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I hope they put these crooked banks out of business.

Nice. The banks had it coming. It is about time someone takes them on.

A home mortgage bond literally binds the lender to a bank for 20 years or longer. Instead of protecting and honouring such valuable long term relationship with a “captured” client, the banks (all of them) abused the trust placed in them and acted as the mean, bad majority partner of such relationship – not striving to act in the best interest of their unsuspecting clients but rather in their own selfish and misplaced interest above all else. Such actions is in direct contrast to their fiduciary duties towards trusting individual clients, who also do not have the means to or unabated access to legal resources and recourse that could enable them to fight the big bad bully. Shameful to say the least.

Best news in a long time, banks act like God with skin.

I personally know a number of Absa Bank employees who are property barons, all bought at auctions, all Absa repossessed houses. The same goes with repossessed cars. The practice was so wide spread to the extent that Absa blocked employees from participating in buying of Absa repossessed properties.

Which should probably have been the base case, if these institutions had any ethics whatsoever…

Well it’s Absa

Say no more

Long time coming. I for one have no sympathy with the banks as some of the practises of the last 25 years is questionable. As to the ‘old apartheid’ – same abuse of system. I’m in the property transfer industry. It was always a matter of ‘I know you and you know me, let’s help each other” of the bank employees and private individuals -especially after 1980’s property bubble burst – it was a ‘killing. Those private individuals having become property developers at the expense of those left destitute. The same practice under apartheid and now: If there aren’t any satisfactory bids then the bank will buy-in a R10,00, R100,00, etc., knowing that they [banks] aren’t the looser as they’ll then demand payment from the mortgagor being kicked out. Those properties will then stand empty for years to come and fall into disrepair under ‘management’ of the banks. This matter will end up in the ConCourt and their verdict will set the benchmark – long overdue.

So, you were part of this???

Not a very good comment. Try again.

Oaktree – apology will be accepted. Wasn’t part ‘part of this??’. Transfer of properties – we’ve to comply with contract/instructions received – whomever it may be.

How can i apply they took my piece of land Nedbank and sold it for nothing and said it is a community project

If you need help against banks then contact the people at http://www.bankinglawadvisor.co.za . Lawyers who charge fixed prices and reasonable amounts and know how to help you against the banks. They often will brief Adv Shaw to work on your case especially if you ask for him specifically.
This is an opt-out class action, meaning that anyone who fits within one of the class categories is automatically assumed to be part of the action unless they specifically opt out.
You have to work through an attorney to contact an advocate.

How do we JOIN this Class Action ?

Please supply us with the CONTACT details. Those of us who have been CHEATED by the banks. We want to JOIN in the Action.

Short the SA banks:
1. They have this mortgage mess.
2. Cost of funding will go up post Moodys downgrade.
3. Bad debts will rocket after the budget speech.
4. No growth in the economy so no lending book growth.
5. House prices depressed so quantum of mortgages reduced.
6. Wealthy are fleeing the country in thousands so fee income will from from wealth management is dropping as are SA asset prices..daily!
7. we are over banked as it is -too many banks-competition for correct customers is rife.
8. EWC may mean that the banks are technically insolvent ie mortgage book larger than equity-pay a bank for an asset that I no longer own-no way
9. Taxes have to go up so less debt serviceability, new cars, capex etc.

Fact is that if you do not have a title deed then you don’t own it, you’re just renting.
On such a sale, the bank is selling its asset.

Thank You Lord; amen.
Thank You Moneyweb.
IT is TIME ! PAY-BACK TIME. oh YEAH.
JAIL-TIME too. Right.

It’s a very well known fact in the WC that gangsters (not the ones in suits) go to these auctions and intimidate other bidders, to scare them away and thus drive down prices. They very much act in cahoots with the relevant Sheriffs and of course the WC Master’s Office. The banks obviously know this, its common knowledge but hey, what do they care if they get their reserve? I would bet that this is an excellent money laundering trick, plus the benefit of deep discounts on the properties they buy

For many years I acted for the old Perm foreclosing and selling properties on auction. It was always the last resort to sue and, in those days, everything was done to NOT sue. The bank regarded P I Ps as a huge liability as they added costs to maintaain and secure. Often properties were bought in at R 100 BUT if resold at a market price, after costs, the client was credited with any profit made so the Perm did this, even though, legally, they did not have to. If the Banks do it differently now, that is very sad

a Bank repo, property put on public auction, in my time was the last thing a bank wanted. When buying in on auction all expense on the property was borne by the bank. Eviction costs, repairs, maintenance, guarding against vandalism, rates etc. It was just an expense and breaking even with the original loan impossible. At the bank I worked no employee could purchase a property on auction. The same could not be said for Fnb and it seems Absa.

I’ve seen a house auctioned off for R10 in what the banks called or still call red arrears at least 50 houses if I recall (sometime in the 90’s). The large scale auctioned were bought off by estate agents who would forcibly remove the owners or tenants using ‘alternative’ means to put it politely. At year end all the bank would say is we have reduced our NPL’s. The book is much healthier.

End of comments.

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