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Evidence that banks sell repossessed houses for cents in the rand

According to an affidavit filed in support of the R60bn class action suit by dispossessed homeowners against major banks.
In the 200 worst cases the properties were sold for less than 17.2% of their market value. Dozens were sold for less than 1%. Image: Shutterstock

It’s been known for years that the banks have been flogging off repossessed properties for a fraction of their market worth, but the evidence was anecdotal and fragmented. Not anymore.

An affidavit filed in support of the R60 billion class action suit brought by Lungelo Ditokelo Human Rights Foundation against the major banks, based on a sample of about 12 000 repossessed properties, found that these properties were sold for 50-60% of their proper value, mainly through sheriff’s auctions.

The class action suit, which is being defended by the banks, seeks to recover billions of rands in lost home equity as a result of this practice.

What’s disturbing about this evidence is how far out of line SA is with practices elsewhere in the world.

“Our South African banks sell property about five times more than the international average as a percentage of the total number of outstanding bonds and 20 times more than best practice,” says Garth Zietsman, a statistician who analysed data from the National Credit Regulator.

Even more disturbing is that the poor are worst affected.

Lower valued homes were sold for about 40% of their market value, against 81% for the higher valued ones.

According to the evidence

The evidence shows dozens of properties were sold for less than 1% of their market value. Of the 200 worst cases, all were sold for less than 17.2% of their market value.

The banks have yet to file their replies to the case.

In one case highlighted by Zietsman, a R1.3 million property was sold for R1 000 at auction.

In this case, the lending bank was FNB. Standard Bank and Nedbank also had several properties selling at auction for R1 000 when the market value was R200 000 to R440 000. There is no comparable data available for Absa.

As can be seen from the banks’ responses below, it seems the rates of evictions and properties ending up in sale in execution (auction) has declined during the Covid crisis. Banks say they are endeavouring to assist clients in difficulties through various interventions (see below).

Zietsman’s analysis focuses on sales of repossessed properties from 2011 to 2014, before new court rules came into effect obliging banks to establish a reserve (or floor) price before auctioning properties.

Prior to this, properties could be sold without floor prices, resulting in some being sold for as little as R100 and even R10.

Practices such as this gave rise to claims that criminal syndicates were operating out of the sheriffs’ offices.

‘Inhumane’

King Sibiya, head of the Lungelo Ditokelo Human Rights Foundation, is not convinced of the banks’ self-proclaimed virtue and argues that SA has among the most inhumane practices in the world when it comes to bank repossessions.

“Here we are in the middle of a Covid crisis when millions of people have fallen into arrears on their homes through no fault of their own, and the government imagines it is business as usual, where banks can carry on like they have done for decades. Eighty percent of the cases before the high courts are brought by banks attempting to recover debts and evict people from their homes.

Read: Judges give banks a grilling over home repo practices 

“Other countries impacted by Covid put a total freeze on evictions, while we imposed a freeze of three months. Three months? There’s no justice in that.

Zoom justice

“We have default judgments being handed down by Zoom judges because people cannot attend court in person to defend themselves,” says Sibiya.

“But then the sheriff comes to evict them, and that is not virtual. That is real.”

He adds: “People have no idea how to access this virtual justice system – which is in itself a denial of people’s constitutional rights of access to justice.”

The Foundation says it will be lobbying the Department of Justice to put a total freeze on evictions while the Covid crisis is still in effect. “People will get thrown out of their houses in the thousands, and make no mistake – that is when you will see a Covid crisis out of control,” says Sibiya.

The bogus arrears matter

Analysis by consumer advocate Leonard Benjamin suggests that many properties are being repossessed over bogus arrears figures. Homeowners are being sued for arrears that have effectively been written off, due to a practice known as “double dipping”.

Benjamin says the banks are automatically spreading any arrears over the remaining term of the loan each time interest rates are adjusted, which has the effect of extinguishing the arrears. All the customer has to do is pay the new, adjusted instalment to catch up on any outstanding amount owed. Yet the banks continue to pursue customers through the courts for the lump sum arrears. The UK courts ruled against the banks on double-dipping – something local banks have denied doing.

Advocate Douglas Shaw, who is representing the Foundation in its class action suit, says the banks resisted the introduction of a reserve price system at sheriffs’ auctions which would allow homeowners an opportunity to recover some of the equity in their properties.

Now that reserve pricing is part of the law, the banks are still managing to game the system by arguing cases in the high courts instead of the magistrates courts, driving people further into arrears through higher legal costs, and by setting reserve prices so low as to prejudice the defaulting homeowner.

“The government needs to treat this as a national crisis and put a freeze on evictions until the Covid crisis has been handled,” says Sibiya.

FNB’s response

How many mortgages (and what percentage of mortgage accounts) are now in arrears as a result of lockdown difficulties or rescheduled arrangements?

Our stance is to assist customers and only as a last resort to proceed with litigation. Over the course of Covid-19 and the lockdown, we have focused on trying to assist customers via our Cashflow Relief programmes. During the hard lockdown period, litigation was suspended.

What percentage of these cases proceed to sale in execution (ie. sheriff’s auction)?

Refer to question 1 re: suspended litigation during this period.

What steps are being taken to accommodate mortgage customers in difficulty as a result of Covid-related loss of income?

From 1 April 2020, FNB assisted customers with a customer-centric Cashflow Relief Plan to cover all instalments that a qualifying customer has with us. Our Cashflow relief was for a period of 3-months at prime interest rates with a flexible repayment term. Furthermore, a number of pre-selected customers were offered extended relief for a further 3-months, totalling a 6-month payment break. Our Cashflow Relief Plan covered our customers’ instalments across credit, insurance and FNB Connect repayments. We are committed to helping customers to minimise the impact of Covid-19 on their finance and continue to evaluate our assistance for customers on individual merits.

Nedbank’s response

Nedbank will respond, as appropriate, to the allegations contained in Garth Zietsman’s affidavit as part of those court proceedings. We do however wish to clarify that the assertion that properties are sold in execution for negligible amounts can be misleading if the complete context (as discussed below) is not provided.

The reserve price for sales in execution, being the minimum price at which the property can be auctioned for, is currently determined by the courts. This has been the position since December 2017. Prior to this, in any instance where Nedbank itself purchased a property at a sale in execution, the client’s account would always be credited with the fair market value of the property irrespective of the price at which Nedbank would purchase the property for. The client’s loan account would therefore reduce with the fair market value of the property and any surplus would be for the client’s benefit. The property would then be marketed for sale or auctioned by Nedbank, with a view to achieve the best price possible. If the property is sold or auctioned at a price which is higher than the fair market value, resultant profits (if any), after any [outstanding amounts] on the loan and property expenses are settled, are paid to the client. Nedbank receives no profit from these sales.

We are currently in a closed period (for financial reporting), and unfortunately not able to provide the stats requested. Nedbank has several options available to assist customers who are experiencing financial difficulties, such as payment arrangements and restructures. Each case is assessed on its individual circumstances and an appropriate assistance option is provided. We encourage customers who are experiencing difficulties in meeting their obligations to contact us as soon as possible. There are various ways for the clients to reach us. They can either go online via the Nedbank website, MoneyApp, or call the dedicated call centre number (0860 110 702).

Standard Bank’s response

Many customers fear telling their bank that they are not in a position to make a payment on a loan, however, the more engaged customers are, the more likely they are to keep their homes. It is important to remember, it is not in the bank’s interest to repossess properties our aim is to try to help customers keep their properties wherever we can.

Since the start of the Covid-19 pandemic Standard Bank has offered instalment relief for personal and business banking customers across its markets in Africa. It has also partnered with both private and public sector to provide debt and payment relief for small businesses across the continent.

We continue to engage with each of our clients based on their individual needs on a client-by-client basis. We have also encouraged all our clients to contact us as soon as possible if they are concerned that they are facing, or will face, financial distress. We have committed to do everything in our power to assist.

The nature of this will differ per customer and over the lockdown may have received a payment holiday, during which time they need not make any payments or may be allowed to make part-payments, while others may benefit from an extended home loan term with lower monthly payments.

As economies have opened, our clients have required less support, and many have resumed their payments. At the end of September, the PBB [Personal and Business Banking] SA client relief portfolio had declined from R107 billion to R61 billion, with mortgage lending relief reducing at the same rate. The vast majority of clients are up to date with mortgage lending instalments. This has also been assisted by the favourable interest rates which are at historically low levels.

In the extremely unfortunate outcome of repossession, a process that is governed the courts, properties are auctioned by the sheriff of the high court and minimum reserve price for these auctions are also set by the courts as a result to amendments Rule 46 (of the high court rules). Despite the setting of reserve prices, recovery rates are significantly impacted by condition of the property but more importantly the level of arrear rates and taxes as well as levies. These repossessions accounted for less than 0.02% of properties bonded with Standard Bank. This reduced by 60% as a result of the national lockdown. As the lockdown level have eased it expected to return to levels seen prior lockdown.

However, when a property is attached, everybody loses and therefore this process is only utilised when all other avenues to assist the rehabilitation the customer has been exhausted. We actively look at alternatives for our customers. Standard Bank’s EasySell process is in place to help such customers. This ensures that the best price possible is obtained for the property, the bond is settled and customer’s get their credit record back on track. Standard Bank, via the EasySell programme, also offers customers the benefit of reducing the outstanding balance. To date EasySell has assisted in excess of 4 000 customers via this programme.

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LOL –As if the banks are the ones at fault for their defaults !@!
What a socialist diatribe !!

What a ridiculous comment. Anyone serious in the SA property business knows all about the auction syndicates. The strong-arming of deperate sellers, the intimidation of potential buyers, hell even the complete fabrication of auctions, ie ask Wendy Appelbuam and her run-in with Auction Alliance, that was way back in 2012.

I lived next to an abandoned property of high value for 2.5 years.
Witnessed its demise into a derelict place with frequent visits by vandals.

Thank god they managed to auction it off to decent people for R1.7 mil (Probably 30% of value)

Now how is that bad hey CT EXEC ??

In my experience, the banks go as far out of their way as possible to avoid having to sell properties through Sheriff’s auctions, because they invariably lose money when they do. Also, on what basis can the banks be blamed for the auction syndicates?

The issue still exists amongst the current lot – Aucor, Claremart, High Street etc etc – smoke and mirrors to BS the buyers

to CT: Yes, sadly, I see this all too often in practice…

To Casper: If the banks evicted the person, then that was negligent for you are right that vacant properties are often occupied illegally.
: if the people left themselves (unusual) then the banks should have rented it out to maintain the value.

If the banks genuinely only found out about the property when it was in a poor state of repair and it was genuinely worth only 30-40% of its former value then of course they must now sell for this price. My objection is to banks selling for 50% off of what the property is worth.

What banks can do about auctions syndicates is sell for proper prices and make the deals available to ordinary people without huge deposits (10% are sale in executions should be reduced to 1%). They are starting to do this through websites.

Yes, correct. This is an age old story. The allegations have previously been found to be untrue. Properties allegedly sold at a discounted price, or a fraction of its “so-called value” are normally the ones left by the previous owner in a neglected, if not vandalised state and consequently attract very few bidders or none at all forcing the banks to buy it in at a fraction of the “true value”, since they have to spend a fortune to rehabiltate the property.

I sincerely hope that the condition of the properties at the date of was factored in, instead of just looking at market values.

My experience is that the Banks do nothing to these properties.

What people also forget is that any unpaid rates and levies owing on the property have to be paid by whoever purchased the property at the Sheriff’s auctions. I’ve seen a number of instances of run down properties with arrear rates and levies in excess of the property value. So while the property might be worth 4-500k, that valuation doesn’t take into account the additional costs payable by the purchaser to secure transfer.

There is no doubt that banks may need to sell properties when people default. There is however, no excuse for selling them for R10 and R100 or even 50% off. Other countries sell for market price.
Selling properties by banks involves the cooperation of the state, its the use of force, hardly something an anti-socialist like yourself should approve of.

Indeed a silly ridiculous argument. Buying way under market value and selling thereafter at a steep profit is a flourishing business for the people with the best inside knowledge: Bank officials themselves…at least some of them. How do you work for a bank? but own multiple properties, drive expensive cars etc. etc.

There needs to be a quick and appropriate mechanism put in place that allows both parties to win.

It would seem that everyone is to blame.

How about starting with honouring your debt obligations and remembering that banks only have money to lend you because other people and individuals invest and deposit their funds with them….no other magic bullet but to protect those who are REALLY at risk!

…..THE DEPOSITORS!

If the person CAN pay them obviously they should. But most of the people who default on a bond have had matters beyond their control: a death, a health event, the loss of a job, a business that goes down.

It is a tiny proportion of total deposits but a big cost when a person’s whole life savings in their house are wiped out.

You are a bag cognator. I am referring to the event after the default.

The rates etc now need to be supplied by the bank when the order is given by the court to sell. So this is no longer a problem. This amount must clearly come off the market price (ideally it should be transferred to the municipality as part of the transfer).

However, there are hundreds of properties every year where the properties are not run down and not with high rates where the banks nevertheless ask for low reserve prices of 50% and below. I see lots of these.

That the property is in a poor state of repair is rarely pleaded by the bank, its not a common state of affairs though it does happen.

One cannot simply put these drastic prices down

Yes, there are much quicker and more effective methods. In many cases the loan can be rescheduled over the remaining term of the loan. This is the normal pattern in the UK.

More owners would agree to sales if the process was like Korea and Malaysia and others in Asia where the property is sold at market price and only drops in price gradually over a few months if it doesn’t sell for the previous prices. This ensures high prices.

Making our sheriff’s auction more like a private auctions would also help.

But new law is required to have a better system. (Though progress has already been made).

I mean the arrears can be rescheduled.

I have been watching some of Standard Banks dealings with this. I have seen quite the opposite happen at times and some actions inexplicable.

Example.

They have a court judgement and a date to sell a property at auction. The auction does not take place for some unknown reason and the property is placed on Easysell on the Myroof platform. It is advertised at 35% more than the reserve price stated in the judgement. I make a cash offer and its just ignored. After a long battle I get hold of someone and they appoint an agent that now needs to be paid 5% for doing nothing. I made another cash offer 10% above the reserve price and the agent just came back to me saying the owner will not sell for less than the advertised amount. That is the amount 35% above the reserve price which is almost 20% above municipal valuation.

I will not make another offer as with Standard Bank involved it will take years to transfer anyway. They are useless. Just try to call someone. Its been another 6 months now and still it is advertised at an inflated price and no disclosure made that it is a distressed property.

Useless.

This is one of the reasons why, as an investor, I will never buy bank shares (of the big five) irrespective of the potential returns.

As a share trader enthusiast, most of them have performed very poorly.
Not good to let emotions get in the way of share trading.

I have one blue one in my portfolio and that has been the worst performer,
and they do not even pay dividends anymore (to make things even worse).

The older financial shares are the first to get punished for any bad news.

The newer banks seem to have better potential.

Read simply, the banks are going after the poorest (i.e black customers) to take advantage. The same way furniture companies do.

They know these folk are easily intimidated & don’t always know their rights.

I can almost guarantee that the banks lose considerable amounts of money on almost every single instance of a mortgage bond foreclosure that leads to a property being sold in execution by the sheriff. This is not some “profiteering off the struggles of the poor” scheme.

That bank’s seem to act with carelessness mostly. They just want to be rid of the properties. They sell them for less than the bond when they could have got much more by using a proper estate agent. The they chase the poor mortgagee for the rest.

Sadly that is what the affidavit in this article found. Poor people’s homes are sold for a lower percentage of the (bank’s) valuation.

Wow, what a twisted and racist outlook you have!

Shame on you.

Selling an asset for 1% of value should land both the bank CEO and the Credit Regulator in jail

There needs to be a fair way of addressing this. If the house is a state of neglect, obviously it is worth much less than ‘market value’. If the house is in good condition, but the bank pushes to sell it in too short a space of time (like at a quick auction in a poor economy) then it will ALSO sell way below market value.

Can’t a fair market value be determined and the house be placed on the market for the same number of weeks a similar house in a similar neighbourhood would be on the market? We know that in some years houses at fair value will be 6 months or longer on the market before getting sold and in good times less than a month.

Banks very often go to extreme lengths to avoid selling a property on auction, because they almost always lose a lot more money than they otherwise might when they’re forced to do so. Sheriff’s auctions are always a play resort, and in most instances it’ll be because the debtor isn’t making any attempt to cooperate with the bank.

Estate agents sell in 3 to 6 months which is quicker than the banks process mostly. The banks use their Help U Sell etc programs BEFORE judgment but rarely after which is why the amounts are so little.
Sheriffs auctions don’t work.

2 things to note here, having witnessed Sheriff auctions:
1) The article underestimates the effects of utilities arrears. The way the sheriff auctions work is that the new title holder needs to settle this balance with the relevant municipalities. This is factored into the offer prices, so that the smart buyers will not overbid. The bond value is not even a consideration of the bidders. Sometimes the utilities arrears can be written off by the relevant municipalities, but there is no guarantee of this. The banks are right to let properties go for less than market value, as the accurate value of a specific property is what a willing buyer would pay.
2) Banks are not blameless in the process however, as I have witnessed cases of Valuers under the employment of banks deliberately undervaluing properties to “adjust” for risk.

Corrrrrect! A place I bought had R280k rates arrears that I had to pay (and factor in to my bid).

That must be factored in but now one can do that whereas before Rule 46A in 2017 buyers had to guess.

Thank you! Don’t forget unpaid levies need to be factored in along with the unpaid rates. Not uncommon to see properties with unpaid rates and levies exceeding the value of the property.

Yes. I had a client who was a valuer and who said the bank’s systematically undervalue which means the % of market is even lower.

Also, prior to rule 46A being introduced, buyers would still be given an estimate of the unpaid rates and levies on a property at the time the auction was held. They didn’t have to guess.

At Ooom: They don’t always. There is a residual of people that I meet (over 2000) of them where they are determined to sell the property, even if there are other sensible options.

Sometimes the debtor isnt cooperating with the bank because they have gone to the bank and the bank has been extremely unreasonable with them. That can happen too. I have heard from hundreds of people of situations where the banks has said “pay 100% of the arrears before Monday or we will sell your house” and not considered any other options.

That’s almost always because they’ve ignored numerous requests from the bank to resolve the matter in some other fashion. If it’s gone all the way to a rule 46A application being launched, the debtor has had plenty of time to either sell their house themselves or make some other attempt to come to some arrangement with the bank to settle the arrears owing. Tons of people don’t bother trying to do anything about the problem until the absolute 11th hour. I’d bet a large sum of money on the fact that in almost every one of those “hundreds of people’s situations” they’ve defaulted previously, or have ignored numerous requests and demands from the bank. It’s always the story.

It is nonsense. The bank does not actually pay R1000 for a R1.3 million property. If there are no buyers the bank acquires the property for a low value to reduce the transfer costs it has to pay on transferring the property into its name. If the seller had marketed the property or even had a family make what is a reasonable bid at the auction the bank will accept the offer. The bank does not want to hold properties as it then has the responsibility of taking care of the property doing it up and then selling it and paying the agents commission. Yes homeowners have rough breaks in life like loosing their jobs etc but if they keep their home in good order in cost instances they will be able to sell it. Some people are incredibly uncooperative and if they were just reasonable the bank will help them dispose of the property.

banks are certainly part guilty in making money especially at the sheriff auctions – íf you do not do your homework you as the higher bidder will
think you got a bargain – not so – also (talking 20 years ago) at the fall of the hammer responsibility of the home is immediately effect. not on transfer. LET THE BUYER BE AWARE !!

Corruption wherever one looks.

When you sign a mortgage contact to borrow and use someone else’s money to buy something, you agree, that if and when you default on the payment terms and after appropriate interventions at rehabilitation of your obligations, the property lawfully vests 100% with the lender/s….so it’s his property to do with as he chooses to recoup his losses consequent upon and solely due to your delinquency……Problem?

There is a contract, yes.
But the bank wants the power of the state to help it in a different way to enforcing normal contracts. It wants a special privilege.
Contracts and other law is subject to the constitution.
Which has been found to mean that sure they can enforce the contract but they can only sell properties as a last resort.
For all their claims, in my experience across about 2000 people who had legal problems with banks, the banks often sell when its not a last resort. Even when their are offer to purchases pending or when another person has offered to clear the arrears. Sales have taken place when there is hardly anything still to pay on the bond. And in many other ridiculous situation.

If you buy a property, you need to make sure you understand who is responsible for what costs. If the buyer is responsible for the municipality cost, the cost can exceed the value of the property and paying R10 for it, you overpaid. You need a lot more information before you can say a property was sold under market value

From actual experience. The home loan department was captured by a top legal firm. Scoring legal fees and putting our house up auction. We found out by chance it was up for auction. After showing the meeting that we were in a better position when the inhouse legal department handled our case a few years earlier, the legal representative said he can make a plan if his firm handled the conveyancing. Highly unethical in my opinion. Imagine how vulneral most people who are financially lacking are. They get taken to the cleaners. In opinion, they do not get proper advice from the banks. Imagine losing your house and still owing the bank hundreds of thousands. Public Protection needs to protect the vunerable citizens.

This is my biggest issue with home loans. Why is it that after your house is repossessed you may still owe the bank money?
The bank charges you an interest rate linked to your credit risk factor i.e a higher rate for those at higher risk of default. This means the chance of you defaulting is priced into your instalment! They collect higher premiums earlier incase you default later. Let’s not forget that they hold the collateral (title deed) should you default.
So why should a homeowner still be on the hook for what’s outstanding when the bank had already priced everything in?
If the system was fair, everyone would either be given the same prime rate and should you default you are on the hook for remaining balance owed OR variable rates based on risk profile as currently but if you default, its already priced in and you walk away having lost your house and owe nothing.
The banks justification for charging higher interest rates is the risk of borrower defaulting, but if they always collect on the full amount outstanding, Where’s this extra risk they speak of?

Is there wholesale corruption going on? A good investigative journalist needs to follow the money. Who is BUYING the properties. Start with the properties allegedly selling for big discounts. Is there a relationship between the buyers and any employees of the banks? the buyers and any employees of the auction houses?

Someone find out and then collect your Investigative Journalist of the Decade Award.

Yes, I’d like to see this done. Maybe someone doing research for a degree at university.
You’d need to need to know the names past and future employees or directors of banks, sheriffs etc. Maybe the connections on Linked in or Facebook. Then you could get the buyers from the Deeds Registry or a company like Lightstone who are the gold standard for this kind of data.

Btw, if anyone wants to continue discussing these kind of issues on a regular basis there is a chat group at our Bankinglawadvisor site on Facebook.

Then why the “swear word” take security in the first place if you gonna sell it for fraction of its value. – whats is the POINT.

Its not gonna settle the debt or arrears – the bank still remains in the same position it finds itself.
Unless the “other sharks” are gonna profiteer from under selling the asset.

Its always sad to see some one lose they house/home.

Bob123 – you’re a dork

End of comments.

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