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.
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.
“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.
“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.
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 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.