NOMPU SIZIBA: The Covid-19-related economic crisis has seen businesses shaken, some shut down, and millions of people losing their jobs. And if they do hold on to their jobs, in many instances it’s at a lower wage level. This has translated into consumers’ ability to pay for things being restricted. Some households have therefore struggled to keep up with their repayments on their mortgage bonds and, after a number of months, the lenders are then able to pursue the debt. Home repossessions have continued as normal, following a three-month eviction freeze at the initial lockdown phase last year. Families are being chucked out of properties because their financial circumstances changed as a result of the virus and the legislated responses to it.
Well, to give us a sense of what’s been going on in this arena, I’m joined on the line by Leonard Benjamin, a consumer advocate. Thank you so much, Leonard, for joining us. Now, we know that things are economically tough currently. So what’s been taking place in the home-repossession space during the Covid crisis since March last year?
LEONARD BENJAMIN: Good afternoon. I think we’ve got to distinguish between people who were already in trouble with judgments or attachments prior to the Covid, in March last year, and those who fell into arrears subsequently.
There was definitely a stay in the proceedings for the first class, which then basically recommenced from about October. So there’s been an escalation in the number of houses being advertised for sale in execution, and being sold. With regard to people who would be affected directly by Covid, who fell into arrears after Covid, I haven’t noticed an escalation in those cases. So, just bear in mind that, in general, banks won’t trying to sue you if you are less than six months in arrears, because they not sure to get judgment. So I expect those to still come through. But I haven’t seen any indication that that comes through at this stage.
NOMPU SIZIBA: So, regardless of whether Covid is here or not, why is it that banks seem to go out of their way to repossess people’s properties, only to end up selling them for a song? I mean, what’s the point of that exercise?
LEONARD BENJAMIN: I wish I had a clear answer for you. It does seem completely irrational because it’s this destruction of value on all sides. It doesn’t seem to be logical for the banks to try and sell your property. They, from their side, claim that they only sell property as a last resort, and there aren’t any other means for them to recover the debt. In the majority of cases I’ve seen, that is not correct. If the banks really want to pursue other means of collecting that debt, there are other avenues. So, in the light of that, I cannot understand why they consistently sell their houses and suffer a loss.
NOMPU SIZIBA: Yes, because in practice what happens is that – my understanding and you’ll correct me – even if they repossess your property, when they sell that property for a song, they can still hold you liable for that. They can still go after you for that. But why don’t they then sell it at a more market-related level to be able to recoup what they loaned to you who borrowed money to buy that particular property?
LEONARD BENJAMIN: That is part and parcel of the thinking behind the “reserve price” changes to the legislation in 2017 – to actually try and realise more. But with distressed properties, the only people who are really interested in them are speculators. Their rationale is to make a very, very quick return. Because there’s inherent risk in buying distressed properties, it does basically mean that they’re not that attractive to buy. So that in turn impacts on the purchase price that they realise.
The banks will say that they’re not in the market for basically selling properties by private treaty. And that’s why it’s not their fundamental business. That’s why won’t, for instance, buy a property and then try and market and resell it. They do have various programmes where they try and encourage people to sell the property before it comes to legal action.
To a certain extent people do not trust the banks, and that’s the main reason why more people do not use the opportunity presented to them by the banks.
NOMPU SIZIBA: Leonard, I want to come back to the point that you made – that the banks won’t really pursue the legal route until you haven’t been able to pay up after six months or so. And obviously with the Covid situation, people will have only been impacted a bit later, and perhaps we’ll start to see the results coming through now.
We understand that there was a three-month freeze on evicting people at the time of the initial lockdown, which was the end of March. Do you know what other jurisdictions, which were faced with very similar circumstances, were doing, because three months seems rather little, especially given that some people may have subsequently lost their jobs, or didn’t earn an income during that period and would need to recover. At the end of the day, it’s not in the bank’s interest, nor the household owner’s interest for a property to be repossessed.
LEONARD BENJAMIN: I think we must distinguish. First of all, the last amended regulations already make it very difficult to evict people, unless there is a very, very good reason. But, remember, we are talking about repositions, and there is a distinct difference between repossession and eviction.
Sticking to repossession, it’s totally inadequate. What the banks are basically trying to pursue is economic interest. And you’ve going got to weigh that up against a person’s right to live safely and have what the constitution calls access to adequate accommodation, or housing. So there are housing right. When you balance the two, although both are important, you cannot possibly equate the housing rights to economic rights.
I believe that, if we are talking about that class, repossessions, they should basically take a back seat to the interests of the consumer. But the banks don’t evict you, the banks sell the property, and it’s the person who buys the property from you that evicts you. So that’s the distinction. But if it stops the sale in execution, you automatically impact on the evictions.
So, I believe that the three-month moratorium is totally inadequate. I think there should be a stay in repossessions and sales. That’s what’s happened in, for instance, the UK. The UK has very extensive assistance, financial consumer organisations, et cetera, and prohibitions – except, under really strict circumstances and actions to repossess property.
The USA is a bit of a basket case because even the Federal programme to deal with Covid has its impact on repossessions. Each state can do what it wants, and it’s very disparate. There are certain States that don’t have any provisions or protections for clients. They are there for consumers. Other are also, but individual judges have taken it upon themselves to see that the enactments are unconstitutional. They are still granting evictions and that type of thing, so it’s very difficult to judge on that. We certainly do have a prohibition on evictions, except in very, very unusual circumstances – persons damaging property. guilty of disorderly conduct on the property, and so on. But that means that the landlord must go to court to justify giving the order.
NOMPU SIZIBA: So, Leonard, this Ditokelo Human Rights Foundation has decided to launch a R60 billion legal action against South African mortgage lenders, mainly the big banks, looking to reclaim their clients’ lost equity from properties that were repossessed from this practice that we’ve been discussing, of selling the property for a song, way below the property’s market value. Do you think that there is any scope for success with this, especially give no doubt that this has been an ongoing practice for many a year?
LEONARD BENJAMIN: I think there’s definitely some scope for it. You cannot possibly say that a property that is sold for R1 – and that’s not unusual – [can be] bought in by the bank. So what these cases mostly involve, now that I’m thinking about it, where the banks themselves who hold the bond, and have got the judgment, buy in the property. So they’d go to the same execution and bid for the property and buy it.
You cannot possibly tell me that that’s a genuine purchase – to buy a property for R10. They then claim what they do is they ascribe a market value to the property, which they credit to your account, in that way to give you value for the property so you don’t lose out. But in my experience that’s all manipulation. What they do, and I’ve had instances where after the debt has been settled there’s equity of R15/20 000 left, they then go and pass legal fees of R15/20 000. So there’s not a cent left. For me, those are very, very susceptible to being attacked.
There were a lot of other cases where properties were definitely sold below market value. But there are evidentiary problems in proving what the actual value was of the property, and you can sue for damages. That’s one of the things that you can prove to the court – that you’ve got damages, and the amount of your damages is not enough to just pre-rate you were prejudiced by the bank’s actions.
Finally, the biggest thing is, yes, they weren’t actually acting unlawfully in most cases, selling the property, because that’s what the law allowed them to do. That’s a very difficult case. And I know the advocate who is dealing with the cases is really proficient and well-versed, and researched. So he no doubt thinks he can basically do it. But it’s a very difficult case.
NOMPU SIZIBA: So, Leonard, you said that before the law didn’t say that they couldn’t do this practice, but you did indicate that in 2017 something changed – and now the bank has to sell a property at a certain minimum. Can you tell us a little bit about that?
LEONARD BENJAMIN: That’s the change in 2017 that introduced the reserve price. Your sales in execution are subject to a reserve price. That must be advertised, so that people who come to the sale know how much they think the property is worth and what they should be looking to purchase it for. It’s not a 100% fool-proof, because if that sale price is not obtained, that reserve process is not obtained at the sale in execution, then the creditor can go back to the bank and get the terms of the sale judgment changed to one in which the property is then sold without reserve.
So it becomes a natural form of timing. If the property is unrealistically high and there is no interest, then somebody will pick up a bargain eventually – and that’s really what’s happening.
So the only people who really benefit from a sale in execution are the speculators
NOMPU SIZIBA: Very quickly, before I let you go, Leonard, if a household, a couple or an individual that owns a property is struggling to pay, and they’re worried about possibly going down the route where the bank is after them through the legal route, what is it that they can do? What tools do they have at their disposal to help them have the least hard situation possible?
LEONARD BENJAMIN: Okay. Practically, what they need to do is they must make sure that they’ve got a complete set of documentation. I always emphasis this, because of the accounts and the notices and that type of thing you get from the banks kind of story – it’s important to have a complete set of that, so people who look at it know what’s going on.
The second thing is, make sure that you get correspondence from the banks. Don’t avoid the banks. You’ve got to keep on engaging with them. You got to put proposals to them, even if they don’t accept the proposals You’ve got to do it in writing. They’ve got the obligation to negotiate with you in good faith, because the sale of a person’s house – and I often get calls where people have just received the summons and they’re in an absolute state. They are so panicked. And when I tell them that there’s nothing to panic about, because there’s a lot of water that must flow under the bridge before the bank gets to sell their house, they almost don’t believe me. But the whole point is, you’ve got to keep up. The bank cannot just turn around and sell your house. It’s a long process. You got to keep on engaging with the bank, put in proposals, pay what you can. Even if you can’t pay the full amount, keep on paying what you can. If your salary is halved, you have basically an explanation for why your salary is halved. Pay what you can afford because, if you can pay that consistently, month in and month out, it becomes very difficult for the bank then to turn around and, despite that, to sell your property. So the point is always pay what you can.
Obviously your circumstances are such that you’ve lost your job and you cannot pay. Okay, that’s a different issue. If you basically can service that bond, service that bond to the best of your ability, because all that makes so much of an impression on the court, if and when you go to defend the matter. Explain what your circumstances are so the court can actually see that you’ve be making a concerted effort to try and pay the bond, notwithstanding what your difficulties have been. In a nutshell, that’s the best advice I can give.
NOMPU SIZIBA: Excellent. Leonard, we’re going to leave it there. Thank you so much for your time, sir. That was Leonard Benjamin. He’s a consumer advocate.