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You don’t qualify for bank assistance? Good, you’ve dodged a bullet

The relief packages offered by banks could be the cause of untold legal cases in the months to come.
How to hold onto your home, and your rights. Image: Shutterstock

The banks have been commended for their debt relief measures in response to the Covid-19 crisis, but let’s not get too excited about this. The repayment holidays are fraught with legal risks which will only become apparent later in the year. 

Some of the banks have adopted a one-size-fits-all approach that makes no concessions for customers’ individual circumstances as a result of the lockdown. They have ignored solutions that are more viable and beneficial for customers, and this will open up all sorts of interesting legal problems in the months and years to come should those customers default. 

In good standing 

Those who are “not in good standing” – such as those already in arrears on mortgage payments – do not qualify for a repayment holiday, but that’s not necessarily a bad thing, says legal advisor Leonard Benjamin. Banks are still required to negotiate with all customers in good faith, based on each customer’s individual circumstances. 

“They cannot refuse to negotiate, and simply institute legal proceedings that may eventually result in the sale of their customer’s home to recover the debt,” says Benjamin.

“As the banks cannot possibly know each person’s personal circumstances, it is up to customers to make debt relief proposals that reflect their own particular circumstances.

“They must then follow through with their proposal, whether the bank accepts it or not, by paying the bank in accordance with their proposal.

“Banks that ignore properly motivated and viable solutions do so at their own risk, particularly when backed up by actual payments.”

Read: All the Covid-19 relief announced by SA banks so far

SA eases bank rules to free R300bn for loans

Customers do not need the bank’s permission to take a repayment holiday 

This means that even those who do not qualify for a three-month payment holiday can take matters into their own hands.

Anyone whose income has taken a knock during the lockdown need only start paying again when their finances improve, and then they can pay what they can afford, even if it is not what the bank demands.

This chimes with the National Credit Act, which is intended to balance the rights of lenders and borrowers and encourages the eventual satisfaction of the consumer’s obligations. 

From the consumer’s perspective, spreading the accumulated arrears over the full remaining term is probably the easiest way to catch up on any missed payments. You can do this without the bank’s permission, say Benjamin.

In effect, you can award yourself a repayment holiday.

In most cases, this will mean paying just a few hundred rands extra each month once you are in a financial position to do so. The banks will get short shrift from the courts should they try to claim you are in default. All you need to do is show that you can again start making payments on your mortgage bond.

How interest rates changes automatically extinguish arrears

All home loan agreements allow the banks to adjust repayments whenever there is an interest rate change. The effect of the adjustment, if done in terms of the loan agreement, is to spread the arrears over the remaining term of the loan, which extinguishes the lump sum arrears.

Banks have denied the arrears are extinguished by any change in interest rates, but they are flat wrong, says Benjamin. All you have to do when there is a change in interest rate change is pay the new instalment on your loan to bring your account up to date. 

Therefore, any attempt to claim the customer remains in default when the bank has spread the arrears over the remaining term of the loan amounts to ‘double-dipping’ – claiming twice for the same thing.

Banks are bracing for a wave of defaults

There’s no question that the banks are bracing for a wave of defaults. Should they rush to foreclose later this year, the courts – once they reopen – will be faced with a jurisprudential nightmare: whether to grant judgments against defaulting homeowners who fell into arrears through no fault of their own, but will be able to resume payments in the near future.

The banks have up to now had everything their own way and have faced little opposition in the courts. After the 2008 financial crisis, tens of thousands of South Africans were booted out of their homes after falling into arrears by as little as R6 000.

This time it’s going to be a lot tougher for the banks, if only because consumers are better informed and there are more legal resources on their side, such as Stellenbosch University’s Law Clinic and the Legal Resources Centre.

Legal timebomb

The government has already anticipated the potential legal timebomb by placing a freeze on evictions during the lockdown. But what happens when the lockdown is lifted?

Forensic accountant Andre Prakke says anyone finding themselves facing foreclosure as a result of the lockdown must ask the court to hold the matter over until those cases with substantially the same arguments are properly decided by the court.

“One reason for doing this is it will stop courts in various jurisdictions giving conflicting rulings. It will also allow people in the same boat to get a proper team of experts together.”

Prakke says a collective approach obviates the need for individuals facing foreclosure to each hire their own attorneys. 

This is an excellent idea says, Benjamin. “It contemplates that the issues are dealt with before a full court rather than on a piecemeal basis. The various banks will, for instance, be able to explain to the court how they can calculate different instalments when there is a rate change, when the evidence suggests they are trying to win judgments against consumers who are not in default. It will also give the various public interest organisations that focus on this area of law the opportunity to come on board as a Friend of the Court to add their considerable acumen and input to the deliberations.”    

Debt counsellor Michelle Barnardt says the National Credit Regulator needs to be added as a respondent in any case brought by the banks, since its job is to balance the rights of lenders and consumers. 

Finally, the constitutional issues of snuffing out someone’s income

Several lawyers have already pointed out constitutional issues surrounding the lockdown. A bank foreclosing on a homeowner whose income was snuffed out by the government lockdown could argue a laundry list of constitutional violations, from arbitrary deprivation of property to the rights to life and dignity. 

We are in for interesting times on the legal front in the months ahead.

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There is no such thing as a free lunch. The interest on your loan just piles up increasing your balance and you will pay for it. In some cases your interest rate is adjusted upwards. Calculate the extra amount and you will be shocked.

Never ever trust a bank, “good faith” is non-existing with them. Debt means you’re someone else’s slave. You give part of your life each day to your employer in order to get money, why waste your life on a heartless institution?

….also don’t trust savings to banks

All you are doing is loaning to the banks for peanuts

When you get paid …transfer immediately short/mid term to money market funds, reserve your monthly requirements and then transfer to stock

What market fund? Like stanlib?

Koos – I was in banking for + 40 years and quite simply you approached a money lender to cover the purchase of property – they set T & C’s which you were required to accept or reject. If you accepted then you had full knowledge of the implications, so you can’t say you have been put into serfdom – you made the choice and signed for it. The ongoing costs that banks charge for merely having a bond with them are unacceptable but that’s a different debate.

40 years in banking and you never heard of small print?

exactly. People just competing to be victims. If you can’t be a big boy and read the fine print, maybe you should not be signing contracts?

Foshan – read my comment carefully – don’t make assumption which are not in evidence

“If you accepted then you had full knowledge of the implications”

No, the banks have the best lawyers draw up the contracts in their favour in legalese which you would need another lawyer to decipher and explain to you. If you take the contract away, scrutinize it and put a line thru the onerous and unacceptable clauses. The banks do not like that so you will immediately be rejected. Accept their conditions or take a hike.

The things that are the most heavily promoted are things that have the least value. Why do banks spend so much on advertising how wonderful they and their products are? Because they need to pretend to be your friend. More fool you if you believe them!

Acquire things the old-fashioned way: save for them and pay cash.

Which young married couple can save R1.5m cash for a house (at least?)

If you are a young married couple who haven’t saved up a mere R750k each, then maybe you should not be (a) getting married or (b) buying a R1.5M house.

@Jalap

I am not sure in what lala land you live, I am a young professional myself as is my wife, both of us earn very good salaries and I can assure you R750K is not “mere”

If you had R1.5m between you, putting it all into a cash purchase of a house would be the worst investment decision of your life!

All the ‘professionals’ who think R750k is a vast amount of money are deluding themselves. Guess the title of ‘manager’ still fools the kiddies.

Office sanitation professional?

@Jalap

Both of us are Uni grads in the STEM fields, so no, I am not some area manager making sure our local PEP has enough pencils.

@Jalap

Please explain with real numbers how a yound couple goes about accumulating R750k cash savings. Before I went entrepreneurial, my partner and I (I’m a young 30s finance professional) grossed around R116k per month with net around R72k. We were fortunate not to pay normal rental rates (parents owned property) and I don’t believe in financing car purchases, or anything else besides property. Assuming monthly living costs of around R35k, that’s leaves R37k left. That would take around 2 years to save and reach R750k, excluding bonuses and holiday expenditure and requires an enormous amount of discipline. Yes, it’s do able but do you think that this situation is normal? Also, it took quite a few years to get to that situation. Of course, once netting R180k monthly, it becomes child’s play. But based on averages, I’m struggling to see many people reach that goal before 30-35.

My deceased old uncle, an accountant in the old style always told me “If you cannot afford to pay CASH for it you don’t buy it.”

Stood me in good stead, debt on a hard asset, ie house, property is affordable but debt on junk like, cars, furniture, holidays will kill you.

Tell SASOL that. Credit plays a part but it can easily end up impoverishing people when not understood by borrowers and lenders become greedy. SA has both = trouble.

HOORAH : Absolutely spot on :
But today,s I want it NOW are theoretically learning the hard way .
I get very annoyed that they all EXPECT bailouts for living beyond their means & the Savers /Prudent guys (like Old Uncle) have to accept lower interest rates or sponsor tenants Rents !

I have been teaching about what the banks allow us to do to ourselves. I remember before the NCA, they flooded the market with Gold Cards. People still feel that effect today:-( Now it’s Balloon loans that are hurting “their clients.” Financial Fitness is needed

Agree, Zokey. What many people don’t realise is that although they only have to repay a monthly amount based on the cost of a car MINUS the balloon payment amount, they are still paying interest on the WHOLE AMOUNT of the loan i.e. including the balloon part.
For example, with a car loan at a simple interest rate of 11.5%, a 72-month term and a final balloon amount of R60 000, THE INTEREST CHARGED ON THE BALLOON PAYMENT ALONE WOULD AMOUNT TO R41 400 – totalling as much as nearly 70% of the value of the balloon payment amount IN ADDITION TO IT. Which you have to pay.
A very expensive way to try and look better than the Jonenes.

This is not asitance at all

I’m reminded of a Dutch law that requires advertisements for credit facilities to carry the following slogan at the bottom:

“Let op: geld lenen kost geld.”

(English: Attention: borrowing money costs money)

Debt is modern day enslavement.

There is (so far) no law that compels anyone to live in debt.

Everything we are exposed to is designed to make us feel unhappy with our status quo.
From retail to religion, and the solution is always the same, pay and you can have it.

When we are born the world wants something from us:
Our money
Our brains
Our labour
Our vote
Our co-operation
Our obedience
Our life itself

If we cannot provided any of the above we are worthless to the materialistic world.

The key to happiness is awareness and gratitude. These cost nothing.

Ignorance causes suffering.

What’s that expression….
“With a gun you can rob a bank, but with a bank you can rob a nation”.
Author?

For the average homeowner, the real issue is an order of magnitude larger than the amount he owes on his house. How, and by which mechanism, and by what means will South Africa escape a hyperinflationary death spiral? Lockdown made this event a virtual certainty. Who owes what to whom is irrelevant under such circumstances where the unit of account is destroyed.

We are debating the cost of renting deck chairs on the Titanic.

Agreed. What you gain on the swings, you lose on the roundabout. This will come back to bite borrowers and relief-package takers in the toches!

The only free lunches are for ‘hard-working’ANC ‘cadres’.

“In most cases, this will mean paying just a few hundred rands extra each month once you are in a financial position to do so.” SO WHAT IS THE TOTAL COST OF YOUR “FEW HUNDRED RANDS A MONTH?? THAT’S THE REAL STORY
Dr. Debt

End of comments.

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