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Banks slapped down over home repossessions in Joburg court case

Primary residences can no longer be sold at auction for a pittance, putting an end to illegal bid-rigging by syndicates.

A full bench of the Johannesburg High Court ruled on Wednesday that repossessed homes must be sold with a reserve price in all but exceptional circumstances. This puts an end to illegal bid-rigging by syndicates operating out of sheriffs’ auctions. It also means repossessed properties must be sold close to market price, rather than for R10 or R100, as has happened in the past.

The court also ruled that when banks bring legal action against defaulting clients, the money judgment and sale in execution order (allowing the property to be sold at auction) must be issued at the same time. Some banks argued that these should be split, though for reasons that were not always clear – other than that it suits the banks’ lawyers to milk a case for as much in fees as possible by having the same facts heard twice.

Standard Bank in its court papers argued that the money judgment issued separately from the sale in execution (SiE) order placed pressure on the defaulting client to catch up on arrears. The court took a different view and wants the matters heard together. This reduces the legal costs for consumers, but may make it more difficult to delay justice.

As Moneyweb previously reported, Gauteng judge president Dunstan Mlambo ordered a full bench of the High Court to decide on four cases involving Standard Bank and Absa. The full bench of three judges was asked to decide on several issues, including the setting of reserve prices to avoid homes being sold at auction for a trifling amount, and whether banks should be awarded a money judgment at the same time as an SiE order.

Read: Judges give banks a grilling over home repo practices 

Court rules were recently changed to allow for judges to set reserve prices. However, some judges applied the new rules while others did not. This case was about setting a standard across the entire court.

Advocate Douglas Shaw, one of the architects of the recent change in court rules allowing for the imposition of reserve prices, says the ruling is a major victory for bank clients: “It is unbelievable in this day and age that the banks would continue to argue for the right to sell repossessed properties without a reserve price, but this is what they have done. This ruling changes that by forcing judges to impose reserve prices except in exceptional circumstances.

“A second major victory for mortgage bond holders is that once you pay off your arrears, your mortgage contract automatically revives, and this is not something that is at the discretion of the banks.”

In its papers before the court, the Lungelo Lethu Human Rights Foundation (LLHRF), which defends people against eviction, says in hundreds of cases it has seen, there is nothing left for clients once a property is sold at sheriffs’ auctions. The practice of allowing properties to be sold without a reserve price meant these auctions became nesting grounds for bid-rigging syndicates, who have been able to pick up properties for a pittance and then on-sell them for massive profits. Once the lawyers had taken their share of the spoils, the plate was licked clean, leaving nothing for the dispossessed homeowner.

The court ruled that the power to reinstate a credit agreement lies with the consumer, not the credit provider, once the arrears and “reasonable” costs have been settled.

King Sibiya, co-founder of the LLHRF, says the ruling will make it extremely difficult for banks to evict clients from their primary residences. Eviction, be it voluntary or by force, is the inevitable consequence of an SiE order. He says upwards of 100 000 families have been evicted from their homes since the Constitution came into effect. “In their papers before the court, the banks claimed they use sale in execution orders only as a last resort. We say they are lying, and we presented abundant evidence to prove they are lying.”

The court also dismissed the banks’ claims that by setting a reserve price, there would be less interest from prospective buyers. “A reserve price will balance the misalignment between the banks and the debtors where execution orders are granted,” says the court ruling. “It ensures that the debtor is not worse off due to unrealistically low prices being obtained and accepted at sales in execution.”

Says Sibiya: “This ruling makes it more difficult to evict people from their primary residences, and the setting of reserve prices means they get to keep most of the equity in the home that they have built up over the years.”

The Legal Resources Centre, which represented the LLHRF in the case, says in a statement “we are hopeful that the setting of reserve prices in sales in execution will stop the practice of homes being sold on auction for next-to-nothing and create the possibility of a debtor recovering some money from the sale.”

Though the ruling applies to the South Gauteng High Court, other courts around the country will be under pressure to apply the same judicial standards.

The court made no ruling on at what level reserve prices should be set, other than to say that information about market valuations must be placed before the court when a bank is seeking judgment against a client. The reserve price will be based on all relevant information placed before the court.

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There is always a reserve price. Usually the outstanding loan plus costs. When a property is sold on auction for a low amount, R100, it is to the bank that is bidding up to the reserve price. There is no other bidders. The bank cannot take a knock on these properties. Lastly what is market value? The amount agreed to by a willing seller and a willing buyer.

The rule should be that once repossessed and sold then the bank has no further claims against the debtor, then they will seek reserve price by default or find other ways to assist debtors with payments arrangements.

This bullying banks ruling is long overdue.

@Shaokhan: No, because that would not protect the homeowner whose property is half paid off, especially if that property has appreciated over several years since he bought it. Banks would still be buying a valuable property at low cost at the expense of the indebted.

And if the bank has a shortfall the deposits are prejudiced? If your idea is used then banks will drop their ltvs ie higher deposits and less people can buy. In some European countries a 20% to 25% deposit is mandatory.

The banks often let them go at less than the outstanding amount. They don’t want properties in possession, so, if a bidder comes within what the bank is happy to take, it can still be bought. I’ve seen banks take 20-30% haircuts on the debt that is due in terms of the judgement.

The issue is with bankers who work with friends to buy the property off at unreasonable prices and they share the loot. IF a property is valued at 2 million, the client owes the bank 500k, the bank sells the house for 500k to settle its debt. But this doesnt end here. Its the banker and his friends who manage to buy the property at 500k through the back door and go off to sell it for 2 million again to make a hefty profit of 1.5million. This syndicate(the banker and his friends) are cash loaded and only do this for a living. Meanwhile its the poor client who has been paying off his bond for 10 to 15 years with additional renovation to the house over the years who looses out.

Its high time that the court have put things right to prevent abuse of the system that was not regulated.

Thank you High Court of Johannesburg for this judgement. I’ve been in Conveyancing as of 1980 and it was an open secret and standard practice of: “Well if there isn’t any interest or an “acceptable offer to us [bank], our agent at the auction will purchase property for only R10,00 max”. This attitude of the banks had destroyed lives and to such an extent that these lenders could never get back on their feet due to the monthly bond repayments for a property which he/she/they have “lost” at auction 10-15 years ago. As to market value, it’s not the bloated municipal values but the actual value a prospective buyer will be prepared to pay for such a property – ask any reputable estate agent. It’s time for the banks to get their act together.

Not that simple as you make it.Read above comments which has more realistic grasp. Although there is abuse these stories of R10 sales are mostly social media imagination. This is a complicated problem balancing the interest of the banks and homeowners.

Totally off topic.

That stock image looks like the one used in the soapie Binnelander’s opening cutscenes.

The courts should get their own house in order. As a body corporate try to get relief from the courts regarding serial levy defaulters. Tax and ratepayers seem to be soft targets as far courts are concerned. Their rights are low down on the priority list.

Good ruling! Shocking to hear properties were sold for less than a meal at a restaurant!

Some good news at least this week

Hopefully, this is help lessen the evil practices of the money lenders.

A good ruling. Watch the movie 99 Homes, currently showing on Dstv.

It puts into perspective what a distressed person/s goes trough when he is about to lose his property and how corrupt property agents and attorneys rig the system and try to justify they parasitic behaviour.

Next clamp down – must be on all the crooked and fake insurance companies out there peddling all sorts of funeral, hospital, and car insurance policies.

They adverts are also to irritating on TV.

Ruling seems reasonable, I don’t think the original laws were an issue but they have been abused by both bank debt collection services which are usually a bunch of hooligans and lawyers extracting maximum fees. I have seen it before on multiple occasions and if they were reined in then the additional layer of laws would not be required.

Overall the changes seem reasonable however, I am surprised that only 100,000 people have been evicted in 24 years, eviction is not something anyone wants to do but delinquent tenants need to be removed eventually, 100,000 out of 50m people over 24 years suggests to me that homeowners/tenants are already fairly protected and it is indeed a last resort.

I would have advocated a different approach.All sales in execution and the amount bid would be subject to a Magistrates/Judges approval in writing. That approval would be subject to a report from the Attorney and Sheriff as to the sale, the valuation of the property by independant parties and any other information (including any representations from the debtor) that the Magistrate/Judge may require.That would solve the problem in my opinion.

Me thinks the courts should impose a 21 day confirmatory period to allow other offers.

Wednesday Judgement was a blow to us as the home buyers. I remember i bought one property for RR1000,00 and I sold it for R210.000.00 within three months ,without making any renovations

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