This article first appeared in Moneyweb.
A full bench of the Johannesburg High Court sat last week to deliberate on how and when reserve prices should be applied before repossessed homes are sold at sheriffs’ auctions. The three judges presiding in the case wanted to know why the banks habitually arrive in court without proper paperwork and expect to be given judgments against clients in arrears.
For several legal and human rights groups admitted as friends of the court, this is a pivotal case to decide whether the banks’ right to recover a loan supersedes constitutional protections to dignity and property.
Things did not go well for the banks, who were berated by the judges for arriving in court without proper paperwork, expecting the courts to grant judgments against clients who were behind on their mortgage payments. This follows a number of cases where homes were repossessed by banks for as little as R10 and then on-sold at auction for a substantial profit, leaving the defaulting client with a shortfall to the bank.
The judges wanted to know why the banks habitually arrived in court expecting a sale in execution judgment (allowing the property to be sold at auction) without sufficient information to allow the courts to make an informed decision, such as whether the home was a primary or secondary residence, who lived in the house, and what steps the bank had taken to reach an accommodation to allow the customer time to catch up on the arrears. The banks have repeatedly insisted they apply for sale in execution orders only as a last resort.
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 pittance, and whether banks should be awarded a money judgment at the same time as a sale in execution (SiE) order.
Advocate Steven Budlender appeared for Standard Bank and advocate Wim Trengrove for Absa. The banks argued that reserve prices should only be set by judges in exceptional circumstances, and want the court to split the awarding of the money judgment from the sale in execution order. Budlender argued that the reason for this was that once a money judgment was awarded against a defaulting client, this placed pressure on the client to catch up on arrears. Experience shows that very few homes in arrears end up being sold at sheriffs’ auctions, usually because defaulting clients reach an accommodation with the banks.
The arguments in court were largely technical, but several legal and human rights groups admitted as friends of the court seem baffled by the banks’ insistence on splitting the money judgment from the SiE order. It would save them time and money if both were granted at the same time. One observer suggests the banks are putting up a faux fight by insisting on reserve prices only in exceptional circumstances, and on terms decided by themselves. He says what they really want is a money judgment since this triggers a financial benefit to the banks in terms of credit default swaps. These are a type of insurance policy which protect bondholders against default. A large percentage of mortgage bonds in SA are securitised, meaning they are packaged into a bond and on-sold to investors. This point was not argued in court.
The banks’ counsel was further grilled by the full bench on their defective paperwork when approaching the court, resulting in a large percentage of cases being postponed. The banks attempted to remedy this by filing supplementary affidavits in the four cases mentioned above and to address the issues raised by Mlambo.