Home repossession mess gets its day in court

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Moneyweb.

Lawyers defending clients against the banks say the Gauteng Judge President’s recent directive can be used to freeze home repossessions and evictions.

Gauteng Judge President Dunstan Mlambo wants a full bench of the High Court to sort out the mess of inconsistent judgments over home repossession cases.

In a recent practice directive, Mlambo says he also wants a full bench of the court to decide on the setting of reserve prices when properties are sold at sheriffs’ auctions. Until recently, repossessed properties were sold at auction without reserve prices, resulting in some homes being sold for as little as R10. A recent change in High Court rules now allows judges to set reserve prices. But this has also caused confusion. Some judges have dismissed banks’ applications to declare properties “specially executable” without a reserve price, while others have done the opposite.

In April, former public protector Thuli Madonsela highlighted the injustice of selling properties for a fraction of their market worth, after the Pretoria High Court decided it was legal for Standard Bank to sell a R470 000 house for R40 000 to recover a mortgage debt.

She tweeted: “With due respect to the court, I consider this judgment to be grossly unjust and inequitable. It is a setback regarding social justice. Should this matter be taken on appeal, it would be great if all those concerned about social justice join in as amicus curae (friend of the court)”.

Cases such as this have embarrassed the banks and the legal profession. Following Madonsela’s advice, the Lungelo Lethu Human Rights Foundation (LLHRF), represented by lawyers at the Legal Resources Centre, has been joined to the proceedings as a friend of the court, and will be making written and oral submissions.

LLHRF president King Sibiya sees the directive from the Judge President as a major victory against creditor abuse: “It effectively amounts to a freeze on evictions in Gauteng, which is exactly what we have been campaigning for all these years. There are more humane ways for banks to recover debts than throwing families onto the street. We say the Constitutional rights to dignity, property and justice must be given due weight by courts when hearing cases involving the recovery of debts by banks.”

Sibiya is one of the architects of the R60 billion class action suit being brought against the major lending banks for selling repossessed properties below market price.

“There is an epidemic of evictions in the townships in recent years, with gross abuse of court procedure. We recently surveyed several hundred evictees and more than half were not properly notified by the banks of their intention to bring legal action. How can you defend yourself when you do not know the bank is bringing legal action? It is time for the courts to sort out these inconsistent judgments and abuse of court processes by creditors.”

Alexandra Ashton, an attorney with the Legal Resources Centre, says the Judge President’s directive can’t be used to stop the sale if an order for execution has already been given. “But in cases which are pending before the court in which banks have applied for sale in execution, the directive is a reason for the matter to be postponed until the full court has given its judgment.”

Legal advisor to the LLHRF, Leonard Benjamin, argues that a special tribunal needs to be set up to hear home repossession cases. “The adversarial nature of the court process and the winner-take-all result – usually in favour of the banks – is not always in the best interests of justice. In some of the cases we have seen, the banks are getting away with murder, claiming legal and administration fees to which they are not entitled, and often incorrectly calculating interest and outstanding loan amounts. The courts are not the right forum for this. We need a specialised forum where these cases can be aired in a spirit of finding resolution and allowing debtors time to recover from a financial setbacks without losing their homes.”

Moneyweb approached Standard Bank for comment on the directive. Ross Linstrom, spokesman for the bank, replied: “As you are aware the matter is currently sub judicaeand we therefore cannot comment on the questions that you have posed. Suffice for us to say that Standard Bank has duly served and filed its papers and we await the hearing of the matter.”

The Judge President’s directive references four cases involving Absa and Standard Bank to be decided by the High Court. It highlights inconsistencies in judgments by the court, particularly where banks apply for default judgments against debtors and at the same time ask the courts to declare properties executable (authorising them to be sold at sheriffs’ auctions). For banks, this expedites matters and allows them to auction properties without having to approach the court twice: once for a money judgment, and again to declare the property executable.

Mlambo’s directive says the practice of the court is to postpone applications such as these to allow the debtor time to catch up on the arrears. “If upon the postponed date the arrears will have been brought up, the agreement would be reinstated (in terms of the National Credit Act) and the debtor will not lose her home,” says the directive.

Divergent practices have entered the court system over the years. Mlambo wants the court to decide what, if any, discretion judges should have in granting judgments for the full accelerated balances on mortgage debts. Most mortgage bonds have “acceleration clauses” which allows banks to call up the full outstanding loan even though the debtor may only be three or four months in arrears.

“A person’s home is their most important asset and it should not be possible to have it so easily removed from them,” says Benjamin. “If a person is three months in arrears, the law as it stands allows for the bank to attach movables, such as furniture and sell these items to catch up on arrears. Why go straight for the house as the first option?

“This directive is a vitally important step in establishing uniformity in the way courts treat home repossession cases and, hopefully, to bring greater justice and respect for the Constitution to such cases.”

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.