How the banks are targeting black home owners in Cosmo City

Written by Ciaran Ryan. Posted in Journalism

The financial crisis has percolated down to first time home buyers in Cosmo City near Johannesburg, many of whom claim they have been evicted irregularly after having their homes repossessed. Scores of Cosmo City residents have been tossed out of their houses after falling into arrears on their bonds. Maxwell Dube of Cosmo City Chronicle decided to investigate and found 23 of these – all of them bonded with Absa – ended up in the hands of just one investor. The more he dug, the fishier the whole thing smelt.

Victor Zuma and Beverly Msibi of Cosmo City lost their house over R6,000 arrears

Victor Zuma and Beverly Msibi of Cosmo City lost their house over R6,000 arrears

Outrage is building in Cosmo City north of Johannesburg over dozens of repossessed homes that have ended up in the hands of just a few wealthy investors.

One of the investors scooped up 23 houses – all of them bonded to Absa – at auction prices which were well below market value, and then promptly sold some of them at a handsome profit. Another investor is reckoned to have bought another 40 houses at auction, also at knock-down prices. Some of the houses are being put on auction for arrears amounts as low as R6,000. Yet the banks insist they only take legal action “as a last resort” – something the residents of Cosmo City find hard to believe.

Some Cosmo City residents who lost their houses say they were never issued with summonses by the banks, and that the sheriff’s office is abusing the court process to the benefit of a few investors. “People here have never had any dealings with the courts so they have no idea that they have to be served with summons before they can be evicted,” says Maxwell Dube, a resident of Cosmo City and publisher of the Cosmo City Chronicle which first broke of the story.

“What we are seeing here looks like a complete abuse of the court process, but the results are tragic. People are being thrown out onto the street for reasons they cannot understand,” he says. “One of the so-called investors bought 23 houses over a period of years, all of them bonded with Absa. How is this possible that none of the houses he bought were with other banks, unless there was inside information?”

Dube and several other Cosmo City residents want to lay an official complaint with the Hawks over the irregular manner in which their houses were put on auction to the benefit of a handful of investors.

Cosmo City was former President Thabo Mbeki’s dream project. It was conceived in the early 2000s as the country’s first mixed residential township, where low cost housing sits alongside middle and upper income suburbs.

What is happening in Cosmo City suggests the financial stresses of recent years have percolated down to first-time home buyers in some of the lower to middle-income areas of the country. As Dube points out, most of affected people are unschooled in the court process, making it a relatively simple matter to kick them out of their houses without granting them the constitutional right to put up a defence against the banks.

Houses auctioned over arrears as low as R6,000

Some of the Cosmo City homes were auctioned by the banks over arrears as little as R6,000. One former homeowner, Victor Zuma, was evicted from his house in 2013. “Someone arrived at the door and told me I didn’t own the house and had to get out within 21 days,” he says. Zuma bought the house for R187,000 in 2011 and took out a mortgage bond with FNB. His repayments were about R1,800 as month which he dutifully paid until he lost his job as a welder about a year later. Yet he still continued paying as much as he could, about R1,000 a month. In the end he lost the house over an arrears amount reckoned to be no more than R6,000.

He is now seriously ill and unable to work – the result, he says, of the stress from losing his house. He now lives with his wife, Beverly Msibi, in an RDP house where they pay rent of R3,000 a month.
Finweek was shown his file of court papers, which includes a sheriff’s return of service, suggesting he was properly served with a summons. Zuma vehemently denies this. “What they do is the sheriff arrives and if no-one is around hands the summons to a neighbour,” says Dube. “Most of the people I have spoken to who have been affected by this did not see their summons before they were evicted.”

Several of the dispossessed Cosmo City homeowners say they were not notified by the banks or their attorneys that legal action was being taken against them.

Acting Krugersdorp sheriff since 2012, Martha van der Merwe, says she reviewed the files of her predecessor, Mr Venter, and could find nothing wrong with the legal execution process. The previous sheriff passed away some years ago and she is unable to conduct any further investigation as his old case files are closed. She points out that there is no restriction on how many properties a buyer can purchase at auction: “As long as they comply with the conditions (of the auction) they can buy as many as they want.”
Another point Dube wants investigated is how poor people from Cosmo City are having their homes repossessed when they are supposedly covered by government housing subsidies. The Department of Housing, in reply to questions posed by Corruption Watch, replied that the houses in question were not RDP houses and therefore they were not entitled to government subsidies. This is hotly disputed by several Cosmo City residents affected by the repossession blitz. The housing subsidy is aimed at first time home buyers with gross household income of no more than R3,500.

Several dispossessed homeowners admit they fell into arrears but tried to make repayment arrangements with their banks. Some banks accepted the softer repayment arrangements but proceeded with legal action anyway.

A case in point is Moses Mesa, who fell into arrears on his FNB mortgage bond and made arrangements to pay off his arrears over six months. He says he stuck to the revised payment schedule but the bank still took judgment against him. The account manager at FNB, Meshack Modisane, says Mesa was given ample warning of the consequences of falling behind on his bond payments, and insists the legal process must take its course. The arrears amount is around just R12,000. Mesa was at least served with a summons by the bank. Many other Cosmo City residents say there were not so lucky.

Refaat Gierdien, head of Legal at FNB Housing Finance, says the bank has investigated the two instances mentioned in the article. “We can confirm that the correct legal processes were followed during the debt recovery process against the customers. We can also confirm that both customers were kept informed throughout the legal process in line with the legal requirements and our strategy to ensure that customers are given every opportunity to rehabilitate their accounts.

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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.