This article appeared in Moneyweb.
Following the lead recently set by the South Gauteng High Court, a full bench of the Cape High Court will decide this week whether to set reserve prices on repossessed homes.
In the Gauteng case, the banks argued against reserve (or floor) prices, except in exceptional circumstances. The court found otherwise and now insists on reserve prices in all but exceptional circumstances. Having lost that case, the banks have now decided the matter is not worth arguing and have agreed to abide by the Cape court’s decision.
Until now, the courts have allowed repossessed homes to be sold at sheriffs’ auctions without a reserve price, resulting in homes selling for a fraction of their market value and leaving the defaulting borrower with a large outstanding debt to the bank. This is no longer possible in Gauteng. Now the Cape court wants to decide whether it should follow Gauteng’s example.
This follows a change in court rules a year ago which allowed judges to set reserve prices in home repossession cases. The Lungelo Lethu Human Rights Foundation (LLHRF) has campaigned for a change in court rules to stop easy evictions by banks. It says more than 100 000 families have been evicted from their homes since the Constitution came into effect more than two decades ago due to the ease with which banks have historically obtained court judgments.
The LLHRF, which has been admitted as a friend of the court, says in its court papers that many of these evicted families end up destitute and cut off from any chance of economic recovery. It wants the court to balance the Constitutional rights of those in financial distress with the banks’ right to recover loans.
Lawyers defending debtors against the banks say this practice of selling repossessed homes without reserve prices was an open invitation to bid-rigging syndicates to pick up properties for a song and then flip them for a quick profit.
A directive issued by Western Cape Judge President John Hlophe wants a full bench of the high court to decide on eight home repossession matters, six of them involving Standard Bank and one involving Absa.
Hlope wants the court to decide whether the change in court rules allowing reserve prices introduces “substantive legal requirements” before judges can grant banks an order declaring a property “specially executable” – which is required before a property can be sold at auction. The Cape court must now decide how judges should go about setting reserve prices prior to properties being sold at auction.