Court decision ‘does not stop dodgy reselling’

The Constitutional Court’s decision to dismiss an application to access the court by defaulting debtors who cannot meet their home loan payments does not help to alleviate unscrupulous behaviour by resellers, according to a legal commentator.

The application was brought by 219 complainants who were applying to the Constitutional Court for direct access to have the current home repossession procedure declared unconstitutional and to claim damages from home loan providers for allowing their houses to be sold at sheriffs’ auctions for less than market value.

The application to allow for direct access was denied, the consequence of which is that the litigants will need to approach the usual courts of first instance such as magistrate’s and high courts.

Gilad Cohen, an attorney who practises in Johannesburg, said the home repossessions system was prejudicial against homeowners.

“In my assessment, the prevailing system for foreclosing on mortgage bonds of defaulting debtors has created a system which is fraught with problems,” Cohen said.

Their houses were sold at auctions with no reserve price and often less than half of market value of the property.

“It creates a desperate situation for the defaulting debtors in which they often find themselves losing their properties despite their best efforts to arrange immediate settlement of their arrears,” said Cohen.

“They simply report that the home loan institutions put up red tape and they land up watching their houses get sold for marginal values. They then get sued for the shortfall between the price the property fetched at the forced auction and its market value.”

Unscrupulous property syndicates then purchased the properties at sheriffs’ auctions and sold them to unsuspecting purchasers at the correct market value and in doing so, made lofty profits, he said.

The unscrupulous syndicates were “also under huge financial pressure to pay the sheriff and in doing so, often commit irregular and fraudulent acts when selling to unsuspecting purchasers”, said Cohen.

The likes of Nedbank, Absa, FirstRand, Standard Bank, and Investec were cited in the application, which suggested they face a R60bn class action.