Abuse of stricken homeowners ends

COURTS CAN NOW SET MINIMUM PRICE FOR THE SALE OF DEFAULTING OWNER’S PROPERTY Despite constitutional provisions and the National Credit Act, loopholes were exploited by unscrupulous speculators.

If losing your home can’t be avoided, you’d prefer your property to be sold for the best price possible.

If losing your home because you can’t pay your debt cannot be avoided, you’d certainly prefer your property be sold for the best price possible. Then, you can hopefully settle your debts and perhaps have enough money left to start over with.

This ideal should now become a stronger possibility for South Africans who struggle to pay back their home loans.

A new law, due to come into effect shortly, will enable courts to set a reserve price (minimum price) at which the residential property of a defaulting owner should be auctioned for.

Until now, many South Africans have lost their properties to speculators who snap them up at prices far below market value.

The country’s home owners and in particular bond holders will be better protected when faced with financial difficulties.

The upcoming amendments include a number of things that relate to the auctioning of homes by creditors.

The most important change will be that a court will be able to set a minimum price at which the bidding must start, taking into consideration a number of factors, such as the market value of the property, the amount owed in taxes and levies, and the amount owed to the bank.

Section 26 of the constitution protects people from being evicted from their homes without a court order and without a good reason, based on all the facts of the case.

This right also protects citizens against the unjustified loss of a home when one has defaulted on a mortgage payment.

The National Credit Act of 2005 protects struggling debtors in several ways. A defaulting mortgage debtor can, for instance, apply for debt review and then possibly receive a new, more affordable payment plan.

But this Act doesn’t provide protection during the actual sale of the debtor’s home.

So the new court rules come as a welcome addition to close the previous loopholes.

The major loophole was that after the court has ruled that the property should be auctioned, it could be sold for whatever the highest offer might be.

Banks could set a minimum price. But banks tended to set a low minimum price, just enough to cover their claims.

A bank could even decide to auction the house without a minimum price if no one was willing to buy it at the set minimum.

The owner of the property could not insist on a minimum price.

As a result, it often happened that speculators would snatch up properties for ridiculously low amounts at poorly attended auctions and then sell them on the private market for huge profits.

The owner then suffers a massive loss because he or she must still pay the remaining debt, while someone else profits from the true value of the property.

The amendment of court rules in themselves should close the gaps exploited by unscrupulous operators.

Reghard Brits is senior lecturer in mercantile law at University of Pretoria.

This article was originally published on The Conversation and has been edited and cut.