Home repos sales mess

BLAME: DECISIONS BY COURTS WIDELY DIFFERENT ON REPOSSESSED HOUSES

‘Some of the prices are so absurdly low they cannot be considered genuine sales.’

Presented with similar facts, South African courts are churning out wildly different rulings when it comes to home repossessions. Prior to 2018, court rules allowed repossessed homes to be sold without a floor price (also called a reserve price) at sheriffs’ auctions. That changed in 2018, when Rule 46A of the Uniform Rules of Court was amended to allow judges to impose a reserve price in all but exceptional circumstances and to prevent the sale of properties for R100 – and even R10 – as happened in the past.

Some of these sale prices are so absurdly low that they cannot be considered genuine sales, according to legal consultant Leonard Benjamin.

“Rule 46A was changed to stop these kinds of simulated sales and provide some legal protection for homeowners in default who stand to lose their properties,” he said.

“But the evidence is that banks and their lawyers are still able to sidestep these rules, often in cunning ways.”

In February, Judge DC Fisher of the High Court in Pretoria berated lawyers for the banks for approaching judges in their chambers in an attempt to circumvent the reserve price.

As Moneyweb previously reported, the purpose of the reserve price is to protect the homeowner in default, as Fisher explains in her judgment: “If a property is sold at a price which is significantly below the true market value, the homeowner is liable to lose the investment made in the property and still be left indebted to the bank for more than is fair.”

In the four cases presided on by the judge, the banks’ lawyers were found to have flouted rules requiring them to serve legal papers on the debtors in person, serving them instead on tenants or spouses.

The judge refused to hear the matter, brought by a company called Changing Tides 17, in their chambers, ruling that the case must be heard in open court.

When the reserve price is not met, Rule 46A says the bank must return to court with a new application. This gives the debtor a final opportunity to supplement relevant facts and present them to the judge who granted the initial execution order allowing the property to be sold at auction.

“In many cases, credit providers were not serving the new application on the debtors, but simply approaching a judge in chambers to ratify the sale below the reserve price,” says Benjamin.

In cases where the reserve price is not met, some judges have cancelled the auction sale or allowed the sale to go ahead at a lower price. Other judges have set aside the order of executability (the auction sale) entirely if there is evidence that the debt can be repaid in monthly instalments, adds Benjamin.

“The biggest concern here is that judges are still deciding matters according to whether the consumer will be able to catch up the arrears instead of focusing on the consumer’s ability to settle the judgment debt within a reasonable time by making regular payments,” he says.

Many of these arrears calculations by the banks are arbitrary and self-serving, adds Benjamin. For example, they may include untaxed (unauthorised) legal costs and admin fees, which can easily push mortgage lenders into arrears.

In many cases, the courts are buying this argument from the banks without question.

Two recent cases have attempted to provide some guidance on what happens when a reserve price is not met at auction. In both cases, the judges note the lack of guidance in the process to be followed when setting a reserve price.

That lack of guidance has been brutally exploited by banks’ attorneys, adds Benjamin.

In Standard Bank v Tchibamba and Another, heard in September in the Western Cape High Court in Cape Town, Judge Ashley Binns-Ward was asked to reconsider a reserve price on a property where the homeowners had fallen into default on their repayments.

The bank had earlier obtained judgment to the tune of R955 411. The property came up for auction and a reserve price of R973 032 was fixed by the court.

There were three bidders, the highest bid being for R700 000. The municipal valuation was R1.45 million, while other properties in the same area were going for R1.78 million and R2.49 million.

The debtors, who hold refugee status in SA, testified that the property was let to tenants who themselves were in arrears with their rentals.

When the auction failed to secure the reserve price, the sheriff compiled a report within five days, as required by court rules, with further details on the state of the property. It was in a poor state and required substantial renovation, said the report.

“What we need is for the judge president to look at these cases and provide the guidance judges need in setting reserve prices,” says Benjamin.

“It is clear that the intention behind the changes in Rule 46A is to provide protection for consumers – not to allow banks to find any loophole they can to circumvent the court rules.

“There should be no discretion to adjust the reserve price.”

Banks and lawyers are still able to sidestep rules