You think home repossessions is a middle class affair? Welcome to Cosmo City
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.
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.
“FNB’s policy is that the bank will only as a last resort instruct the sheriff to proceed to sell a property to settle an outstanding debt.
“It is a requirement that when a bank applies for a sale in execution order it must present all material facts to a Judge in open court, including showing that there has been a sustained non-payment of instalments. The bank incurs substantial costs during this process.
Gierdien says FNB’s policy is to explore every possible avenue to settle the arrears. This includes offering customers revised payment options. FNB offers its customers its industry leading QuickSell platform on which properties can be sold on the open market via estate agents, often allowing customers to obtain higher prices for their properties.
Those who lost their houses dispute the legal process was fairly handled. Dube dug up dozens of title deeds for homes repossessed in Cosmo City which suggest the auctioned houses are being bought by just a handful of investors from outside the area. One is an investor from outside the area who claims to be unemployed. Dube reckons the houses are often sold for half their market value and then rented out to tenants so the new owner can cover the bond repayment and still make a profit.
"Banks rather auction houses than accept repayment plan"
A resident in one of the up-market streets in Cosmo City had his home repossessed in 2008. He was retrenched in 2007 and fell five months into arrears. In the sixth month he found a new job and offered to catch up his arrears by paying R7,500 a month instead of the required monthly bond repayment of R5,000. The bank refused the offer and sold his house at auction for R300,000, when it was reckoned to have a market value of R750,000. Today he still stays in the same house, paying rent of R4,800 a month.
“It doesn’t make sense that the bank would accept a lower repayment from the new owner when I was offering R7,500 a month until I caught up with the backlog,” says the tenant, who asked to remain anonymous.
An Absa spokesperson says the bank does its utmost to ensure that customers remain in their homes and, where appropriate, assists in the sale of the property at a market related consideration through its “Help U Sell” programme, which has been in operation since 2011. “This programme is aimed at ensuring that the highest possible price for the property is reached as it is clearly in both our and our customer’s best interest,” says the spokesperson. “Absa regards Sale in Execution auctions of immovable property as a last resort after exhausting all possible rehabilitation solutions and resources available to the bank to recover the bad debt. Absa complies with the Rules of Court and associated legislation which do not permit it to stipulate a reserve price.”
Experts challenge selling of houses at auction
Some legal experts have questioned the morality and constitutionality of depriving someone of their homes over relatively small amounts of money owed to the banks. The National Credit Regulator is bringing a case against the banks in the South Gauteng High Court challenging the practice of selling houses at auction without a reserve price. Advocate Douglas Shaw has raised the same argument with the banks on behalf of several dozen homeowners whose properties were sold at auction for a fraction of their worth – in one case, as low as 10% of market value.
Houses worth R1 million are frequently sold at auction for half this amount. Shaw says this is extremely prejudicial to the defaulting homeowner, particularly where the outstanding bond is, say, R600,000. The homeowner is deprived of a potential profit of R400,000 which could be obtained if the property was sold in the normal way rather than at auction.
“We think it is about time that Sections 25 and 26 of the Constitution, which protect South Africans from arbitrary deprivation of property, are put to the test. We say that selling a repossessed house at auction without a reserve price is arbitrary, and therefore unconstitutional,” says Shaw.
* This article first appeared in Finweek.