FNB sells R1,4m property for R10,000 - move along, nothing to look at here

Posted 04 November 2015 Written by Ciaran Ryan
Category Justice

FNB valued Mike Russwurm's house in Johannesburg at R1,4m just a few years before he fell into arrears. It then went and sold his house at auction for R10,000. Yes, you read that right - R10,000. That's less than 1% of what the bank originally valued it at. Here's what happened.

We hear a lot of shocking stories about banking misbehaviour, but this one’s a corker.

Mike Russwurm took out a mortgage bond with FNB in 2007 to finance improvements to his home in Albertville in the west of Johannesburg. The bank valued the property at R1,4 million and happily granted the mortgage bond.

Everything went fine in the first few years but in 2011 the economic downturn hit and he fell behind on his payments. The bank despatched the valuations team for another look, and this time they knocked the value down to R500,000.

The matter was handed over to the bank’s legal department, which obtained judgment in the South Gauteng High Court for the full loan amount of about R780,000.

The next step was to sell the house at auction. Fearing he and his family would be tossed onto the street, Russwurm scrambled to catch up on the arrears. He made bulk payments of R55,000, two payments of R7,000 and offered a further R85,000 to clear the arrears. Unable to come up with the full R85,000, he offered instead R73,000, which was just R12,000 short of what he needed to pay to clear his arrears.

Not good enough, said the bank. The auction would go ahead.

On the day of the auction one bidder made an offer for R450,000, but he supposedly – by the bank’s version of events – mistakenly assumed he was bidding for four stands rather than one. When he realised his mistake, he walked away from the sale. The property was then sold for R280,000 to a bidder who could not come up with the required deposit, so the sale was cancelled.

Enter the lucky bidder who walked off with the deal of a lifetime.  

The house was instead sold for – wait for it – R10,000.

So let’s summarise what’s gone on here. In the space of five years the bank’s valuation for the property dropped from R1,4 million to R500,000, and in the end it was happy to accept R10,000. Russwurm understandably smells a rat. Several legal advisors contacted by Acts Online say that Russwurm's story is by no means unique. Some homes end up being sold at auction for peanuts.

Even allowing for this purported drop in value (and we are in possession of evidence from industry insiders claiming the banks lean on valuers to depress the value of properties ahead of sheriffs’ auctions), FNB was prepared to accept the absurd price of R10,000 at auction when Russwurm was prepared to pay R73,000.

Sounds like a reasonable offer, right? 

Russwurm shot off a bunch of questions to the bank asking why it was prepared to accept a bid of R10,000 when he was willing to pay R73,000.

This is the reply he got from Randheer Maharaj, manager for legal collections at FNB.

“The conditions of the sale as read by the sheriff at any auction ‘state that if any disputes arise about any bid, the property will again be put up for auction.’ In this instance there where (sic) two disputes resulting in the property being auctioned three times in one day….”

“In conclusion, the property was sold due to default on the credit agreement.”

Maharaj then goes on to heap dirt on Russwurm for failing to keep to his payment arrangements. He shows no sense of shame or outrage over the measly R10,000 the bank accepted for a property which just five years previously it valued at R1,4 million.

“Once the property has registered in the name of the purchaser the Bank will contact you for payment of the shortfall amount derived from the sale of your property,” concludes Maharaj. 

As we previously reported, South Africa is in the Stone Age when it comes to home repossessions. Most European and North American regimes ban this kind of behaviour outright. Repossessed homes in these countries must be sold at prices which bear some resemblance to market values. Not SA. This is because the High Court rules prohibit the setting of a reserve price on assets going under sale in execution, something the NCR is attempting to challenge in the High Court.

Up to 13,000 homes are sold in execution each year in SA. Research by Advocate Douglas Shaw shows they are generally sold for about a third of their market value, which is a massive transfer of wealth from the have-nots to the haves. And bear in mind that nearly one in two of the 20 million South Africans with credit have black marks against their names. That’s a crisis by any definition, the blame for which cannot be placed entirely at the feet of the consumer. That’s reckless lending.

In case you think Russwurm’s case is the worst on record (and it is pretty disgusting), personal insolvency practitioner Tony Webbstock informs us he is aware of cases where houses have been sold for as little as R10.

It has long been suspected that criminal consortiums are operating out of the sheriffs’ offices. The SA Communist Party wants an investigation into the matter of home repossessions. Meantime, we understand that the National Credit Regulator is about to launch a case against the banks to stop them selling repossessed homes at auction without a reserve price.

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