Joburg court ruling paves the way for class action suit against banks
From the flood of correspondence from around the country following the reporting on this case, several questions need answering.
Will the rest of the country follow suit?
Legal opinion is that it almost certainly will. Anyone facing a sale in execution in Cape Town or elsewhere in the country should cite the Joburg court finding in the case (Absa vs Mokebe). This builds pressure on other courts to follow suit.
What is a reserve price?
The minimum price at which the property can be auctioned. Our antiquated court rules, until now, allowed properties to be sold with no reserve (or minimum) price. In practice, this meant properties were being sold for as little as R10 or R100. Yes, that's right. More frequently, they were being sold for between 30% and 50% below market price because there was no reserve price. The banks would then still come after you for any shortfall. This has now changed, and properties will be sold closer to market price.
What if I had a house sold at auction without a reserve price prior to this judgment? Do I have a case against the bank to recover my money?
Lungelo Lethu Human Rights Foundation (LLHRF) already has a R60 billion class action suit against the major lending banks for this very practice of selling properties for a fraction of their worth. The case has been referred from the Constitutional Court to the High Court. South Africans have had their home equity stolen from them to the tune of tens of billions of rands by this practice over the last two decades. Taking someone’s home equity is arbitrary deprivation of property, and therefore in violation of the Constitution. Now the Joburg court has ruled that reserve prices must be applied in all but exceptional circumstances, this certainly strengthens the LLHRF’s case. For those so affected, there is still an opportunity to sign onto this class action suit. Contact Winnie Mokoena at email@example.com.
If I catch up with my arrears, does my mortgage bond automatically reinstate?
Yes, the court was unequivocal about this. There is already case law dealing with this, notably the Nkatha case. This is also covered in Section 129 of the National Credit Act. Once you settle your arrears plus “reasonable” legal and admin costs, your mortgage bond automatically reinstates, up to the point at which the property is transferred (which is the point at which the new buyer fully pays for the property). So even if the property has been auctioned, but not transferred, you can stop the process. In the past, banks have tried to bend Section 129 of the NCA this to suit themselves. They would take judgment against the defaulting client and use this as a sword of Damocles even though you had subsequently caught up on the arrears. If you then defaulted a second time, they would use the first court order to sell your property from under you. The effect of section 129 is that if the consumer reinstates the agreement, the judgment granted against her is no longer alive. The bank cannot use it against her anymore and would have to approach a court afresh for a new order based on a new default. The Joburg court case ruled that the credit agreement is automatically revived when the defaulting client settles the arrears, and this does not have to be communicated to the banks. Previously, banks would only revive credit agreements if the client specifically communicated this to the lender. The power has now shifted from the banks to the consumer. A great ruling.
Will the banks find some other devious way to circumvent this ruling?
They may try to simply cancel the mortgage agreement and claim damages from the defaulting client, but this should be vigorously defended as an act of extreme bad faith in light of the Joburg court finding and the intent and spirit of the NCA.
What is the importance of the Joburg court ruling that the money judgment and sale in execution (SiE) be heard at the same time?
In the past, banks would often approach the court twice: once for the money judgment (the accelerated or full amount of the loan outstanding) and again for the SiE (which is necessary for the property to be sold at auction). There is evidence to suggest the money judgment is all they are interested in. Why? Because most mortgage bonds are securitised (meaning loans of a similar type are packaged together and sold as an investment bond on the JSE), and protected against default by a type of insurance policy called a credit default swap, as Moneyweb reported. The credit default swap payment is triggered by a money judgment. The banks are less interested in selling the house at auction since history shows they are willing to sell homes for as little as R100. The effect of combining the money judgment and SiE is to reduce lawyers’ costs for the consumer. Banks must arrive in court with all the relevant facts typically required for a SiE order – such as who lives in the house, their ages, number of dependents, the value of the property, whether it is a primary or secondary residence. If all this information is in its possession, it may then get the judgment against you. If this information is not there or some of it is missing, defend the hell out of it. Get it postponed. If both the money judgment and the SiE order are to be granted at the same time, this means you may not be able to delay justice to catch up on arrears. But there are other ways to delay matters, as I explain below.
Multiple ways to defend against banks
Important to note: there are many other defences against a bank seeking to repossess your home that were not covered in the Joburg case. One of the issues we see more frequently, showing the depravity of the banks, is false charges on mortgage and vehicle loans. If you have ever been a few days late on a vehicle or mortgage loan, you are likely a victim of this practice. I am going to write more about this in the very near future as it needs an article on its own. Suffice it to say that there is no limit to the wickedness of lending institutions in their attempts to gouge their customers. In the cases we have seen, the customer had absolutely no idea that false charges were being added to the account. In many cases, homes were repossessed when the client was not even in arrears – they were in fact in credit.
Remember, when summonsed by the banks – always defend! Clog the justice system. There are multiple defences against the banks that you may not be aware of.
If you have any questions on this or are being hounded by the banks, email me at firstname.lastname@example.org.
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