Banks may face claims from indebted clients
Johannesburg – South Africans who fell behind on mortgage instalments and lost their homes to banks may be able to claim restitution, following a new court ruling.
A Constitutional Court judge acknowledged that the ruling, made by the full bench of the court, may spark fears of "large-scale legal uncertainty".
The ruling was in favour of Elsie Gundwana from Thembalethu township outside George. She was evicted from her house after Nedbank sold it to collect less than R5 300 in arrears.
Her lawyers argued that the process through which the bank had sold the property in execution was unconstitutional, because the registrar of the high court should not be empowered to take away ownership of a home. Only a judge, who must carefully weigh the circumstances of the case, should make the decision, they contended.
The Constitutional Court ruled in her favour, setting aside previous high court rulings that the registrar was competent to make execution orders.
"It is rather ironic that the effect of this judgment is to restore to the courts a function that they exercised for close on a century before the introduction of rule 31(5) in 1994," Constitutional Court Judge Johan Froneman said in a ruling summary.
The ruling was retrospective. This could potentially affect many households who lost their houses to banks.
The judgment means that banks must approach a judge and show why the sale of a person's home would be justifiable in all the circumstances of a particular case.
"An agreement to put one's property at risk as security in a mortgage does not equate to a licence for banks sell a property in bad faith, or where it would otherwise be a disproportionate way to recover a debt," says Froneman.
Peter Setou, manager of education and strategy at the National Credit Regulator, thinks the ruling is of "great significance and a major breakthrough for consumers".
It asserts consumers' rights, especially where they stand to lose their houses. "It subjects the whole process to judicial oversight to make sure that all other factors are taken into account by the presiding officer, instead of leaving it in the hands of the registrar.
"Many factors may need to be considered before a judge may order an execution sale. This decision will, I believe, award the public an opportunity to place their personal circumstances before a court to obtain a more equitable decision, contrary to a bank's dictatorial attitude against a consumer," says Francois van Zyl of Francois van Zyl Attorneys in George.
Van Zyl, who represented Gundwana, says the ruling is "absolutely ground-breaking".
He expects people who lost their houses in recent years to take action against banks. "Each individual case will be decided by the courts in due course on the merit of each case."
Froneman acknowledges that the ruling could create apprehension of "large-scale legal uncertainty", but says this fear is overstated.
'No material impact'
Clients who lost their homes still need to apply to have the original default judgment set aside. "It may be that in many cases those aggrieved could find these requirements difficult to fulfil."
Willem Kruger of Nedbank Group's legal division says customers will have to prove that they have a "valid defence" to the debt, that they have a good reason for only approaching the court at this late stage, and that they have fulfilled the normal requirements for rescission (cancelling a a contract between parties).
"Nedbank is of the view that the impact of the ruling will not be material."
Nicky Lala-Mohan, general manager of the Banking Association of SA, also doesn't think there will be a flood of claims against the banks.
He expects action to be taken only in cases of real merit – where there were blatant instances of unfair treatment, like when arrears only amounted to small amounts.
But one legal expert thinks the banks are fooling themselves.
"This is a high-profile case; many people who lost their homes will take note."
So what kind of relief can you expect if the court does find that you should not have lost your house?
Van Zyl says this is the great unknown.
"This is a grey area and would need to be tested in court, but restitution is not excluded."