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."
All clients who had default judgements had difficulty paying their bonds, they will not have money to pay to get the justice and restitution that they want, the banks will put up a big fight for which they have enough ammunition to shoot the poor clients!!
Very very good, i hope to see a certain few banks go under as a result!!
The biggest thieves and cheats in SA are the banks
ya, some banks go others, and other banks get bigger and stronger - where does that leave you?they all need more competition
Cant wait what the community is going to say about this!
Could the bank take the constitutional court to Court for financial loss if the case was not fairly leveraged?
Great... but the banks always win... This ruling will just make banks more reluctant to grant loans, which will in turn, choke our economy. Again, a ruling that has good intentions, but in the long run, screws over the consumer again
this is surely the best ruling ever. I am just wondering if there will be people abusing this and party more and pay less debt. The fact of the matter is that we are a country with great ability but our people need discipline to rectify mistakes from the past.
It is high time the banks are brought to heel, they are very fond of using a sledgehammer to kill a flea. And their own mistakes are hardly ever brought to book.
- Most comments posted here are off the mark. A client who defaults on his mortgage payments only has himself to blame. Why should the Banks become the loser ? What if this ruling is applied to all bank finance such as cars etc. ?Bank credit will become almost impossible to get and all you people baying for blood will become worse off.
If a bond is set at a fixed interest rate for the duration of the loan then less ppl will be affected, less ppl will loose there homes due to circumstances beyond their control. In most cases banks sell the homes & Cars for less than the outstanding amount of the loan and then they still holds the individual responsible for the outstanding amount, thats double dipping.Fixing the interest rates will see less people default on loans and the property market will be more stable. If you get a loan @ 10% and 5 years later due to political and other world influences the interest rates go up to 20%, now u cant afford the loan anymore, whos fault is that? The flactuation in the interest rates are created to boost the Banks, easy cash for them. If the banks stop charging composit interest on loans it would reduce instalments and make the repayment easier cause its fixed over the duration of the loan, but hey that would result the banks making less easy money.No wonder the rest of the world wants to invest in our banks, talk about a golden goose?
It is about time because I have heard from many properties that have been sold on auction where the owner were not even informed. I heard a rumor that many of these auction properties are bought by bank employees.
Repossession of an entire house for 5k outstanding IS in bad-faith and heavy-handed. There should be a restriction on what percentage of loan is outstanding before a house is seized. It makes absolutely no sense forfeiting a R1m house for a loan of 20k.
That said, yeah banks are unfair but they are NOT a charity. They are doing us a favour by giving us the ability to buy that which we couldn't otherwise. It is the responsibility of each individual to educate themselves on what is affordable and how to repay loans sooner so that they can on occassion get the better of banks.
This will only have effect anything if the affected consumers come together and fight the bank together. Alone, nothing will change or nearly nothing.