Banks face legal battles to sell houses
Andile Ntingi and Nhlanhla Ncaca
Johannesburg - South African banks could find themselves engaged in drawn-out legal battles with cash-strapped home owners following a landmark Constitutional Court judgment that may saddle lenders with more administrative red tape before they can sell the homes of defaulters.
Following the judgment, delivered last week, banks are no longer permitted to sell the homes of defaulting borrowers without the matter being heard by a judge or a magistrate.
In the past banks obtained execution orders from High Court registrars before they could sell the properties, mainly through auctions.
The ruling was made after a Western Cape woman, Elsie Gundwana, won a long court struggle with banking giant Nedbank, which had sold her house to collect less than R5 300 in arrears.
The house was sold by the lender in 2007, but Gundwana had been resisting an eviction order from the new owner.
Consumer rights watchdog the National Consumer Forum (NCF) has hailed the judgment as a victory for consumers, who will now enjoy greater protection as banks will no longer be able to repossess houses as easily as before.
“The ruling will protect the rights of low-income earners and it will now be difficult for anyone to take away their property. For a long time the system exploited consumers because they did not receive fair and proper justice. This is justice for them,” said Thami Bolani, the chairperson of the NCF.
The ruling may cause an administrative headache for the banks, which are still recovering from a high rate of bad debts in their home-loan units because of the recession, which triggered a demand slump and destroyed more than one million jobs.
According to the National Credit Regulator’s 2010 fourth-quarter credit market report, nearly 198 000 accounts were 30 days or more in arrears, owing banks roughly R107 billion. South African consumers are indebted to the banks to the tune of R1.2 trillion, of which home loans account for 64 % (R760 billion) of the figure. Home loans that are in arrears account for roughly 14.4% of combined home loan books of banks.
A banking analyst who declined to be named warned that banks could incur more expenses when conducting their business in future due to the judgment.
However, he could not quantify how big the impact on the operating costs of banks would be.
“The ruling will increase expenses associated with realising their security on a defaulted home loan. It will also make it burdensome for the banks to realise their security because they will be forced to go through a lengthy court process before realising their security,” the analyst said.
Another analyst, who also did not want to be named, said banks could respond by tightening their lending requirements if the judgment made it more expensive to recover loans from defaulters through attaching and auctioning their homes.
“The banks will be extremely careful to grant loans going forward and they may even increase prices of loans if it became administratively expensive to comply with the judgment,” the analyst warned.
No winners or losers
But banks, which are still studying the judgment, do not foresee the ruling having any material effect on them.
Marthinus van Rensburg, head of Absa Bank’s legal department, warned that the ruling may clog up South African courts with cases of unresolved execution of immovable property.
“The judgment may have a procedural impact in that all these cases will now require direct oversight by a judge, thereby adding to their case load. This, in turn, may result in a delay in these and other cases being heard,” he said.
Funeka Ntombela, director of home loans at Standard Bank, echoed Van Rensburg’s sentiments.
“The bank anticipates that the judicial process will now take longer. It is better to avoid the judicial process because in court there are no winners or losers.
“Consumers need to approach the banks as soon as they struggle with bond repayments. Standard bank, like other banks, offers a distress sales programme (Easy Sell), where we help sell properties on behalf of indebted consumers,” she said.
- City Press
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I have no sympathy for the banks in regard to their having problems now with indebted clients, and them being disappointed by the fact that the interest rate was not increased so they could make more profit and see more of their home loan clients, who are still trying to pull themselves right, lose their properties. They, after all, were only too happy to loan out the money in the first place. Each bank wanted to cash in on the seeming liquidity and not let their competition get the business, so they were prepared to become lax with their loan parameters. It is no good their crying now. And as for contacting your bank if you get into difficulties and them 'helping' you sell, the reality belies the so called help. The bank will only 'help' you to sell in order to get their money out and will not allow you to set the price or hold out for a price so that you come out with something too. And, once you have gone to them, you get flagged on their system as well as that of the credit check companies. Whilst someone in difficulties does need to sell, they need empathy and assistance that ensures they do not lose too much in the process. It is also well known that estate agents keep their thumb on the pulse of properties where owners are behind with their payments, and they circle like sharks too, in anticipation of buying a house cheap and then selling on at a profit. I have personal experience to draw on here, although I have, as yet, not lost my property.