Indebted keep house after key ruling
Johannesburg – The first test case following a key Constitutional Court ruling put a dramatic stop to the auction of an indebted couple’s house.
The latest ruling confirms that banks will have to be much more careful when seizing property. But it may not all be good news for clients.
Last week, the Constitutional Court ruled that only a judge in the High Court, who must carefully weigh the circumstances of the case, could decide whether a bank may sell a property if the client falls into arrears.
For many years, the decision had been taken by a court registrar. The ruling is retrospective, which means that many people who have lost their houses could potentially take action against their banks.
On Tuesday morning, the high court stopped the auction of the Milnerton home of a couple who had fallen behind on their mortgage payments to Nedbank - hours before the property was supposed to be sold in execution.
A bank registrar gave the go-ahead for the forced sale. The ruling, the first following the Constitutional Court judgment, confirmed that only a high court judge could make such a decision.
Andre Snyman, managing director of SA’s biggest debt counselling group Consumer Assist, says subsequent rulings will be watched carefully.
The constitutional right to housing will weigh heavily on decisions.
“Banks will have to show that they did everything in their power to help clients to remain in their houses.”
Snyman says currently when mortgage clients fall behind on payments a “well-oiled machine” is in place for the banks to get approval from the registrar and auction the houses.
The banks will also have to show that a substantial amount is still outstanding.
The George-based attorney Francois van Zyl, who represented clients in both cases, says he is currently working on a case where the bank auctioned a house after the client was only in default for R3 500 (on a R600 000 mortgage).
He says he has been flooded with banking clients who want to claim restitution from banks who evicted them.
But Snyman thinks there is a very real chance that the Constitutional Court ruling could backfire.
Appearing before a high court judge – and a more prolonged process of recovering their bad debt losses - will push up banks’ costs, which will eventually be passed on to consumers, he thinks.
In addition, it could also make banks even less willing to give mortgages. While the approval rate of mortgages has seen a dramatic comeback, less than two-thirds of mortgage applications are approved – compared to 81% in 2007, according to figures from the mortgage originator ooba.
In March, the number of mortgage applications was still only 36% of the volume recorded in 2007.
Saul Geffen, CEO of ooba, doesn’t think the Constitutional Court ruling will have any significant impact on banks’ willingness to extend home loans.
“The ruling has now clarified this process and that will give certainty to both the lenders and the homebuyers that find themselves in a court process.”
A spokesperson for the Banking Association of SA (Basa) earlier also said he believes that bond applicants won’t be penalised.
However, the banks are already nervous about a recent Supreme Court of Appeal ruling that placed a cap on the amount they can charge from indebted customers.
Basa said in reaction that this will affect “both access to and the terms and conditions and pricing of credit for all consumers”.
Snyman expects banks will move much quicker if clients fall behind on mortgage debt.
If clients who have second properties fall behind on mortgage payments on their primary homes, banks could also be more aggressive in recovering debt since the Constitutional Court clearly only referred to primary homes, he says.
Consumers need to be vigilant, says Van Zyl.