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A Fin24 user has a problem with Absa's standard cession document relating to home loans. He writes:
After a year long battle with Absa [JSE:ABSP] I am about to, under duress, give in on an issue that I feel not only compromises me, but each and every client of theirs that has a bond from this institution.
The loan agreement that I signed (for a bond), included a clause that noted that, should I choose to engage an insurance company not related to Absa for my homeowners policy, then I would be required to cede such policy to Absa as part of the security.
Reading the agreement, my understanding was that they were interested in ensuring that the required cover would always be in place, and as a result the underlying asset would be protected.
On receipt of the Absa drafted cession document, it became very clear that my understanding and their intent were not the same.
The cession document gives the bank total power over all the proceeds from any claim made against the policy to offset against any debt that you may have with them, due or not.
All it requires is a bank managers certificate to prove the debt.
Ultimately this means that, if you thought that your homeowners policy was to protect you from disaster should it strike, then you are wrong.
The bank has first bite at any money emanating from the policy. They will give you what is left over, which more than likely will be totally insufficient to restore your asset to its former glory.
You are then left with a severely compromised asset, which may or may not have sufficient value to raise another bond to bring your house back to its former standing.
To add insult to injury, you will have to pay all the costs associated with raising a new bond.
In my "discussion" with Absa I have been informed that this is their standard cession document and that "hundreds" are signed every day.
Should this be so, then there are many people out there, who are under the impression that their most expensive asset is adequately protected via their homeowners policy when in fact it is not as the policy is really in place to protect the bank and no one else.
One of the tactics that Absa employs is to threaten to take out a policy on the property via their insurance arm (despite the fact that it is already insured) and debit the costs to your account.
Whether or not this is legal is another question to be raised.
It would be interesting to hear what the legal fraternity and insurance industry think on Absa’s “reallocation of purpose” tactics are?
Fin24 approached Absa for feedback on the above, and an Absa spokesperson replied as follows:
As correctly pointed out by our customer, the cession is required solely for the protection of the property, which the bank has a security interest over.
We do, however, acknowledge that the wording in the cession document covers all debt of the borrower and should be limited to the mortgage loan agreement in its referencing.
The bank does, however, apply the said cession in the administration of the mortgage loan only and confirms that no customer is prejudiced.
We are attending to the necessary changes on the cession document and can for present purposes, amend the cession document for our customer with specific reference to the mortgage loan only.
We trust that this will meet with our customer’s satisfaction and sincerely apologise for any inconvenience caused.
The client’s Absa insurance policy was issued pursuant to a mortgage bond being registered over the property in favour of Absa bank.
It is a requirement in terms of the mortgage loan agreement that the client must have insurance in place.
If the client wishes to cancel the Absa insurance policy, he will have to provide a copy of the outside insurance policy, to confirm whether it meets the bank’s requirements.
The client must then sign for the policy to be ceded to the bank.
After a year long battle with Absa [JSE:ABSP] I am about to, under duress, give in on an issue that I feel not only compromises me, but each and every client of theirs that has a bond from this institution.
The loan agreement that I signed (for a bond), included a clause that noted that, should I choose to engage an insurance company not related to Absa for my homeowners policy, then I would be required to cede such policy to Absa as part of the security.
Reading the agreement, my understanding was that they were interested in ensuring that the required cover would always be in place, and as a result the underlying asset would be protected.
On receipt of the Absa drafted cession document, it became very clear that my understanding and their intent were not the same.
The cession document gives the bank total power over all the proceeds from any claim made against the policy to offset against any debt that you may have with them, due or not.
All it requires is a bank managers certificate to prove the debt.
Ultimately this means that, if you thought that your homeowners policy was to protect you from disaster should it strike, then you are wrong.
The bank has first bite at any money emanating from the policy. They will give you what is left over, which more than likely will be totally insufficient to restore your asset to its former glory.
You are then left with a severely compromised asset, which may or may not have sufficient value to raise another bond to bring your house back to its former standing.
To add insult to injury, you will have to pay all the costs associated with raising a new bond.
In my "discussion" with Absa I have been informed that this is their standard cession document and that "hundreds" are signed every day.
Should this be so, then there are many people out there, who are under the impression that their most expensive asset is adequately protected via their homeowners policy when in fact it is not as the policy is really in place to protect the bank and no one else.
One of the tactics that Absa employs is to threaten to take out a policy on the property via their insurance arm (despite the fact that it is already insured) and debit the costs to your account.
Whether or not this is legal is another question to be raised.
It would be interesting to hear what the legal fraternity and insurance industry think on Absa’s “reallocation of purpose” tactics are?
Fin24 approached Absa for feedback on the above, and an Absa spokesperson replied as follows:
As correctly pointed out by our customer, the cession is required solely for the protection of the property, which the bank has a security interest over.
We do, however, acknowledge that the wording in the cession document covers all debt of the borrower and should be limited to the mortgage loan agreement in its referencing.
The bank does, however, apply the said cession in the administration of the mortgage loan only and confirms that no customer is prejudiced.
We are attending to the necessary changes on the cession document and can for present purposes, amend the cession document for our customer with specific reference to the mortgage loan only.
We trust that this will meet with our customer’s satisfaction and sincerely apologise for any inconvenience caused.
The client’s Absa insurance policy was issued pursuant to a mortgage bond being registered over the property in favour of Absa bank.
It is a requirement in terms of the mortgage loan agreement that the client must have insurance in place.
If the client wishes to cancel the Absa insurance policy, he will have to provide a copy of the outside insurance policy, to confirm whether it meets the bank’s requirements.
The client must then sign for the policy to be ceded to the bank.
