Lawyers representing consumers facing repossession have applauded a recent case in the Gauteng High Court that blocks lawyers who try to circumvent legal proceedings by selling such homes for less than market value.
Judge Fisher’s February 2022 ruling ended the practice of banks’ lawyers addressing judges in chambers in an attempt to circumvent the reserve price (floor) requirement.
Until 2018, banks frequently sold repossessed homes for well below market price, raising suspicions that syndicates operating in banks and sheriffs’ offices were organizing these sales so they could salvage them for a song. Some were sold for as little as R10often leaving the defaulting borrower with a huge debt to the bank and no chance of receiving the equity accumulated in the home.
This changed in recent years when the high courts of Gauteng and Cape Town ruled that repossessed homes must be sold with reserve prices in place in all but exceptional circumstances.
This follows a 2017 amendment to Court Rule 46A which requires the sheriff of the court to personally serve the notice of execution on the debtor, and not on a neighbor or the debtor’s child as was the case. produced in the past.
This was intended to give the debtor the opportunity to defend himself in court. The change in court rules also provided that the court imposed a reserve price, with the sheriff reporting to the court within five days if that price was not obtained at auction.
To circumvent this requirement, lawyers were found to avoid court by approaching judges in chambers when a reserve price was not obtained at auction to seek the judge’s blessing to sell the property at a lower price. .
Protect the consumer
The purpose of the reserve price is to protect the defaulting owner, as Judge Fisher explained in the judgment: “If a property is sold at a price significantly below the actual market value, the owner is likely to lose the investment made in the property and still owe the bank more than is fair.
“For most homeowners, the investment in mortgaged property is the most important and significant of their lives,” reads the judgment.
“The very purpose of Rule 46A is to prevent an owner’s investment in his or her property from being unduly encroached upon.
“One of its purposes is to protect debtors by ensuring that homes are not sold for execution at prices that are unrelated to the market, as was a widespread inequity in the recent past.”
The claimant in the case was Changing Tides 17 (Pty) Limited, which claimed it was unable to obtain reserve prices for four properties it was attempting to auction.
In all four cases, none of the required documents were served on the owner, and Rule 46 requires that where a reserve price is not obtained at auction, the sheriff must within five days submit a report to the court explaining Why.
What is market value?
In Changing the Tides, the court referred to the International Valuation Standards Council’s definition of market value: “Market value is the estimated amount for which an asset or liability should be exchanged at the valuation date between a willing buyer and a willing seller arm’s length transaction, after proper marketing where the parties had each acted knowingly, prudently and without duress”.
When a reserve price is not obtained at auction, lenders would go to the judges in chambers to convince them to lower the reserve price.
But the fact that a good has not been sold at the reserve price does not make it possible to find the right balance between the interests of consumers and supplier creditors, as provided for by the law on the national credit, specifies the judgment.
What if the sale was not properly advertised or took place during a holiday period?
Judge Fisher goes on to note some troubling trends of lawyers seizing properties with no date for the landlord to answer to, or sheriffs serving documents on tenants as “proof” that the property is not the judgment debtor’s residence. This does not follow, as many landlords rent out rooms to tenants. The court also found instances of sheriffs serving papers on the debtor’s spouse. “This does not take into account the prevalence of divorce or spouses living apart,” the ruling reads.
A change in court rules would have ended the abuse of lenders
The change in court rules was initiated by attorney Douglas Shaw and the Lungelo Lethu Human Rights Foundation, which has campaigned against abusive banking practices resulting in the deportation of hundreds of thousands of people since the law took effect. constitution.
The foundation’s CEO, King Sibiya, says that in many cases she has investigated, the debtor was not in default.
“Banks played on consumers’ ignorance of legal proceedings and slipped in an execution order to repossess and sell the property without ever informing them,” says Sibiya.
“The next step after that is eviction. We have cases of people being convicted of trespassing on their own homes, which is a criminal offence, even though they have dutifully paid their mortgages. South Africa has a shocking history of abuse in this regard.
“We welcome this latest ruling from the Gauteng High Court as it reaffirms the court rules we fought so hard to obtain, that no repossessed homes can be sold without a reserve price and that solicitors Banks cannot subvert this legal requirement by having a quiet cup of tea with the judge in chambers.
Commenting on the decision, lawyer and consumer activist Leonard Benjamin said courts must exercise judicial review to determine whether allowing the sale at a lower price would still constitute a proportionate and justifiable breach of the debtor’s constitutional rights.
“A court application, supported by relevant information, is required. The seized debtor must be notified to allow him to oppose the case and protect his rights,” explains Benjamin.
“It is the norm for execution creditors to simply submit the matter to a judge for approval in chambers. As a result, properties were transferred to execution buyers at the lower price, without proper judicial review.
Does this mean that these transfers are automatically invalid?
Benjamin says those improper transfers could be declared invalid, provided the debtor can show the court a verifiable plan to settle the judgment debt through less invasive means over the remaining term of the loan.
“They could also commit to selling the property themselves, at least at the reserve price.
“When they [the homeowner] can sell the property for more than the judgment debt or reserve price, persisting in execution can never be justified,” says Benjamin.
“Performance debtors should, therefore, take advantage of the unexpected opportunity presented to them.”
Until 2011, it was possible for the clerk of the court to grant execution orders (to sell property repossessed at the sheriff’s auction) without any judicial review. The practice was declared unconstitutional by the Constitutional Court.
“Although the declaration of invalidity was made retroactive, the Constitutional Court clarified that it did not mean that all transfers resulting from the judgments of the clerk would fall automatically, but that the individual debtors of execution should request the annulment of the judgment by showing that if the case had been handled by a court rather than by the Registrar, the court would not have granted a binding order,” explains Benjamin.
International Best Practices
Shaw says changing the law requiring reserve pricing was a major victory for consumers, but bank lawyers have found a way to reverse that process.
“What they’re doing now is going back to court without proper process and the court is allowing them to sell repossessed properties without a reserve price. That’s not what the law allows.
“My favorite way to do it is the way they do it in the Far East, where repossessed properties are auctioned off with a reserve price and then lower the price if the reserve isn’t met.
“Australians use estate agents and bring people to auction and bid on repossessed properties to get as close to the reserve price as possible in a transparent sales process.”
Judge Fisher said the cases brought to her by Changing Tides “do not constitute requests and are improper proceedings”.
“I refuse to receive them in rooms or not at all and I do not make any orders for them.”
By Ciaran Ryan
This article first appeared on Moneyweb and has been republished with permission. Read the original article here.