Cash-strapped homeowners whose properties are repossessed and sold by their banks are likely to get a better deal in future, thanks to recent interventions by the Ombudsman for Banking Services, Advocate Neville Melville.
Deeply concerned by the particulars of a complaint received by his office, Melville sought operational and legal clarity on what is rapidly becoming an everyday scenario.
A client defaults on his/her home loan. The property is meant to be sold in execution, but the bank does not get the reserve price at auction. The bank then buys the property at a cost of R100, for example, selling it at a later date for a much higher price.
If the bank does not get the reserve price at auction, does it credit its client’s account with R100 and/or the valuation of the property? If the bank sells the property at a later stage, does the bank credit its client’s account with the purchase price?
In the complaint presented to the banking ombudsman, the bank credited the home loan account with R100, and not the price for which the property was eventually sold. The complainant was then held liable for the outstanding balance on the home loan.
After consulting expert opinion, Melville has informed the banks that procedures of this sort are invalid, and fly in the face of common law and the Code of Banking Practice.
In a bulletin issued to the banking industry late last week, Melville stressed that while the banks are entitled to recoup the principle debt, interest and holding costs, they are not allowed to make “a profit” out of the resale of the property. He indicated that any such “profit” must be credited to the borrower’s account.
Due to the fickle nature of the property market, it can happen that property sold by the bank realises less than the amount owing on the home loan. The homeowner remains responsible for any such shortfall and must continue paying it off.
Melville believes this recommendation will make a difference to homeowners who are not particularly wealthy or may be struggling to make ends meet.
“Although interest rates are coming down, increasing the affordability of home loans, many people still struggle to keep the wolf from the door. I’m hopeful that our involvement in cases like this one will serve to educate consumers about their rights, negating the need for protracted conflicts and personal heartache down the road.”
Homeowners who run into financial difficulties are advised to market the property themselves before the bank forecloses on the home loan.
“Sometimes hoping for better days makes the matter worse as interest and legal costs mount very quickly.”
During 2003, the ombudsman for banking services handled 397 home-loan-related complaints (17,5% of the total), making it the second-highest category of complaints received. — I-Net Bridge