Up for grabs: the rules of the court still do not permit the setting of a reserve price to stop people's homes being auctioned for trifling amounts.
On February 11 the high court in Johannesburg ordered the reregistra- tion of a Soweto house in the names of Mr and Mrs Thabethe. This ended almost four years of litigation and a decade- long battle to correct the injustice of a bank selling a family’s home to recover a debt that had been paid.
It is an example of the importance of judicial oversight of the sales-in- execution process that many families are confronted with, especially in the poor economic climate.
The Thabethes, who preferred not to use their real name, bought their house in 2001. They obtained a loan through First National Bank, and a mortgage bond was registered over the house in favour of FNB, with the home serving as security for the loan. At the time, both were permanently employed and they could afford the monthly instalments on the loan.
But a little over a year after they bought the house, they lost their jobs and told FNB of the dramatic change in their economic circumstances.
They also continued paying their monthly instalments, albeit irregularly. They first defaulted on their payment in June 2002, but continued to make small payments over the next few months.
Bank takes legal action
In mid-2002 the Thabethes temporarily moved to Mpumalanga for work. FNB commenced legal action against them and issued summons. The Thabethes were not there to receive them. FNB got a judgment against them for the outstanding R54 000. When the Thabethes came home and discovered this, they asked FNB to discuss payment arrangements. They also hired an attorney to help them get the judgment rescinded.
For seven years, FNB held the judgment over their heads. It threatened to execute it and sell their home on auction. This forced the Thabethes to scrape together the little they had to keep paying.
By law, FNB is entitled to take legal action to recover whatever amounts it has loaned a consumer. It must approach the court to get an order for the repayment of the money it is owed and, failing that, that the house it holds security over be sold in execution of that order. For as long as the bank is owed any amount in terms of the loan agreement, the mortgage bond remains valid, binding and enforceable against the debtor.
Yet, in a recent series of judgments, the courts have held that the creditor’s right to recover the debt must be weighed against the debtor’s right to adequate housing. The sale of the debtor’s home should be the last resort.
In deciding to authorise the sale of a person’s home, the court must have due regard to factors including the amount of the arrears, the financial circumstances of the debtors, and whether there are other ways to recover the debt (such as extending the loan period).
When FNB won the order to sell the Thabethes’ house in 2003, it also asked the registrar of the high court to declare it specially executable — so the sheriff could sell it on auction.
From 2003 onwards, FNB set six different dates to have the house auctioned but cancelled each time because the Thabethes made payments. In 2010, after yet another threat to sell their home, the Thabethes were unable to raise enough money to pacify FNB. Seven years after taking judgment, FNB finally auctioned the Thabethe’s home to a new owner, who then sold it on to a third person, in whose name it was finally registered.
FNB no longer had a right to sell the home
By the time of the auction the Thabethes had paid R94 000 to FNB — close to double the judgment amount, including interest and costs. The mortgage bond FNB held over the house was, as a result, discharged and no longer in effect and the bank no longer had any right to sell their home.
From the time judgment was taken against them, the Thabethes tried all means possible to satisfy the debt. They took on a string of temporary jobs and ran their own business selling bunnychows in Soweto, which they continue to do. The little they earned from these endeavours went towards settling the debt.
The Thabethes instructed the Socio-Economic Rights Institute of South Africa (Seri) to approach the high court in Pretoria to challenge the validity of the sale. FNB opposed the case, arguing that the Thabethes’ payment was only towards the bond account, which it kept running — and on which it charged legal fees and compound interest, fees to which FNB was not entitled in terms of the judgment or the mortgage.
The court ruled that the Thabethes had satisfied the judgment debt at the time of the sale of their home, and that FNB owed them R584.67. The auction of their home was declared null and void.
Despite this ruling, the Thabethes faced the problem of having their home reregistered in their name.
On February 11, after another application by the Thabethes, the court ordered the registrar of deeds to cancel the name of the new owner and revive the Thabethes’ names on the title deed. This drew their long and painful struggle for the return of their home to a close.
Progress in the law
Had the bank exercised more care in the way it dealt with the Thabethes, it would not have sold their home in the first place.
It is encouraging that the law has moved on since FNB first took judgment against the Thabethes in 2003. The courts now demand that banks and other lenders follow strict processes in obtaining judgments.
Yet abuses remain; banks often sell a debtor’s property for far less than its value or the amount owed. The rules of court still do not permit the setting of a reserve price to stop people’s homes being auctioned for trifling amounts.
Unlike the Thabethes, many indebted families have no access to legal services to help. Stronger regulation is required to stop financial institutions from riding roughshod over poor people. – Mbekezeli Benjamin & Lwazi Mtshiyo
Mbekezeli Benjamin and Lwazi Mtshiyo are candidate attorneys at the Socio-Economic Rights Institute of South Africa (Seri)