Banks forcibly selling homes (sales in execution) have fallen over the past year, mainly because consumers are managing their finances better and are taking steps to address their debt problems with the banks before their homes are attached, most of the big banks say.
According to the National Credit Regulator’s consumer credit market report for 2010, there were about 1.8 million mortgage accounts with a total outstanding balance of R760 billion at the end of December last year. For the quarter to March 2010, 87.76 percent of the mortgage accounts were up to date, and this improved to 89.08 percent for the quarter to December 2010.
The proportion of accounts more than 120 days in arrears was five percent, or 90 760, for the quarter to March 2010, and this improved to 4.74 percent, or 85 920, for the quarter to December 2010.
Of the four major banks – Absa, First National Bank (FNB), Nedbank and Standard Bank – only Standard reported that sales in execution increased over the past year.
“The financial stress consumers are facing has led to more sales in execution, and we expect this to continue for some time,” Funeka Ntombeka, the director of home loans at Standard Bank, says.
But figures from Lightstone, a company that researches the property market, show an overall decrease in sales in execution over the six months to March this year.
Gavin Opperman, the chief executive of Absa retail bank, says while there are still heavily entrenched debtors with poor credit profiles, more consumers are beginning to meet their debt repayments.
According to FNB, sales in execution account for only 0.5 percent of the bank’s home loan client base.
“About 92 percent of our home loan accounts are in good standing. While the number of arrear accounts that are scheduled to proceed to sales in execution varies at 20 to 30 per day, this number often falls to zero as non-performing loans are processed and then cleared,” Vincent Tadden, the head of collections for FNB Home Loans, says.
More homeowners are settling their home loan accounts before a sale in execution or are making arrangements to pay off their arrears over a reasonable period of time, Tadden says.
John Loos, a strategist for FNB Home Loans, says the FNB Estate Agent Survey provides an idea of the extent of homeowners selling “voluntarily” due to financial stress.
“As at the first quarter of 2011, consumers selling in order to downscale due to financial pressure was estimated at 22 percent of total sales. Although this is lower than in the second quarter of 2009, when the percentage of consumers selling due to financial pressure peaked at 24 percent, it remains a high statistic,” he says.
Consumers are finding ways to stay in their homes and are negotiating repayment terms with banks as opposed to selling their homes or facing a sale in execution, Loos says.
Debi Misura, the general manager of Nedbank’s home loans collections and recoveries department, says the number of sales in execution has dropped significantly as a result of the bank’s interventions to help distressed homeowners.
Rael Levitt, the chief executive of Auction Alliance, says the banks are aggressively using their own channels, instead of sales in execution, to sell the properties of homeowners who can no longer afford their mortgage bond repayments.
Levitt says the banks are more cautious than they were in previous years about granting residential mortgage bonds, particularly at the lower end of the market, because consumers’ debt levels are high and lower-income consumers are more likely to default on their loans.
A Constitutional Court ruling earlier this year declared that only a judge can authorise a sale in execution (see “Judge must weigh up the facts before ordering a sale in execution”, below).
Levitt says that previously, when a judgment was taken against a defaulting homeowner, the registrar of the High Court could order a sale in execution. “Now the court will have to make an evaluation of the facts of each case before deciding whether or not to order a sale in execution,” he says.
However, the improvement in the number of people who are managing to keep up with their home loan repayments could be derailed by changes in the economy.
Inflationary pressures are mounting on the back of rising energy costs and food prices. Employment and consumer confidence fell in the first quarter of this year compared with the fourth quarter of 2010, Jacques du Toit, the senior property analyst for Absa, says.
JUDGE MUST WEIGH UP THE FACTS BEFORE ORDERING A SALE IN EXECUTION
In April, the Constitutional Court ruled in the case of Elsie Gundwana versus Nedcor and Steko Development.
Gundwana had asked the court to rule on whether a registrar of the High Court may, in the course of granting a default judgment against a borrower, grant an order for the sale in execution of a mortgaged property.
In 1995, Gundwana bought a plot of land in George for R52 000. She paid R25 000, with the balance in the form of a mortgage bond from Nedcor.
Gundwana fell behind with her monthly repayments during 2003.
In November 2003, the registrar of the Western Cape High Court granted Nedcor a default judgment against Gundwana for the amount of R33 543, together with a further order that declared that the property be sold in execution to recover that amount.
However, Nedcor did not act on the sale in execution order for about four years. During this time, Gundwana made irregular payments on her mortgage bond.
In August 2007, Gundwana learned that the sale in execution was to take place that month. When Gundwana contacted the bank, she was told that she was in arrears for the amount of R5 268 and that the total outstanding amount was R23 779.
Gundwana told the bank she would pay the arrears as soon as possible. On August 13, 2007, she paid R2 000 to the bank in the belief that she had averted the sale in execution.
On August 15, 2007, the property was sold in execution to Steko Development.
On April 23, 2008, Steko launched an application in the George magistrate’s court to have Gundwana evicted. The eviction order was granted on June 3, 2008.
According to the Supreme Court Act, a default judgment may be granted in the High Court by the registrar of the court. However, there is no explicit reference in the Supreme Court Act to orders to declare a sale in execution for a mortgaged property specially executable.
The Constitutional Court’s ruling says that the registrar of the court can issue a default judgment, but then the case must go to a judge for a sale in execution order to be granted.
According to law firm Shepstone & Wylie, the Constitutional Court’s ruling in the Gundwana case means that a bank should do the following to obtain a sale-in-execution order:
* After a summons for a judgment has been served by the creditor and no notice of intention to defend has been entered by the homeowner, the plaintiff (the bank) must set the default judgment before a judge; and
* The bank must file a supporting affidavit to the default judgment that sets out:
* The facts of the matter;
* The reasons that a sale in execution should be ordered on the mortgaged property;
* Whether the default judgment can be satisfied in a reasonable manner without involving the drastic consequences of selling the home; and
* Whether an alternative course should be considered before granting a sale in execution order.
Only where there is no alternative means to satisfy the default judgment, may a sale in execution order be granted.
CLARITY ON WHAT A CREDITOR MUST DO BEFORE A COURT WILL ORDER A SALE IN EXECUTION
The banks must meet certain requirements before they can sell your property if your home loan repayments are in arrears, and a recent High Court judgment has provided clarity on what is expected when a creditor applies to a court for a sale-in-execution order.
The judgment was handed down by the North Gauteng High Court in the case of First Rand Bank versus Folscher Bismarck.
The judgment means “there is now an onus on a creditor to provide the court with further information and documentation so that a judge will have all relevant information to make a decision on default judgment and execution”, Andrea Holder, an associate partner at law firm Shepstone & Wylie, says.
The judgment does not apply to a sale-in-execution application that involves immovable property owned by a company, close corporation or trust, she says.
Holder says that, according to the judgment, if you do not appear in court to defend yourself after you have been served with a summons and your creditor applies for a default judgment, the creditor must file an affidavit that states:
* The outstanding arrears at the date of the judgment;
* Whether or not the property was acquired with a state subsidy;
* Whether the property is used for commercial or residential purposes;
* Whether or not the property is occupied; and
* Whether or not the debt was incurred to acquire the property.
Any matter in which the amount claimed falls within the jurisdiction of a magistrate’s court must be referred to a magistrate’s court if the property is to be sold in execution.
Holder says that if the bank or creditor applies to the court for a warrant of execution after judgment is granted, the court must consider:
* Whether the mortgaged property is your home;
* How the debt was incurred;
* The arrears outstanding on the mortgage bond;
* The arrears on the date when judgment is sought;
* The total amount due in respect of which execution is sought;
* The payment history on the mortgage bond;
* Your financial strength and that of your creditor or bank; and
* The possibility that your debt may be paid within a reasonable period without your home having to be sold in execution.
When you are issued with a warrant for a sale-in-execution, your attention must specifically be drawn to the fact that you can apply to the courts to have the judgment rescinded, Holder says.
WHAT YOU CAN DO TO AVOID A FORCED SALE OF YOUR HOME
The banks have the following advice if you are in arrears with your mortgage bond repayments and want to avoid a sale in execution:
* Discuss repayment options with your bank that may enable you to keep your home or prevent you from incurring large losses should your home be sold via a sale in execution.
* Avoid legal action by acting early to structure an affordable repayment option. This will prevent your being blacklisted at a credit bureau or, in the worst-case scenario, having a debt judgment brought against you.
* If you are over-indebted with both short-term debt and mortgage bond debt, try to sell your property on the open market, rather than waiting until it must be sold in execution.
If you are having financial difficulty but have not yet defaulted on your home loan, you can consider fixing your loan interest rate, John Loos, a strategist for First National Bank (FNB) Home Loans, says.
This is helpful if you want to know exactly what you home loan repayments will be for the period that you fix your interest rate. But you will pay a premium for the benefit of fixing your rate.
“Interest rates always go up at some point; it is merely a question of when and by how much. Fixed rates can give you certainty over a portion of your cash flows for a set period of time,” Loos says.
Marius Marais, the chief executive of FNB Housing Finance, says that at the start of the fixed period the interest rate may be one to two percentage points higher than the prevailing variable rate.
“However, in the longer run, variable rates may increase much more than this. A fixed interest rate means that the monthly repayment will remain unchanged even when interest rates increase, allowing you to have a more stable monthly budget,” he says.
If you sold your home because you could not meet your home loan repayments, you should consider renting as opposed to buying a cheaper home, Loos says.
“Renting a home can have short-term cash flow benefits for cash-strapped households, because certain unexpected maintenance costs are borne by the landlord.
“Multi-year rental contracts will have a rental escalation clause, but this can be more certain than future interest rate fluctuations in the case of homeowners that use credit, and the rental option does not have any transfer costs.
“It is currently possible to rent a property where the monthly rental will be less than the monthly mortgage bond instalments on an equivalent home, he says.
Loos says that, when trading down due to financial stress, a smaller property in good condition, without luxuries such as a pool, is probably the way to go.
WHAT THE BANKS ARE DOING TO HELP HOMEOWNERS WHO CAN’T KEEP UP WITH THEIR MORTGAGE REPAYMENTS
The four major banks have programmes to help you if you are struggling to meet your mortgage bond repayments.
Absa. You can contact Absa’s debt solutions helpline (0861 227 353). Debt specialists will analyse your financial situation and devise a solution to ease your debt burden. This could include restructuring your home loan repayments, extending the term of your loan or helping you to sell your property.
Absa has a “Help you stay” option that allows you to pay back a minimum amount of your mortgage bond instalments every month over an agreed period. Not only does this enable you to pay lower instalments, it also frees up funds that you can use to pay off your other debts and cover your living expenses.
With Absa’s “Help you sell” option, the bank will help you to market your property via estate agencies and/or auctioneers.
First National Bank (FNB). Two years ago, FNB launched Quick Sell to help consumers who are so over-indebted that their only option is to sell their properties for the best price they can obtain.
If you use the Quick Sell option and the amount you receive from the sale is insufficient to cover what you owe the bank, FNB may give you a discount of up to 20 percent on your pre-sale outstanding loan amount. The discount depends on the extent of your arrears when you applied for Quick Sell.
Vincent Tadden, the head of collections for FNB’s home loans division, says that the discount is not guaranteed but is negotiated on an individual basis.
For example, if you owe R1 million on your home loan and your property is sold via Quick Sell for R800 000, the shortfall will be R200 000. If FNB grants you a discount of 15 percent, this will be calculated as 15 percent of R1 million, or R150 000. So the revised shortfall for which you will be liable is R50 000 (R200 000 – R150 000).
The shortfall between the price you realise for selling your property and the outstanding balance on your home loan is repayable over a period of up to 10 years, interest-free.
Nedbank. If you can afford to pay your current monthly home loan instalments or a portion thereof but you cannot afford to pay back the arrear amount, the bank will consider restructuring your home loan to enable you to keep your home, avoid legal action and pay off your mortgage bond at an affordable level.
If you are unable to pay even a reduced instalment, you can use the Nedbank assisted sales programme, where the bank uses estate agents to market and sell your property.
Standard Bank. If you are in financial difficulty, Standard Bank can offer you a structured payment arrangement to suit your budget.
Should rehabilitation not be a viable option, the bank offers the EasySell programme, which is designed to help you sell your property in order to avoid foreclosure.
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