Kamini Padayachee
A DECISION by the Constitutional Court has provided a lifeline for homeowners to stop their homes from being sold when they fall behind with their bond repayments.
The judgment found that homeowners could reinstate their credit agreement with the bank if arrears on the bond account were paid in full.
Importantly, the court said the homeowner only had to pay the arrears owed and not legal costs the bank had charged without these costs being properly discussed with the homeowner.
The court was dealing with the case of the Western Cape’s Nomsa Nkata, whose property was sold in execution for R1 million by First Rand Bank after she fell into arrears and a default judgment was granted against her.
The Constitutional Court set aside the sale of the property and declared that the credit agreement between Nkata and the bank had been lawfully reinstated.
After a default ruling was granted in September 2010, the house was initially not sold as Nkata reached an agreement with the bank to continue paying her bond in terms of a “quick-sell agreement”.
In March 2011, she paid the arrears of R87 500 in full.
The bond account fell in and out of arrears between 2011 and 2012.
With the total debt standing at R1.3m and arrears of R33 716, Nkata’s house was sold on auction in April 2013.
At that time legal costs of R32 598 had been added to her bond account.
Nkata’s case landed in the Constitutional Court after differing decisions. The high court found in her favour, but the Supreme Court of Appeal, agreed with the bank’s view.
In its judgment, the Constitutional Court said while consumers had a duty to pay creditors diligently, this was “not always possible”, especially with regard to mortgage bonds over many years. The judgment said banks had to acknowledge the imbalance in negotiating power between themselves and consumers.
“They (banks) ought to realise at play is not only the profit motive but the civilised values of the constitution.”
In the case, Nkata had argued that the default judgment obtained in 2010 ought to have been rescinded after she brought her account up to date in 2011 as the credit agreement had been reinstated. Instead, the default judgment and writ of execution against the property remained in operation and the bank sold her home.
The bank had said the credit agreement was not reinstated because legal costs had not been paid by Nkata when she paid the arrears in 2011.
Nkata said these costs were not presented to her and she was not told she had to pay. The court found that at the time the arrears were paid, the legal costs had not been agreed to by Nkata and were not assessed as reasonable.
Keamogetswe Thobakgale, an attorney for the Socio-Economic Rights Institute, an amicus curiae(friend of the court), said the judgment was a “lifeline to distressed credit consumers”. It confirmed the importance of fair dealing between very powerful banks and distressed consumers.
First National Bank said it welcomed the judgment as it provided certainty around reinstating a credit agreement.