South Africa's banks have been routinely giving their clients a paltry few hundred rand for their repossessed homes, which they then sell for a healthy sum and pocket the proceeds - including the profits.
Banks were entitled to recover the principal debt, interest and holding costs, but no more, banking adjudicator Neville Melville said on Monday.
Profiting from the resale of repossessed properties "flies in the face of common law and the Code of Banking Practice".
Yet banks enriching themselves through repossessions was "rapidly becoming an everyday scenario".
| 'Many people still struggle to keep the wolf from the door' |
Melville was "deeply concerned" about the practice, but refused to "name and shame" the banks involved.
Pressed for more comment, he would say only that the enrichment scenario was playing out mainly in "black areas".
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His warning to the banks came after his intervention in one such case, in which the client of an unnamed bank had defaulted on repayments of a home loan.
The property was to have been sold in execution, but when the bank was not offered the reserve price at the auction, it paid the client a mere R100 for the property, which it later sold for a market-related price.
Not only was the profit not passed on to the client, but the client continued to be held liable for the balance of the home loan.
Melville sought legal opinion and concluded that a bank was not entitled to profit on the resale of the property in such cases - any profit must be credited to the client'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, (in which case) the client remains responsible for the shortfall and must continue paying it off," Melville said.
One bank is believed to have set up a front company to sell repossessed properties.
"Although interest rates are coming down, increasing the affordability of home loans, many people still struggle to keep the wolf from the door," Melville said.
"I am hopeful 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."
What of clients who have lost their homes, but are continuing to pay off hefty home loans?
Advocate Logan Balakrishna, of the Office of the Banking Adjudicator (OBA), said the banks had undertaken to credit such clients with the proceeds of the sales of their homes.
The OBA advised home-owners who got into financial difficulty to sell their properties before the bank foreclosed on their home loans.
Almost 400 loan-related complaints were handled by the OBA last year, making them the second-largest category of complaint received.
Banks have been quoted in the press as bemoaning the high cost of maintaining their "properties in possession".
It can cost a bank more than R4 000 a month to protect and maintain such a property.
A press report in July 2001 quoted Mike van Rooyen of Absa as saying: "When banks repossess, they just lose money. It's just pay, pay, pay."
To contact the OBA, call 0860 800 900.
- This article was originally published on page 1 of Cape Times on January 27, 2004
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