File picture: Independent Media

Pretoria - The high court in Pretoria reserved judgment in a constitutional challenge in which it is asked to order that there should be a reserve price set when a house is sold in execution.

The challenge was sparked by a GaRankuwa man, whose house was sold for about 10% of its worth after he fell into arrears. 

Given Nkwane fell into arrears with the repayment of his bond after he had received a home loan to the value of R380 000 from Standard Bank in 2011. He paid his bond instalments religiously for two years.

But when Nkwane and his wife separated in 2013, he fell into financial difficulty as he had to maintain two households. He could not pay back his bond instalment and the bank offered to assist him with restructuring his debt for six months.

However, at the end of the programme and with the sudden loss of his job, Nkwane was still not in a financial position to honour his financial obligations to the bank.

The bank subsequently obtained an order to repossess the house.

In October 2015 Nkwane’s R380 000 house was sold in execution for R40 000 without reserve - a fraction of the price what the house was worth. This barely covered the legal costs involved and left Nkwane with nothing to pay back the bank. 

Nkwane said this is a hopeless situation for all, as he is out of pocket and the bank is unable to recover its costs as he is unable to pay. 

He said he is now left without a home and out of pocket. According to him the prospects are bleak that he will ever in his lifetime be able to repay the bank.

He was assisted by Lawyers for Human Rights (LHR) during his legal challenge on Tuesday.  LHR and other NGO’s said they have noted with growing concern the manner in which repossessed houses are sold at public auctions. 

The fact that a reserve price is not mandatory for sales in execution as well as the lack of judicial oversight over these processes have led to substantial consequences for the debtor, they said.

This caused the parties to challenge the constitutionality of the Uniform Rules of Court insofar as it required the sale of a person’s home to be concluded without a reserve price.

Nkwane is also asking for an order to set aside the sale in execution of his home for a value less than 10% of its market value.

As things stand the provisions which governed the sales in execution, allowed for the property of the debtor to be sold in execution to the highest bidder without a reserve price. 

This is even so if the property is the homeowner’s primary residence.

LHR argued that this gap in the law has yielded harmful and absurd results for all, but especially the cash-strapped debtor.

It was argued on behalf of Nkwane that there are dire consequences by selling the property for far less than it is worth. 

In his case the R40 000 paid for the house barely covered the bank’s legal costs and there was thus no benefit in selling the house. 

LHR argued that in comparison with other countries, South Africa has one of the highest percentages of defaulters losing their homes per annum. 

It said it would therefore be a travesty if the present laws and procedures relating to sales in execution remained unaltered.

Judge Sulet Potterill, who is hearing the matter, commented this court granted at least 120 default judgments a day.

The SA Human Rights Commission, who entered the fray as a friend of the court, supported the application, while Standard Bank said the challenge was without merit.

It was argued on behalf of the bank that if a reserve price is set by a court, it would only complicate matters and it will not be in the interests of both the debtor and the creditor. 

According to the bank the process of selling a house in execution was lengthy, costly and complex and it included checks and balances for both parties. 

It was argued that the Constitution did not require a further constraint to this process in the form of a requirement that no sale of a home can occur unless a reserve price is set by a court.

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