Pretoria - The courts could not place a reserve price on a property when it's sold in execution, the Gauteng High Court, Pretoria, ruled in what could be a blow to thousands who lost their homes, or stand to lose them, after failing to pay the bond.
“The purpose of the forced sale (on execution) is to recover what part of the debt can be realised. This procedure with all its constraints, recovering only what it can, is not ideal for the bank or the debtor, but it does not render the process irrational,” Judge Sulete Potterill said in her judgment.
“It is rational because it allows the bondholder to sell (the property) with a relatively cheap, expeditious procedure to reduce the debt.”
Given Nkwane of Ga-Rankuwa had turned to court for an order that there should be a reserve price set when one’s house was sold in execution.
He fell into arrears with the repayment of his bond after he had received a home loan of R380 000 from Standard Bank in 2011. He paid his bond instalments religiously for two years.
When he fell in arrears and was unable to pay his bond, his house was sold for R40 000 to recover some of the arrears.
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 R492 470 house was sold in execution for R40 000 without reserve - a fraction of the price the house was worth. This barely covered the legal costs involved and left Nkwane with nothing to pay back the bank.
Nkwane said he was out of pocket and the bank unable to recover its costs. He was now left without a home and out of pocket. The prospects were bleak that he'd ever in his lifetime be able to repay the bank.
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His representative, Lawyers for Human Rights, and other NGOs said they had noted with growing concern that more and more homes were sold at public auctions.
The fact that a reserve price was not mandatory for sales in execution, and the lack of judicial oversight over these processes, 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 without a reserve price.
Nkwane asked 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 sales in execution allowed for the debtor's property to be sold in execution to the highest bidder without a reserve price - even if the property is the homeowner’s primary residence.
Lawyers for Human Rights argued that this gap in the law had yielded harmful and absurd results, especially cash-strapped debtors.
“This is not the story of Standard Bank being the big bad and powerful financial institution versus the small, bona fide individual The bank went out of its way to assist Nkwane. It is, however, like a blow to the stomach that a house worth R470 000 was sold for R40 000 to settle a debt of R370 000,” the judge said.
But this process was not procedurally unconstitutional, she added. A forced sale with no reserve price was not a deprivation of property, but a method of sale.
In turning down the application, the judge said there were enough checks and balances in place when the court ordered a sale in execution. It was not for the court to further order a reserve price on the sale.
Meanwhile, in a similar case in the Gauteng High Court, Joburg, Klaas Sibiya, who fell into arrears with his bond of R593 000 had his home sold on execution for R4000. Nedbank, which loaned him the money and later applied for the execution order, subsequently bought his home for R4 000.
Sibiya asked the court to overturn the sale. The bank threw in the towel and overturned the sale in execution. It wrote off the outstanding mortgage debt and transferred the property back into Sibiya’s name.