The Free State High Court has ruled in favour of the National Credit Regulator (NCR) in its case against Brusson Finance.
In a statement on Thursday, the NCR said Brusson Finance had used the so-called "reverse mortgage" system of money lending which had resulted in a number of consumers loosing their homes.
The NCR instituted proceedings in the Free State High Court, together with two borrowers, Mr and Ms Ditshego, who had lost their home to the scheme, against Brusson Finance.
Advocate Jan Augustyn, Manager for Investigation and Prosecution at the NCR said his investigation had revealed that Brusson Finance was an unregistered credit provider that targeted blacklisted, cash strapped members of the public.
"Brusson Finance granted loans on condition that the consumer owns immovable property with substantial equity available in the property," Augustyn said.
He added that consumers would react to Brusson Finance's advertisements and approach it for a loan.
Qualifying consumers then had to sign Brusson Finance's application form as well as blank property transfer documents simultaneously, which consisted of an Offer to Purchase, Deed of Sale and a Memorandum of Agreement.
Augustyn said Brusson Finance then sourced so called "investors" with clean credit records and a steady income.
"The investors then apply - with the assistance of Brusson Finance - for a mortgage bond to be registered over the property in question from reputable credit institutions."
The new bond amounts included cancellation amounts of existing bonds plus costs, the loan amount required by the member of the public, bond transfer and registration costs, arrear rates, taxes and utilities on the property, as well as a "generous" fee to Brusson Finance and an investor's fee.
Augustyn said the borrowers had to make payment of the "re-purchase" price within 24 months, over and above an amount payable as consideration for the occupation of the property at issue.
"It was always inevitable that the consumers would default in their payments as per the agreements concluded by them," Augustyn added.
"When the borrowers inevitably failed in this agreement, a third agreement (Memorandum of Agreement) provided that the investor must proceed to cancel the "re-purchase" agreement with the borrower, and that the investor has to sell the property to Brusson Finance for the original purchase price."
Brusson Finance invariably became the owner of the property, after "buying" the property for an amount far less than the actual market value, Augustyn added.
The NCR sought declaratory relief that the Brusson Finance scheme was contrary to the provisions of the National Credit Act (NCA), and offended the common law in South Africa.
Brusson Finance opposed the application and contended, amongst others, that it was permissible to enter into separate agreements, which were linked and interdependent and that it did not mean that an inference could necessarily be made to conclude a credit agreement.
However, Mr Justice Jordaan ruled in favour of the NCR and the Ditshegos.
He found that Brusson Finance had provided credit and as such, should have registered with the NCR.
"The agreements concluded were illegal and void in terms of section 40(4) of the National Credit Act," Augustyn said.
The court then ordered Brusson Finance to effect transfer of the property back to the Ditshegos.
"This judgement accords with the NCR's view that the so called 'reverse mortgage' system of money lending falls within the realm of the National Credit Act, and accordingly, consumers are entitled to the protection afforded by the Act when entering into such a transaction," Augustyn concluded. - Sapa