Watch out for a repo frenzy

There won’t be much Christmas cheer for thousands of South Africans who fell into arrears on their mortgages and vehicle payments through no fault of their own.

The banks extended a three-month repayment holiday at the start of the lockdown, but started cranking out the summonses as soon as it was over. Household incomes across the board have been hammered by the lockdowns and there’s little prospect of catching up on these arrears.

Government appears to have little concern for the plight of South Africans now at risk of losing their houses and cars.

It was disclosed in Transaction Capital’s recent year-end results that as at June 2020, 23% of vehicle and mortgage accounts were in arrears, as were 77% of unsecured lending accounts.

‘Humanitarian crisis’

“This is a humanitarian crisis and yet we continue like it’s business as usual, as if consumers fell into arrears out of their own neglect,” says King Sibiya, CEO of Lungelo Ditokelo Human Rights Foundation, which provides legal defence against unlawful evictions by the banks.

Sibiya says the foundation has seen a spike in attempts to repossess homes in the last few months.

“People have lost their jobs, or suffered a drop in income, and now they are supposed to be able to catch up on arrears or face eviction. Where is the justice in all this?”

Sibiya is lobbying to prevent any South African facing foreclosure from having their cases heard without legal representation.

He says more than 80% of repossession cases result in default judgments – meaning the person puts up no legal defence.

One of the reasons for this is that the banks are still up to their old tricks of suing customers in the high court, despite being ordered by judges to take their cases to the much more affordable magistrates’ courts. Consumer advocates say the practice of banks suing in the high courts is a denial of access to justice, and it’s time for judges to stop this practice.

As Moneyweb previously reported in The days of banks suing you in the high court are over, there’s simply not enough money in it for banks’ lawyers to pursue cases in the magistrates’ courts. If Sibiya gets his way, so-called default judgments may become a thing of the past.

“This has got to stop, and it’s got to stop now,” he says.

The global response to the threat of evictions posed by lockdowns

Research by DIW Berlin analysed the worldwide response to rents and mortgages to the Covid crisis.

“At least 25 countries have introduced or announced measures at national or regional level worldwide to protect tenants and property owners who have been badly affected by the coronavirus pandemic.

“The most popular measure is the suspension of evictions (19 countries), followed by the suspension of mortgage interest and principal payments (15 countries),” it states.

“In 12 countries, the moratorium on evictions is accompanied by mortgage approvals. Rental stops are only available or planned in nine countries. Subsidies to tenants or landlords are granted in four countries.”

The suspension of evictions in SA lasted just three months and has since been lifted.

If everyone being sued defends against foreclosure, the legal system will change

The advice from consumer advocate Leonard Benjamin: use the opportunity that has been presented by being summonsed to have your day in court.

“The foreclosure process requires the banks to bring an application for foreclosure before a judge,” he says. “The application must be served personally on the consumer, unless a court allows some other manner of service.

“This allows every consumer the opportunity of placing evidence about their circumstances before a judge,” says Benjamin.

“They can do so by filing an affidavit, or even attending the court on the day of the hearing to tell their side of the story.

“At the hearing the judge is required to consider all relevant circumstances before granting an order that allows the bank to sell the consumer’s home. If the consumer does not use the opportunity, all the court has before it to make a decision is what the bank tells it, which is understandably self-serving and paints the consumer in the most unfavourable light.”

The court has to listen

He adds: “People were pushed into arrears through no fault of their own as a result of the lockdown and that is a factor that the court has to take into account, particularly when the conduct of their account was exemplary prior to the unprecedented events of the past few months.

“In addition, if their finances have recovered even partially, they must start paying what they can, as soon as possible, even if they cannot pay the arrears that the banks are demanding.

“In fact, this is probably the single most important bit of advice that I can give consumers, since judges view such attempts in a very positive light.”

Benjamin adds that the three-month repayment holidays announced at the start of the lockdown were nothing more than a PR stunt. “Three months’ relief in the context of a 20-year bond is meaningless. In addition, because, with the frequency of the interest rate adjustments during lockdown, missed instalments were rendered nugatory [of no importance].”

Read: The ‘cheapest’ way to finance a payment holiday

Banks are double-dipping

With each change in interest rates, debts are automatically restructured in a way that effectively eliminated any accumulated lump sum of arrears. In other words, the debt to the bank will be settled if you pay only the new, adjusted instalment. The banks do not tell consumers this but hold the consumer liable for payment of the adjusted instalment, as well as the accumulated lump sum of arrears – an abusive practice known as ‘double-dipping’, which is charging twice for the same thing.

Read: Standard Bank accused of ‘double dipping’ in home repo case

“What the banks should have done was make a blanket announcement that they would defer any legal action during the lockdown and that people should pay what they can.

“At the end of the day, the many interest rate changes during the public holiday would have taken care of the ‘arrears’, if the banks were honest,” adds Benjamin.

SA banks have denied double-dipping, though Benjamin says the evidence that this is standard practice is overwhelming.

What UK courts say about double-dipping

Here’s what the UK courts ruled in Bank of Scotland v Rae: “[Bank of Scotland’s] practice of restructuring mortgage accounts so that arrears of monthly instalments are included in increased monthly instalments so that they will be paid over the remainder of the mortgage term constitutes capitalisation or consolidation of such arrears. This is so whether or not [Bank of Scotland] does this with the consent of the borrower and whether or not it is done as an act of forbearance.”

In spreading the arrears over the remaining term of the loan, the bank has “waived its expectation and right to demand earlier payment of the capitalised arrears, which must be eliminated from the computation of subsisting arrears,” reads the judgment.

That’s a clear instruction to banks to stop running two sets of books: one showing the arrears have been capitalised and therefore wiped out, and another claiming the arrears are still owed – which is exactly the practice pursued by SA banks, says Benjamin.

Formal changes to loan agreements could fall foul of the National Credit Act

A Moneyweb reader adds another aspect to the so-called repayment holidays, most of which were arranged telephonically, and apparently often without supporting paperwork.

The reader explains that despite making payments after arranging repayment holiday, debt collectors arrived several times, threatening to take his car if he didn’t pay up the arrears. The same reader had funds deducted from his positive home loan balance, despite arranging a payment holiday.

Benjamin says he is not surprised that banks avoid formally varying loan agreements for the simple reason this could fall foul of the National Credit Act and would therefore be illegal.

Listen to Nompu Siziba’s interview with TransUnion SA’s Carmen Williams (or read the transcript here):