When it comes to home repossessions, judges are all over the place

Presented with similar facts, South African courts are churning out wildly different rulings when it comes to home repossessions.

Prior to 2018, court rules allowed repossessed homes to be sold without a floor price (also called a reserve price) at sheriffs’ auctions. That changed in 2018 when Rule 46A of the Uniform Rules of Court was amended to allow to judges to impose a reserve price in all but exceptional circumstances, and to prevent the sale of properties for R100, and even R10, as happened in the past.

Some of these sale prices are so absurdly low that they cannot be considered genuine sales, according to legal consultant Leonard Benjamin.

“Rule 46A was changed to stop these kinds of simulated sales and provide some legal protection for homeowners in default who stand to lose their properties.

“But the evidence is that banks and their lawyers are still able to sidestep these rules, often in cunning ways.”

Reserve price exploitation

In February, Judge Fisher of the Gauteng High Court berated lawyers for the banks for approaching judges in their chambers in an attempt to circumvent the reserve price.

As Moneyweb previously reported, the purpose of the reserve price is to protect the homeowner in default, as Judge Fisher explains in his judgment: “If a property is sold at a price which is significantly below the true market value, the homeowner is liable to lose the investment made in the property and still be left indebted to the bank for more than is fair.”

In the four cases presided on by Judge Fisher, the banks’ lawyers were found to have flouted rules requiring them to serve legal papers on the debtors in person, serving them instead on tenants or spouses.

The judge in this case refused to hear the matter, brought by a company called Changing Tides 17, in his chambers, ruling that the case must be heard in open court.

When the reserve price is not met, Rule 46A says the bank must return to court with a new application. This gives the debtor a final opportunity to supplement relevant facts and present them to the judge who granted the initial execution order allowing the property to be sold at auction.

“In many cases, credit providers were not serving the new application on the debtors, but simply approaching a judge in chambers to ratify the sale below the reserve price,” says Benjamin.

In cases where the reserve price is not met, some judges have cancelled the auction sale or allowed the sale to go ahead at a lower price. Other judges have set aside the order of executability (the auction sale) entirely if there is evidence that the debt can be repaid in monthly instalments, adds Benjamin.

“The biggest concern here is that judges are still deciding matters according to whether the consumer will be able to catch up the ‘arrears’ instead of focusing on the consumer’s ability to settle the judgment debt within a reasonable time by making regular payments,” he says.

Many of these arrears calculations by the banks are arbitrary and self-serving, adds Benjamin. For example, they may include untaxed (unauthorised) legal costs and admin fees, which can easily push mortgage lenders into arrears. In many cases, the courts are buying this argument from the banks without question.

Two recent cases have attempted to provide some guidance on what happens when a reserve price is not met at auction. In both cases, the judges note the lack of guidance in the process to be followed when setting a reserve price.

That lack of guidance has been brutally exploited by banks’ attorneys, adds Benjamin.

In Nedbank v Mabaso and Another, heard in the Gauteng High Court in October, a property that had a reserve price imposed by a previous judge of R596 305 went to auction where the highest bid achieved was R300 000. As this did not meet the reserve price, Nedbank approached the court to allow the property to be sold without a reserve price.

Though one of the applicants told the court he was able to pay R3 000 in settlement of the arrears of R146 215, Nedbank’s attorney claimed “ability to pay is not a defence at this stage of the legal proceedings”.

Because the arrears had ballooned to R212 614 while the legal proceedings were underway, Acting Judge Moultrie ruled that “there is indeed still no satisfactory means other than a sale of the property in execution of satisfying the judgments debts”. He declared the previous auction null and void and set the reserve price at R300 000.

In Standard Bank v Tchibamba and Another, heard in September in the Western Cape High Court, Judge Binns-Ward was likewise asked to reconsider a reserve price on a Cape Town property where the homeowners had fallen into default on their monthly repayments. The bank had earlier obtained judgment to the tune of R955 411. The property came up for auction at the Goodwood Sheriff’s office, and a reserve price of R973 032 was fixed by the court. There were three bidders at the auction, the highest bid being for R700 000. The municipal valuation was R1.45 million, while other properties in the same area were going for R1.78 million and R2.49 million.

The debtors, who are foreign nationals holding refugee status in SA, testified that the property was let to tenants who themselves were in arrears with their rentals. When the auction failed to secure the reserve price, the sheriff compiled a report within five days, as required by court rules, with further details on the state of the property. It was in a poor state and required substantial renovation, said the report.

Standard Bank pleaded for urgency in the sale, arguing that there was risk of the property being vandalised after being vacated by the former owners.

“The forced sale value of a property is very much a matter of opinion. What a property will fetch in a forced sale is determined by what happens when the property is auctioned. In the current matter, it is clear that there was bidding interest and that, even in a competitive context, the highest bid obtained nine months ago was well below what the pundits’ estimates suggested would likely be forthcoming.

“The purpose of the sale in execution is to achieve the satisfaction of the judgment. The procedure does not safeguard the judgment debtor’s interest in obtaining a market-related price; on the contrary, involving a forced sale, it inherently does quite the opposite,” reads Binn-Ward’s judgment.

In this case, the debtors had managed to secure a private sale for R1.9 million and had reportedly been paid a 10% deposit, though there was at the time no proof of this.

Binns-Ward allowed the private sale at R1.9 million to go through, provided proof of the deposit and financing for the balance was supplied. Failing that, the property was to be re-advertised and put on auction again. If the highest bid at the second auction was less than the original reserve price of R973 032, the property would be deemed to have been sold to the previous R700 000 bidder.

“What we need is for the Judge President to look at these cases and provide the guidance judges need in setting reserve prices,” says Benjamin.

“It is clear that the intention behind the changes in Rule 46A is to provide protection for consumers – not to allow banks to find any loophole they can to circumvent the court rules. There should be no discretion to adjust the reserve price.”