TAKING out a loan to buy a house is a rite of passage for many low-and middle-income households. Mortgage bonds form part of what many of us accept, more or less grudgingly, as a lifelong relationship with a financial institution.
In SA, real wages (the value of wage income relative to the cost of living) have remained stagnant for most poor and middle-income households in the past 20 years. The share of national income received by labour has shrunk, while the share due to capital investments, made by companies and very rich individuals, has increased.
As a result, credit is financing an ever larger proportion of ordinary household expenditure.
The choices open to those who need to borrow to live are narrow indeed. With housing, they are limited to SA’s four big retail banks and SA Homeloans.
AND, once you choose your bank, you’re generally stuck with it, as transferring your debt to another bank on the same or easier credit terms is next to impossible.
The Socio-Economic Rights Institute of SA (Seri) has developed a new guide on preventing the sale-in-execution of homes, which is being launched on Tuesday.
Banks exercise enormous power. They dominate economic life. And they do so from an enormously privileged position.
They draft the contracts we sign to get a loan. They determine the procedures necessary to access our money — whether money loaned to us, or cash that is actually ours.
And, buried deep down in the contract you signed (but, let’s face it, you didn’t read), you’ll almost invariably find a clause that entitles the bank to demand immediate repayment of every cent you owe the minute you fall behind on any of your obligations to it, and the right to sell your home if the loan is secured on it.
Most of the time, banks won’t do this. It’s just bad business. But there are cases where banks insist on their contractual rights.
For example, Mohlouoa Ntsane bought his house in Kanana, near Klerksdorp, for R52,000. He took out a bond from Absa and obtained a subsidy from the state. After many years of making repayments to Absa in full and on time, he fell behind.
Absa called up the bond and asked the high court for permission to sell Ntsane’s home to recover the full amount outstanding. At the time Ntsane’s case was heard, his arrears were R18.42. Absa nonetheless persisted in its application for permission to sell his only home.
OR TAKE the case of Elsie Gundwana, who runs the first black-owned bed-and-breakfast establishment in Thembalethu near George. She built the accommodation by taking out a R52,000 loan from Nedbank, secured on her home.
Like many small business owners, Gundwana’s fortunes waxed and waned. She fell behind with her repayments, her bond was called up, and the registrar of the high court granted Nedbank permission to sell her home.
Despite this, Gundwana kept repaying what she could.
For four years, Nedbank accepted these payments, but then, without much explanation, sold her home on the basis of the court order it had obtained four years earlier. The sale price was R207,000. The value of Gundwana’s debt at the time was R33,500.
Geoffrey and Deborah Thabethe live with their three children and their nephew and niece in Protea, Soweto. They bought their house for R57,000 with the help of a bond from FNB.
For several years, they made their repayments in full and on time. But then, in the space of a year, they were both made redundant. They fell behind with their repayments and FNB obtained an order from the registrar of the high court, permitting it to sell the Thabethes’ house, unless they could pay R57,000 plus interest and costs.
Over the next seven years, making payments at a much faster rate than they would have had in terms of the original bond agreement, the Thabethes paid back the full value of the bond and the judgment. But then — again without much engagement or explanation — FNB sold their home anyway.
Mashilo Sebola bought his house with a mortgage bond from Standard Bank. He, too, fell into arrears. Before Standard Bank could sell his house, it was required to give him notice, in terms of section 129 of the National Credit Act 34 of 2005, that he could pursue alternative payment arrangements, or seek the assistance of a debt counsellor or the consumer ombud.
Sebola never received this notice because the Post Office directed the notice to the wrong branch. Standard Bank nonetheless pressed its claim to sell his home. The bank argued that all it had to do was send the notice.
It did not matter that the notice did not get to Sebola.
IN THESE cases, the banks’ contractual rights point one way, but decency, common sense, and fairness are set firmly elsewhere.
Consumers need to be fully aware of their constitutional and statutory rights to resist unfair action by the banks — especially in cases in which this might lead to the loss of their home. Since the advent of the Constitution and the National Credit Act, the range of rights and remedies available to people who borrow money secured on their homes has expanded significantly.
For example, a bank must now prove to a judge or a magistrate that selling a person’s home is a proportional response to the need to collect a debt secured on it. If the sale is not proportional, the courts will not authorise it, because a disproportionate sale would infringe the right to housing in section 26 (1) of the Constitution.
The National Credit Act also grants consumers important rights: the right to be notified of alternatives to the sale of their home, such as debt-counselling and dispute-resolution, and the right to reinstate a bond by paying the arrears and the bank’s reasonable legal costs and administrative charges, even if the bank has already started court action.
These rights and others are important weapons in the armoury of ordinary people who often struggle to get by on irregular incomes and fluctuating credit costs.
Happily, Ntsane, Gundwana, the Thabethes, and Sebola were all successful in resisting the banks’ unfair action to take their homes from them. Gundwana still runs her bed-and-breakfast, and the Thabethes own their home free and clear. They were successful in staving off the banks because they were prepared to enforce their rights, and could find people to help them do so.
With the launch of its new guide on preventing sales in execution, Seri hopes to expand the number of people who are able to defend themselves and hold banks to account.
• Wilson is the executive director of the Socio-Economic Rights Institute of SA. The sale-in-execution guide is freely available on SERI