Property: Knowing Your Rights When Faced With

PROPERTY

KNOWING YOUR RIGHTS WHEN FACED WITH HOME REPOSSESSION

Your home is your refuge from the world, a place to raise your family and often the biggest financial commitment that you will make in your lifetime. However, thousands of people have been affected by the economic downturn and sadly, this has led to the loss of many jobs – often those of the breadwinners in the household. This has resulted in homeowners not being able to afford the repayments on their homes, and ultimately losing them to the credit providers. Groundup recently brought to light the case of more than 225 applicants, mostly from Gauteng townships, who have launched a suit in the Constitutional Court, claiming damages from the big banks for home repossession abuse. The applicants are claiming R60bn from the banks for unlawful repossession of homes since the Constitution came into effect in 1994. This figure is based on the average estimated loss of home equity value multiplied by the roughly 100 000 homes repossessed in South Africa since 1994. Home equity is the difference between the market value of a property and the amount still owing on a mortgage loan. The Lungelo Lethu Human Rights Foundation is the driving force behind the suit, and has spent several years putting the case together in collaboration with advocate Douglas Shaw. All applicants had their homes repossessed after supposedly falling into arrears on their mortgage bonds. The homes were then sold at auction for a fraction of their market value through sheriffs’ offices around the country, according to the court papers. Shaw, who is representing the applicants, estimates homeowners have lost close to R60bn in foregone home equity as a result of the banks’ repossession practices. South Africa’s sale in execution practices are considered among the most abusive in the world, according to research by Shaw, since they allow for homes to be sold at auction with no reserve price. This has resulted in some homes being sold for as little as R10, and then on-sold by opportunistic buyers for hundreds of thousands of rand. In many cases, it

is the banks themselves that are buying these houses at sheriffs’ auctions and then selling them for a profit.

Read the full story on Groundup at www.groundup.org.za

With the current economic climate, you can easily fall victim to not being able to manage your bond repayments. In light of this compelling case, it is important to know your rights and the other options available to you that can assist you in servicing your bond and keeping your home.

Preventing home repossession

Many property owners who cannot meet their bond repayments make the common mistake of not contacting their bankers, and of ignoring the bank’s telephone calls and letters. If you know that you are not able to make payment, contact your bank immediately and schedule an appointment explaining the situation, as it is in the bank’s interest to assist you with finding a solution to the problem. There are various possible solutions that your bank will look at, as each individual’s situation is unique: • Depending on your personal situation, your bank could offer you six months of paying half of your monthly bond repayment, or possibly three months of no payments until your situation has improved. • You could extend your bond payback period to 30 years, or apply for an interest-only bond. This will give you more cash in hand, but you will be paying more interest. You could always change your bond repayment again once your situation has improved. • There is also the option of selling the property and settling your outstanding debts as soon as possible. • Another option is to sell your property to a reputable property investor, who will value your property and give you an offer to purchase within days. They will often also settle your outstanding payments with the bank before transfer takes place, so that you don’t have to worry about the sheriff knocking at your door;

Failing to keep up with your bond repayments

• If you do not keep up with your monthly payments and do not communicate with your bank and work with them to find a solution, you stand the possibility of bank repossession. If a solution cannot be found, the bank will take steps to have the property repossessed. • Some people give up and wait for the bank to do the repossession, thinking that their financial worries will be over after the bank has repossessed the property. But as soon as your house has been repossessed, you could have other creditors knocking on your door. You might be financially ruined for a long time, as you will not be able to get further credit. • When a homeloan client can no longer afford his homeloan payments, the bank is forced to cancel the homeloan agreement and institute legal action against the defaulter.

Once judgment is obtained through the courts, the property is attached by the Sheriff of the Court and sold on an auction as a sale of execution. • A reserve price is set by the bank on the property to cover the outstanding With the National Credit Act (NCA), you have the option to apply for debt review, also known as debt counselling. You can apply for debt review at any time if your income is lower than your expenses and you have an income every month. The bank may not repossess your property or any other asset in your name while you are in debt review or even applying for debt review. This solution could give you more time to sort out your financial situation.

South Africa’s sale in execution practices are considered among the most abusive in the world, according to research by Shaw, since they allow for homes to be sold at auction with no reserve price.

What is debt review?

Debt review is a debt solution targeted at consumers who are overindebted and struggling to manage their finances. The NCA introduced this formal debt rehabilitation programme to prevent consumers from being placed into personal administration and having to deal with those long-term effects. The process was also implemented to make sure that debt counsellors follow strict and ethical guidelines when assisting clients with regaining their financial well-being. Debt review is the process whereby a debt counsellor assesses a client’s outstanding debt and implements a restructured debt repayment plan. This will be done through the process of renegotiating interest rates with credit providers to reduce them, as well as by extending the debt repayment terms. A new, affordable, monthly budget and payment plan will be drawn up by a debt counsellor. This will provide the client with the correct guidelines and means to live off. In addition to this, the debt review process entails that the client makes only one monthly debt repayment to a payment distribution agency, which will then pay all the client’s credit providers. This reduces the stress of having to keep up to date and on top of multiple debt repayments.

debt. If this reserve price is not reached at the auction, the bank will buy the property and it then becomes a property in possession.