Many South Africans are in danger of losing their homes because of the Covid-19 layoffs. A flat or house can be the most important asset but given pandemic and the precarious economy, homeowners may be concerned that they could lose their hard-earned property. What are the chances of home repossession and what rights do homeowners have in fighting back?
South African laws allow that, if a homeowner defaults for three months or more on the monthly mortgage payments, the bank or mortgage lender may cancel the agreement, repossess the house and sell it in order to recover the outstanding money owed.
Previously, court rules allowed repossessed homes to be sold without a reserve price. Fortunately, more stringent rules have since been put into place. There have been stories of banks repossessing homes when an owner was three months in default and the property was sold at a sheriff’s auction for less than the amount outstanding. This is despite banks trying to get as much as they can for their clients, and this is largely determined by market conditions. In these instances, the customer was left without a home and potential life-long debt.
If homeowners are concerned that they could find themselves in a precarious situation, there are several options to hastily explore. Sarah Nicholson, commercial manager of personal financial website, JustMoney, says that homeowners could consider renting their properties out, restructuring their loans over longer terms or, if there are problems with repaying multiple loans, consider debt counselling.
“Rather than changing your cell phone number and hiding from your creditors, it’s far better to approach the bank and have an honest conversation about the situation you find yourself in” she says.
If homeowners have always paid their monthly loan amounts, and in full, with little outstanding debt, the chances of holding onto their homes are far better however, homeowners may come to the conclusion that there is no other option than to sell. This way, they are likely to get a better price and to avoid going through the stress of a legal process with associated costs. Some banks have developed their own systems and tools to help customers to sell their properties and to provide support in the process.
If a homeowner continues to default without communicating, a representative of the bank will make contact by phone or in writing. Depending on the situation, they should initially offer options such as spreading the bond over a longer period or, debt counselling. A section 129 may be issued – this is the final step before the legal process begins, informing the homeowner that they are in arrears for a certain amount at a given date. This notice is issued in terms of section 129 of the National Credit Act.
“See this as a last chance to take action and prevent your creditors taking legal action,” advises Nicholson. “Do avoid delays at this stage, as you have only ten days to apply for debt review. This is the process whereby a debt counsellor assesses your outstanding debt and implements a restructured debt repayment plan.”
If this process fails, the bank can ask its legal team to get a summons from the High Court or Magistrate’s Court. This is delivered by a sheriff. The bank must formally apply to court for the right to auction off the property.
A judge must check that legal and fair processes have been followed, taking into consideration whether this is the primary residence of the debtor, as well as alternative ways of settling the judgment debt. Banks must show evidence of the property’s market value, the amount owing on the bond and rates and taxes. It is worthwhile checking that this information is all correct.
If the sale must go ahead, the money goes towards covering the outstanding amount on the loan and costs. Whatever remains will be paid to the homeowner who can only be evicted from a house sold on auction when the property has been transferred to a new owner. An eviction cannot happen before a transfer has taken place.
“The current economic climate is really worrying for many people whose household finances have already been under pressure pre-Covid-19,” says Nicholson.
“It’s essential to address the ‘elephant in the room’ as soon as possible and get information and help. Check where your money goes, hold a family meeting to talk about finances, and inform yourself as much as possible about your options” she concludes.