Foreclosure proceedings: Recent judgments provide greater certainty

September 1st, 2019
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When a homeowner defaults on their home loan agreement, which is secured by a mortgage bond, the credit provider can generally seek recourse by making application for payment of the outstanding amounts owed and an ancillary order declaring the property to be executable. Until the recent cases of ABSA Bank Limited v Mokebe and 3 related matters [2018] 4 All SA 306 (GJ) and Standard Bank of South Africa Limited v Hendricks and Another and related matters [2019] 1 All SA 839 (WCC), there has been uncertainty about whether –

  • the application for payment and an order declaring the property executable have to be determined simultaneously;
  • the court is required to set a reserve price when it declares an immovable property executable and what onus rests on the credit provider in regard to the setting of a reserve price; and
  • execution against movables is a bar to reviving a credit agreement under s 129 of the National Credit Act 34 of 2005 (NCA).

Both applications must be heard simultaneously

In both Mokebe and Hendricks, the courts held that an application for payment and an order for declaring the immovable property executable must be heard together (see Mokebe at para 30 and Hendricks at para 40). The court held that the judgment sounding in money is an intrinsic part of the cause of action and linked to the claim for an order for execution. It is, therefore, desirable that both applications are heard together (see Mokebe and Hendricks (op cit)). The courts explained that hearing the applications separately gives rise to piecemeal adjudication, which inhibits a proper consideration of the relevant issues and increases the cost of litigation.

Setting a reserve price

The courts held that except in exceptional circumstances, a reserve price must be set. In addition, the courts explained that the setting of a reserve price depends largely on the facts of each case and, as a result, it is incumbent on the credit provider to provide details of the following (see Mokebe at para 66):

  • What is the market value and forced sale value of the property?
  • What is the local authority valuation of the immovable property?
  • What are the outstanding arrears on the property?
  • What are the amounts owing as rates or levies?
  • Is the debtor a serial defaulter?
  • Has there been any reduction of the judgment debtor’s indebtedness and what steps has the credit provider taken to assist the debtor to avoid a sale in execution?
  • Is there any equity, which may be realised between the reserve price and the market value of the property?
  • What are the costs associated with purchasing the property?
  • What is the likelihood of the reserve price not being realised and the likelihood of the immovable property not being sold?
  • Is there any prejudice, which any party may suffer, if the reserve price is not achieved?
  • Is the immovable property occupied and what are the circumstances of such occupation?
  • Is there any other factor, which in the opinion of the court, is necessary for the protection of the interests of the execution creditor and the judgment debtor?

Reviving a credit agreement

Section 129(3) of the NCA provides as follows:

‘Subject to subsection (4), a consumer may at any time before the credit provider has cancelled the agreement, remedy a default in such credit agreement by paying to the credit provider all amounts that are overdue, together with the credit provider’s prescribed default administration charges and reasonable costs of enforcing the agreement up to the time the default was remedied’.

Section 129(4)(b) provides that default cannot be remedied under s 129(3) after ‘the execution of any other court order enforcing that agreement’.

Until the Mokebe and Hendricks judgments, it was unclear whether execution against movables constituted ‘the execution of any other court order enforcing that agreement’ and, therefore, barred revival of the agreement under s 129(3). The question has now been decisively resolved. In Mokebe it was held that it ‘is only the sale in execution of the immovable property and the realisation of the proceeds of such sale’ (para 44) that prevents reinstatement of the credit agreement under s 129(4)(b). Likewise, in the Hendricks case it was held that ‘[w]hat prevents the reinstatement in terms of section 129(4)(b) is only the sale in execution of the immovable property and the realisation of the proceeds of such sale’ (para 53).

It was also held in the Mokebe case that, in order to ensure that the home owner understands their rights under s 129(3), a document initiating execution proceedings must include the following statement in a reasonably prominent manner:

‘The defendants (or respondent’s) attention is drawn to section 129(3) of the National Credit Act No. 34 of 2005 that he she may pay to the credit grantor all amounts that are overdue together with the credit provider’s permitted default charges and reasonable agreed or taxed costs of enforcing the agreement prior to the sale and transfer of the property and so revive the credit agreement’ (para 47).

Conclusion

Even though the Mokebe and Hendricks judgments seem, at first blush, to make it more difficult for credit providers to seek judgment and claim an order declaring immovable property specially executable, they provide welcome certainty. It is now clear that –

  • credit providers must simultaneously apply for the judgment sounding in money and an order declaring immovable property specially executable;
  • except in exceptional circumstances, the court will set a reserve price and credit providers need to provide sufficient details to assist the court in setting the reserve price; and
  • execution against movables is not a bar to a debtor reviving a credit agreement under s 129 of the NCA.

Our courts will continue to balance the credit provider’s interests in reliable and predictable enforcement processes and the debtors rights to access to adequate housing.

  • See law reports ‘Mortgage bonds’ 2019 (June) DR 17 for the Hendricks judgment.

Aslam Moosajee BCom (UKZN) LLB (Wits) Cert in Insolvency Law (UJ) Cert in Competition Law (Wits) is a legal practitioner and Joshua Davis BSocSci PPR (Hons) LLB (UCT) (cum laude) MA (King’s College, London) is a candidate legal practitioner at ENSafrica in Johannesburg.

This article was first published in De Rebus in 2019 (September) DR 8.