Major breakthrough in foreclosure applications in respect of primary residences

March 1st, 2019

Absa Bank Ltd v Mokebe and Related Cases 2018 (6) SA 492 (GJ)

By Mohammed Moolla

On 12 September 2018 the Full Bench of the Gauteng Local Division in Johannesburg handed down a judgment in the case of Absa Bank Ltd v Mokebe and Related Cases 2018 (6) SA 492 (GJ) as premised by s 26 of the Constitution guaranteeing everyone the right to adequate housing.

The judgment commences with the recognition that ordinary citizens are unable to pay cash for immovable property and acquire property by way of home loans from the banks who register a bond over the property purchased. When the home owner defaults on the repayment of the loan, which is secured by the mortgage bond, the bank invariably exercises its right in terms of the loan agreement and forecloses by seeking to execute against the property. The rights are varied, but include the right to call up the loan, accelerate payment and claim execution against the property.

Since the right to adequate housing is a fundamental human right enshrined in our Constitution, the orders to levy execution against property, which are primary residences, are required to be in harmony with the Constitution. Taking someone’s home equity is arbitrary deprivation of property and, therefore, a violation of the Constitution.

The court has ruled that reserve prices must be applied in all but exceptional circumstances. ‘Save in exceptional circumstances, a reserve price should be set by a court in all matters where execution is granted against immovable property which is the primary residence of a debtor, where the facts disclosed justify such an order’. This is to prevent unjust and inequitable outcomes. It is incumbent on the bond creditor to include all the relevant documentation. The reserve price will be strictly at the discretion of the court.

The court was unequivocal on the issue that if the home owner caught up with their arrears, the mortgage bond would be automatically reinstated. Once the arrears and ‘reasonable’ legal and administrative costs are settled, the mortgage bond automatically reinstates, up to the point at which the property is transferred. Even if the property has been auctioned but not transferred, one can stop the process. The banks tried to bend s 129 of the National Credit Act 34 of 2005 (the NCA) to suit themselves. The effect of s 129 is that if the home owner reinstates the agreement, the judgment is no longer alive. In terms of s 129(3) of the NCA, a debtor may reinstate a credit agreement where they have fallen in arrears, ‘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.’

The bank cannot use that judgment and will have to approach the court afresh with a new order based on default. The power has been shifted to the lender. The bank will be acting in bad faith if they cancel the mortgage bond and claim damages from the home owner.

Previously the banks would often approach the courts twice, one for the monetary judgment (accelerated or full amount of loan outstanding) and again for the sale in execution (which is necessary for the property to be sold at auction). The banks have demonstrated in the past that they are less interested in selling the house at auction and have sold homes at meagre sums. The monetary judgment and sale in execution must now be adjudicated at the same time. The court held that the monetary judgment is ‘inextricably linked’ to the application for an order of execution. If it were not for the monetary judgment, a bond creditor cannot obtain an order for executability and it is, therefore, desirable that both issues be resolved by the same court at the same time. The court further held that no prejudice would ensue to the bond creditor in the event that the monetary judgment and order for execution are granted simultaneously. The banks – as bond creditors – therefore, have a duty to bring the entire case, including the monetary judgment based on the mortgage bond in one application simultaneously. Thus, a piecemeal adjudication of the matter will not be entertained.

The banks must now arrive at court with all the relevant facts typically required for a sale in execution order including, who lives in the house, their ages, number of dependents, the value of the property, and whether it is a primary or secondary residence. If all this information is in their possession, then only may they get judgment.

Mohammed Moolla BProc (UKZN) is a senior magistrate at the Wynberg Magistrate’s Court in Cape Town.

This article was first published in De Rebus in 2019 (March) DR 28.

De Rebus