foreclosure applications - amicus curiae - South Gauteng High Court
SERI was invited by the Johannesburg High Court to make a submission as an amicus curiae (friend of the court) in a case that was heard on 28 and 29 August 2018 dealing with sales in executions or bank foreclosures.
The case deals with process that a bank is required to follow to sell a person's home in execution. A sale in execution or bank repossession takes place when a debtor is unable to repay the monthly instalments in terms of a loan they owe to a bank and the debtor’s property is sold at a public auction by the sheriff of the court to pay off the debt. Often, the property sold will be the debtor’s home. To sell a debtor’s home, a creditor or bank must approach a court to get a court order allowing it to sell the home. The order will declare the home “specially executable”. A bank should only do this after many requests for the debtor to pay the outstanding amounts. Sales in execution are an important way for banks to enforce their rights in terms of loans, especially in cases where debtors who are able to pay their debts refuse to pay. However, there have been cases where banks have abused this process. To ensure that this does not happen, Parliament passed section 129(3) of the National Credit Act, which allows the debtor to “reinstate” a loan agreement at any time before the bank seeks to execute the loan agreement against him or her by paying their arrears and the bank’s reasonable costs occured for enforcing the agreement.
Since section 129(3) of the National Credit Act has taken effect, the practice in the Johannesburg High Court has been to postpone applications to have a person's home declared specifically executable for a certain period in order to enable a debtor to bring up their arrears, thereby reinstating the credit agreement and ensuring that they do not lose their home. However, when an application to have a home declared specifically executable is postponed, some banks have applied for an immediate money judgment against debtors for the full accelerated outstanding balance. Once the banks have this order, they apply for a warrant to execute against debtors' moveable property and, thereafter, homes.
The question raised in this case is about whether courts have the power to postpone a money judgment against a debtor for determination simultaneously with the application for leave to execute against the debtor’s home. A question that is linked to this is whether, if courts do not have this power, the execution of a money judgment precludes a debtor from reinstating the mortgage loan agreement in terms of section 129(3) of the National Credit Act.
SERI argues that courts have the power to postpone money judgments and even have the power to refuse money orders in cases where the banks have established a contractuat right to it. If the courts did not have this power, the purposes of section 129(3) and the possiblity of reinstatement would be circumvented. SERI also argues that allowing a bank to claim a money judgment would preclude a dabtor from reinstating the mortgage agreement, which would effectively mean that banks can circumvent section 129(3) of the National Credit Act.
On 12 September 2018, a full bench of the South Gauteng High Court held consistently with SERI’s submissions, that the application for the money judgment should always be postponed for determination together with the application for leave to execute. The Court further held that a reserve price should, save in exceptional circumstances, always be set. This means that repossessed homes may no longer be sold at auction without reserve prices.