R60-billion headache for biggest banks in South Africa

Hundreds of South Africans are waiting for the outcome of a R60 billion class lawsuit against South Africa’s major banks, alleging that they unlawfully repossessed their homes and resold them for well below market value.

This lawsuit, which Adv Douglas J Shaw heads up, is seeking to help individuals who have lost their homes to banks such as Absa, Standard Bank, FirstRand, and Nedbank.

All class members have, at different times and locations, entered into mortgage bond agreements with the defendant banks.

These banks have obtained court orders allowing them to sell the properties through execution sales when the individuals fall behind on their bond payments.

This effort has been ongoing for years. In 2017/18, Shaw achieved a major legal victory when banks were required to provide a reserve price when they sold someone’s house.

Before then, the banks sold houses at sheriff auctions without a reserve price. This led to substantial losses, and the owners still owed large sums to the bank after the auction.

Shaw’s team thought they had achieved their objective. However, Shaw said banks are still selling people’s houses for 50% to 70% of their value on many occasions.

Banks then come after the defaulter for the balance on the bond. “Further, there are still many situations where banks are selling when it is definitely not a last resort,” Shaw claimed.

This includes situations where, for example, the person has a new job and can pay, when the person wants to rent the place out and when it can be subdivided.

Many of these people had their homes auctioned off for as little as 10% of their market value and have been homeless and destitute for over a decade while the banks recovered their debts.

“We often see banks act in a manner we consider irresponsible. You cannot trust them to do what most people would see ‘the right thing’,” Shaw said.

“Our banks are still incredibly under-regulated when it comes to their willingness to sell a person’s house when it is not a last resort.”

Slow relief

Being in a position where the banks might sell your house at half price is a considerable risk. For example, if your house is worth R1 million, you could lose R250,000 to R500,000 and a home you may be very attached to.

“There are many things that we may be able to do for you,” Shaw said. This includes negotiating a reasonable settlement with your bank and holding off till you can sell.

They also have the ability to draft papers defending you and/or appear for you in court so that you can start your bond again and keep your house.

With Shaw’s help, some homeowners have been able to stay in their houses for an extra year or even many years.

Even though it has been more than four years since they filed their application, things have progressed slowly. Shaw alleged that the slow pace was due to the banks utilising delaying tactics.

Additionally, the judge overseeing the matter was on a six-month leave. Currently, Shaw is in the process of having the lawsuit and being certified before the Gauteng High Court. Once that happens, more obstacles will follow.

He explained to IOL that they must first face an objection by the banks regarding the structure of some of the affidavits filed by the claimants.

Once this technical argument is resolved and there are no more hurdles, he will file his arguments in the main certification application and then await a court date for hearing them.

Shaw added that he believes the banks have damaged these people unreasonably. “No one thinks what they have been doing – in some cases, selling homes for as little as R100 – is okay. They should pay these people back,” he said.

South Africa’s biggest banks respond

Daily Investor reached out to the banks who have allegedly engaged in these practices. Standard Bank confirmed that it is aware of formal legal proceedings instituted in 2017 relating to the certification of a class action.

It explained that the proceedings are being opposed, adding that the papers before the court make no mention of the R60 billion exposure.

“Our banking practices are conducted in strict accordance with all regulatory and ethical standards, and we remain committed to ensuring that all our clients are treated with fairness and respect,” the bank said.

“The bank will continue to engage fully with the legal process while maintaining its unwavering commitment to doing business the right way.”

Nondumiso Ncapai, managing executive at Absa Home Loans, said Absa makes every reasonable effort to assist its distressed customers in retaining their homes.

The bank also uses an array of solutions, from debt restructuring to its HelpUsell programme, to assist customers with the private sale of their properties and ensure the highest possible selling price, Ncapai added.

“Exploring these solutions as part of the bank’s recoveries processes is clearly in the best interests of both customers and the bank.”

The sale in the execution process is regulated by legislation and the Rules of Court, which Absa assured it has always complied with.

According to Ncapai, Absa knows how important owning a home is to its customers, which is why repossession and sale in execution of a customer’s property have always been options of last resort for Absa.

“Even under these circumstances, we afford the customer time until the ‘fall of the sheriff’s hammer’ to remediate the arrears owing to us,” Ncapai said.

“We have always and continue to advise customers to contact the bank should they be experiencing difficulty in repaying their debt, so that we can assist them.”

Nedbank said that, since the matter is before the court, it could not comment at this time. However, it confirmed that they are busy defending the matter.

“As the matter is before court, Nedbank cannot comment at this time. We can, however, confirm that we are defending the matter,” it said.

“In terms of legal process, when a class action is brought, the parties need to undergo a certification process first, where a court approves that a lawsuit can proceed as a class action.”

This means that one or more plaintiffs (representatives) can sue on behalf of a larger group (class) of people with similar claims.

“The class action in this matter has not been certified yet, and the parties are still in the first part of the matter, where papers are being filed for the court to hear the certification of the class action,” the bank added.

The bank explained that the parties involved can only proceed to the class action once it has been certified by the court.

“Nedbank understands the impact of foreclosure and sales in execution on customers and their families and regards sales in execution as a last resort. Our processes have always complied with the law, and we will continue to do so,” the bank said.

“We are committed to finding amicable solutions to avoid a sale in execution and have several options available to assist customers who are experiencing financial difficulties.”

This includes payment arrangements and home loan restructures. Nedbank added that each case is assessed on its individual merits, and an appropriate option is provided.

FNB, similarly, told Daily Investor that they were unable to comment because the matter is currently subjudice.

This article was first published by Daily Investor and is reproduced with permission.