NATIONAL NEWS - It hasn’t been a good month for the banks in court. Two major cases have gone against them, making it much harder for them to litigate financially distressed clients into surrender.
The first was in the Johannesburg High Court when a full bench of three judges ordered that repossessed homes must be sold at auction with reserve prices in all but exceptional circumstances. This means dispossessed homeowners get to keep a portion of the equity they have built up over the years. Previously, no reserve prices were permitted when properties were sold at auction, resulting in some properties being sold for next to nothing.
Then, just over a week ago, a full bench of the Pretoria High Court found that banks were clogging the justice system by hauling matters into the high court that properly belonged in the magistrates’ courts. The Pretoria court decided it had seen enough and told the banks to take their cases to the lower courts, which had “monetary jurisdiction”.
“If applied throughout the country, as it should be, and taken together with the recent full bench judgment in the Johannesburg High Court, this judgment (in the Pretoria High Court) will bring about a seismic change in how the banks pursue home loan debts against debtors,” says legal advisor Leonard Benjamin.
There is a misperception that magistrates courts’ monetary jurisdiction is below R300 000. “This is not correct,” says Benjamin. “This judgment applies to all credit agreements that are subject to the National Credit Act (NCA), regardless of the size of the debt. This seems to be in line with the legislature’s intention that proceedings relating to the enforcement of credit agreements should be brought in the lower courts to protect debtors from exorbitant legal costs. Unfortunately, as a result of poor drafting, this intention was not properly reflected in the NCA.”
The case involved eight defendants being sued by all four major banks for loan arrears of between R7 700 and R20 000. The court ruled that these cases belonged in the lower courts, where legal costs are much lower. The ruling is a major victory for those campaigning for universal access to justice, such as the Legal Resource Centre, SA Human Rights Commission (SAHRC) and the Lungelo Lethu Human Rights Foundation (LLHRF).
In their court papers, the banks explained their aversion to the lower courts: they were inefficient, plagued by delays, and there was a lack of uniformity in the granting of orders. Furthermore, debtors raised “unnecessary queries” and magistrates were reluctant to declare properties specially executable (meaning they could be sold at auction).
In cases involving motor vehicles, these assets depreciated rapidly, and the banks say they need swift and effective judicial action to recoup their loans.
Another crucial reason why banks are loathe to bring cases to the magistrates’ courts is that execution orders expire after one year. In the high courts, these orders do not expire. This means once banks have obtained an execution order in the high court, they can pressure a defaulting client to catch up on arrears.
The next time the client falls into arrears, the banks can sell the property at auction without having to approach the court again. In the magistrates’ court, the bank would have to approach the court for a fresh execution order after a year, assuming the property had not been auctioned during that time.
