Increasing court oversight for foreclosures
The days of selling mortgaged homes in execution for a pittance are well behind us and there has been an increasing burden on lenders to ensure that the execution process provides the home-owner with as much protection as possible.
This began with the courts developing the law in decisions such as Jaftha vs Schoeman and Gundwana vs Steko Developments where the courts set out numerous factors to be considered when it is faced with deciding whether to allow a creditor to sell a person’s home in execution at a sheriff’s auction.
The Uniform Rules of Court which govern the processes at court have also been amended to codify some of the recent case law and provide legal practitioners with a framework for obtaining a court order that entitles a creditor to sell a debtor’s home in execution.
One such change to the rules requires the Court to set a reserve price for the auction. But what happens when the reserve price is not met? A recent decision out of the Johannesburg High Court has provided practitioners with some insight and answers.
The judgment of Fisher J dealt with four cases between the Trustee of the South African Home Loans Guarantee Trust and certain borrowers. The cases were heard in chambers (as opposed to open court) where the lender sought court orders to amend the reserve prices after they were not met at the auction.
In her Judgment, Fisher J made it clear that matters of this nature involve the careful balancing of the rights of the parties involved. Fisher J pointed out that “if property is sold at a price which is significantly below the true market value, the homeowner is liable to lose the investment made in the property and still be left indebted to the bank for more than is fair.”
Fisher J held that “A common approach appears to be that the view is taken that after the first sale in execution fails the process no longer requires input from the homeowner. Such an approach is a figment born of the past is not consistent with the spirit and import of rule 46A.”
The Rules of Court require that the sheriff provides a report within 5 days after the auction. The report must contain information as to the highest bid obtained; the details of people who attended the auction; the highest bid or offer made on the property; and any other relevant factor which may assist the court in performing its function.
Fisher J posed the following question in her judgment, “How should a request for reconsideration of the reserve price in terms of subsection 46A(9)(c) be brought?”
In answering the question, Fisher J held that “the application is of the nature of a reconsideration of the original application and thus it is properly brought as interlocutory to the application.” “It must do this in the usual way – by way of affidavit made by a person having personal knowledge of the facts or having ascertained them.” So, a substantive application on motion, supported by affidavit must be produced.
Fisher J went further and held that “A rote approach which says that the mere fact that the property was not sold is enough to suggest that the property should have no reserve, that a significant drop in the market price should be allowed or that the property should simply be knocked down to the lowest punter without further ado does not, to my mind, strike an appropriate balance between the interests of consumers and credit providers as mandated by the National Credit.”
Practitioners and lenders would be well advised to read the Judgement of Fisher J when a sale in execution does not meet the reserve price. Whilst the judgment is not be binding on all divisions of the High Court, it will certainly be persuasive case law and will be applied, to a greater or lesser extent, to applications going forward.