SBSA & ABSA At Court Over Setting Reserve Prices For Auction Sales
If you take a bond on a property you are committing to making payments over several decades. Also part of that agreement is that if you default at any point (and leave the account in default) then the bank has the right to summons you and get a judgement. After getting a judgement the credit provider can then move to sell the property on auction to recover some of their funds. Normally, this takes about 30 months from the time of first default but can be much faster if the bank is aggressive and uncompromising.
Often though, properties sold on auction this way have been sold for very little (as little as R10 in one case) leaving the consumer in deep debt with the balance of the bond to pay even though the property is sold. This can leave consumers with many years of debt repayments on an asset they no longer own.
‘leaving the consumer in deep debt with the balance of the bond to pay even though the property is sold’
The real goal of the collections process is to get in the missing funds and so in many cases the consumers catch up payments before the property is actually auctioned. In that case, the consumer can carry on with the original agreement (after paying for some extra fees). It is said nearly 66% of such matters are sorted out before the auction. This, however, means that a third of these matters end up with the property being sold.
New Laws Help Protect Home Owners
Recently, the law changed so that a reserve price (minimum amount for which the property can be sold for) can be set by the court before the auction.
‘Recently, the law changed so that a reserve price…can be set by the court before the auction’
Some courts have been quick to implement this while others have simply ignored it as the law is not clear on under what circumstances such a reserve price must be set.
Reserve Prices – When?
Now ABSA and Standard Bank will be heading to the South Gauteng High Court, following a directive from Gauteng judge president Dunstan Mlambo, in an effort to gain clarity on when this must happen. The banks all say that when there are reseve prices set it can reduce the amount of interest from potential buyers. These two banks would like to see a very particular set of circumstances under which this would happen while others in the court case argue that it should always be done.
It is unclear if the issue of securitisation will be raised in this court case or not. Often banks seel their rights to properties but still collect on them when a consumer defaults. They also may claim insurance cover in such cases making their money back in one quick transaction. Even then they may still collect on the debt for many years afterwards to get a shortfall on the sale on auction back in.
Debtfree will continue to follow this case as it develops.