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Going, Going Gone!

When Mike Russwurm took out a bond so that he could fix up his home in Johannesburg the bank valued it at R1.4 million.  But when times got hard he learned that the bank can be ruthless and change their mind about what the house is worth and his home was auctioned off for a paltry R10 000.

Falling Behind on Payments

In 2011 Mr Russwurm fell far behind on his bond repayments. Soon the bank sent out a valuation expert in anticipation of taking legal action, who now valued the house (4 years later) at R500 000. This was less than the outstanding loan amount of R780 000. The bank pushed Mr Russwurm to catch up the R140 000 he owed they had been lenient in allowing so much time in going by and decided enough was enough.

Soon the bank sent a summons and then got a judgement against the property which enabled then to put the property up for auction. At this point, Mr Russwurm and his family and friends raised R55 000 and then another R14 000 to pay toward the debt. This was not enough for the bank and they said that they still proposed to go ahead with the auction. This prompted Mr Russwurm and family to make an offer towards the remaining arrears (of R85 000) of R73 000.

 Not Enough – So To Auction it Went

auctionThe offer was R12 000 short of what the bank’s attorneys were demanding and was turned down. The bank then proceeded to arrange to sell the house on auction. several interested parties showed up. Though the bond amount stood at R780 000, an offer of R450 000 was made which would leave Mr Russwurm responsible for a shortfall of R330 000. Disappointingly the offer was withdrawn on the day. Because this sale fell through the bank then forged onward and sold the property for R280 000. This time the new offer fell through because the bidder could not raise the required deposit.

Not prepared to call it quits and perhaps run another auction on a different day the bank’s representatives finally accepted an offer of only R10 000 for the property. This despite the fact that the home owner had offered R73 000 which was R63 000 more than the final sales price and R 1. 390 000 less than they originally evaluated the property at in 2007. Going, Going, GONE!

The home owner appealed to the bank to rectify the situation and to rather accept his offer but it went unheard. His requests to the bank were met with curt responses to the effect that the property was sold due to his default on the credit agreement.

Learn From This Cautionary Tale

Many consumers feel that buying property is a “good investment” and will assure them of “future wealth”. However, this commitment means that for 25 to 30 years the consumer has to make the right payments monthly no matter what or face possible legal action and losing the asset. More than that, if a home is sold on auction for less than you owe, you will end up responsible for the shortfall amount for the next 30 years. Basically, you will then be paying for property you no longer own for the next 30 years.

Consumers need to be wary of stretching themselves too financially thin when taking on a bond and need to take action quickly when they hit financial snags. One option is, of course, debt review. Most consumers with bonds who enter the debt review process quickly feel the relief of not only protecting their asset but also reduced payment instalments as the banks are willing to extend the bond term to help reduce monthly payments. Even if a consumer then later decides to auction off or sell their own property they can hold out for the price they need to cover their debts. It is always a dangerous thing to let a third party who has no interest in you sell off the property without a reserve price. Also, it is good to realise that not every home should be kept when your financial situation turns bad. A house is an asset. As such, it is something that is able to help settle your debt situation. The challenge is that we become attached emotionally to property over time. Remember you do not live in Downton Abbey with hundreds of years of history. Things change and the sale of a house (or car) may be the key to your financial freedom.

Pay us R770 000 in Shortfall

Mr Russwurm now faces the ridiculous situation where he owes a further R770 000 on the bond on a house the bank sold for only R10 000. The NCR have stated that they want to see this practice of selling homes without a reserve price (which is currently totally legal in SA) stopped. The situation is not the norm. Normally, the home would sold for the first offered amount of slightly less than the evaluators put it at. Meaning that Mr Russwurm would have owed R330 000. Still, this figure is enough to financially cripple a person for life. However, with the funds he had available a cash sequestration might have been an option. Though not normal there have been some other shocking cases with homes reportedly sold for as little as R10 if you can believe it. Investigations are underway into the auction practice and process in SA. This may spark big changes in the near future.




Banks should remember the saying:

Take a man’s car and you lose his business for life

Take a mans home and lose his children’s business for life



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