The sale of repossessed houses at knockdown prices is unfair, unconstitutional, and a human rights and dignity issue, as it leaves financially distressed individuals with huge debts, when they have already lost their homes, experts say.

Professor William Gumede, a governance expert from Wits University, said ordinary people are doubly punished; first, they lose their houses to the banks, and somebody else picks it up for very little, and then the distressed individuals still have to pay the original amount.

“This is unfair, no matter how you look at it. It harms the country’s economy, adds a burden to the social security services, because now there are financially distressed people who are paying their home loan debts, but are homeless together with their family members, and dependent on the government’s social grants to survive, because they can’t afford basic needs. We have to find a system that doesn’t do that. 

“Housing is important. It is the heart of a market economy; South Africa is a market economy. Housing is an asset, a property, and we must, at all times, protect people’s rights to hold on to their housing, even if they are distressed, if we want to grow and stabilise the economy,” Gumede said.

He added that there is a need to strengthen regulations to make it impossible for the banks to sell repossessed houses for far below the market price to the detriment of distressed individuals.

Currently, many banks are under criticism from ordinary people and populist politicians, he said. 

“It will be good for banks to self-regulate by declaring together that a house will always be sold at the commercial price. If it’s forced to auction, a minimum price must be set to such an extent that the debt will be cleared. If there are some funds left, they must be returned to the distressed owner. 

“If the banks change the system themselves, it will mean increased reputation, increased trust among ordinary citizens and the black community, because the majority of people who lose their houses are black, which creates the impression that banks are racist towards black people,” Gumede said.

He added that if the banks don’t self-regulate, the government will have to step in and make some rules and regulations.

He said people who have paid at least 50% of the bond amount should not lose their houses. 

Gumede said even Rule 46A of the Uniform Rules of Court in South Africa, which regulates the process of executing judgments against a debtor’s primary residence, is flawed because financially distressed ordinary citizens are not in the right position to deal with court issues, because financial distress comes with a lot of psychological or mental health issues.

Four major banks, FNB, Absa, Standard Bank, and Nedbank, said that the repossession of houses is treated as an “absolute” last resort. that is only pursued after all alternative solutions have been exhausted. 

They also stated that they believe in responsible lending in line with the necessary credit laws and the bank’s internal processes, including doing everything possible to prevent a client from losing their home.

The banks encouraged customers experiencing difficulties in meeting their financial obligations to contact the bank as soon as possible to explore solutions.

The banks highlighted that the reserve price at a sale in execution is not set by the banks, but it is determined through an independent legal process overseen by a presiding judge.

Nondumiso Ncapai, managing executive of Absa Home Loans, said Absa makes every reasonable effort to assist its distressed customers in retaining their homes and offers solutions, from debt restructuring to a private sale. 

“In the unfortunate event that a sale in execution is unavoidable, the sale process is regulated by legislation and the Rules of Court, all of which is designed to ensure that a fair reserve price is set by requiring that a Court oversee and adjudicate the process from beginning to end. Whenever there is a surplus from such a sale (or a property that Absa has bought in), this is always refunded to the customer,” Ncapai said.

Nedbank said it is committed to finding amicable solutions to avoid a sale in execution of a property.

“Nedbank understands the impact of foreclosure and sales in execution on customers and their families, and we regard sale in execution as a last resort. We have several options available to assist customers who are experiencing financial difficulties. These options include a rehabilitation strategy that offers clients the option of a home loan debt relief that assists them to bring their debt up to date, or a Nedbank-assisted sale, which helps clients to sell their distressed property. Our foreclosure process adheres to the National Credit Act, and our clients are kept abreast of the court proceedings throughout,” Nedbank said. 

Ron Derby, Standard Bank’s public relations lead, said their priority is to keep customers in their homes, and they have a variety of debt solutions to assist clients experiencing financial distress.  

“Clients have had the use and enjoyment of the monies lent to them by the bank and therefore remain liable to repay it. The bank is very amenable to assisting with payment arrangements in this regard. It must be noted that Standard Bank complies with the prevailing laws of the country and trusts in the fairness of the South African justice system,” Derby said.

Mfundo Mabaso, Product Head of FNB Home and Structured Lending, stated that the bank provides a recommendation to the courts by proposing a reserve price to ensure that a home is not sold below a reasonable price.

“We understand the sensitivities and emotive nature of selling a property when one is under financial distress. Properties sold via a Sale in Execution (SIE) process, which is overseen by the courts, may, unfortunately, not achieve full market value. This is due to factors outside the bank’s control, such as the property valuation, occupation status, such as illegal occupants, outstanding municipal rates and taxes, and levies if applicable,” Mabaso said.

Mabaso said, “Banks, including FNB, do not have the power to manipulate this process.” 

Harold Ngalawa, Professor of Economics, and chairperson of Macroeconomics Research Unit in the School of Commerce at the University of KwaZulu-Natal, said that in an open auction, the market price should settle the debt, and the person whose home has been auctioned should be able to move forward debt-free.

“If this is done in an open auction, the property should be sold at a price that at least covers the balance owed, unless the bank did not do due diligence when giving out the loan, or the property has deteriorated significantly, or property prices have not kept pace with interest rate adjustments. If a distressed individual (mortgage defaulter) whose home has been auctioned by the bank still has to pay some outstanding debt for a home they no longer own, then the process is flawed,” Ngalawa said.

Nikita Stander, deputy head and senior attorney at the Stellenbosch University Law Clinic, said Rule 46A was introduced to address serious injustices in the sale of primary residences, where homes were once sold for as little as R10. 

She said the rule now ensures that only a judge, never a registrar, may declare a home executable, and it imposes strict procedural requirements on creditors. And debtors must be served personally and are given the opportunity to present their financial position.

“To better uphold the dignity of financially distressed individuals and families, South Africa’s legal framework for repossessions should ideally involve a strengthened judicial discretion, ensuring proportionality, and mandatory reserve prices. 

“Section 26 of the Constitution protects against arbitrary eviction, and when homes are sold significantly below market value, often through inaccessible or poorly publicised auctions, it places families at risk of homelessness and undermines the core protections afforded by the Constitution,” Stander said.

Major banks are facing a R60 billion class action lawsuit over the sale of repossessed houses.

gcwalisile.khanyile@inl.co.za

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