Courts must set reserve prices for home auctions

A recent decision by the South Gauteng High Court (SGHC) means that home owners in the region who have fallen behind on their bond repayments will no longer have to watch their properties being auctioned off for next to nothing - and then still have to pay the bank whatever amount of their bond remains outstanding.

There have been many reported instances of this happening over the years, and this has prompted many individuals, NGOs and legal organisations to campaign for the system of home repossession in SA to be reformed and brought in line with the Constitution.

As a result, court rules were changed last year to provide for any court that grants an order for a primary residence to be attached and sold in execution of a debt judgment to also set a reserve price for the sale. (See Rule 46A of the Uniform Rules of Court).

And now the SGHC has ruled not only that a reserve price can be set, but that it must be set in all such instances - and must be individually determined based on all the relevant facts presented to the court by the borrower and the lender, including the extent of the arrears and the market value of the property.

A reserve price is the minimum price for which something can be sold at auction, and means that if bidding at the auction fails to meet that price, the item will remain unsold.

In this instance, the practical effect is that a primary residence cannot now be sold off for a fraction of what it is worth, leaving a huge portion of the bond still outstanding and due to be paid to the bank by the former owner. Instead, attached properties are likely to be sold for at least the loan amount outstanding and hopefully more.  

In addition, the SCHG ruled that lenders will no longer be able to approach the courts twice for the same matter - once for a debt judgment and again for an order to sell the debtor's property in execution of that judgment. To save on legal costs, which the debtor (borrower) has to pay, both matters must now be heard at the same time. 

What is more, the judgment underlined the right of the debtor who has fallen into arrears to re-instate the bond agreement at any time before a sale in execution, by bringing those arrears up to date and covering the lender's "reasonable" costs for any legal proceedings to date.

This right is set out in Section 129(3) of the National Credit Act and since it was introduced, the courts have generally postponed applications for execution orders for a certain period to give debtors the opportunity to regularize their home loan position and avoid the possibility of losing their home. Now they are also likely to postpone any debt application for the same reason.    

*The Legal Resources Centre says the SGHC judgment brings court practice in line with Section 26 of the Constitution, which grants all South Africans the right to adequate housing. Most experts believe it is thus likely to be applied countrywide. (See http://www.saflii.org/za/cases/ZAGPJHC/2018/485.pdf for full judgment.)