It is an economic reality that most citizens who acquire immovable property are unable to afford to pay the cash price of such property due to the marked difference in property prices and the wealth, or lack thereof, of ordinary citizens. The mechanism in place to assist the man in the street to acquire property is by way of a home loan.  The lender of the home loan (usually a bank) then registers a bond over the property, the consequence of this is the security given to lenders against the finance afforded to borrowers by way of a mortgage bond.
At the instance of a directive, from the Judge President of the Gauteng Local Division, Mlambo J, on 12 September 2018 a full bench of the Johannesburg High Court (“the court”) passed judgment in a matter dealing with the process banks are required to follow when selling a person’s home in execution.
In this particular case, four matters were consolidated. Each bearing a common thread, in that the Banks instituted proceedings to obtain a money judgement in addition to seeking an order to have the immovable property of the Defendants’ declared specially executable. The following issues were presented to the Court which required determination:
The court in unpacking whether to hand down an order for a money judgement and executionary order, noted that to adjudicate on these two issues at separate hearings would amount to handling a matter on a “piecemeal” basis. The court took the view that piecemeal adjudication was undesirable because it results in undue delay and increased costs. The court further noted that piecemeal adjudication of applications is an exception and not the rule, and therefore handling foreclosure applications should be treated as such.
Furthermore, the court opined that a money judgement and the sale of a person’s home in execution are intrinsically connected as they arise out of one cause of action, and thus should be considered simultaneously. In other words, the money judgement aimed at recovering the debt and the leave for sale of a home in execution which is utilised to pay the debt are inseparable and thus it must be adjudicated at the same time.
Whilst deliberating the second issue for determination, the court concluded that the legislature passed s 129 (3) of the National Credit Act (the “NCA”) to allow a debtor to be able to “reinstate” an agreement (what would have been a cancelled loan agreement, by virtue of defaulting on the monthly bond payments) by settling outstanding arrears and reasonable enforcement costs, before the bank seeks to sell a person’s private home in execution.
To give effect to the purport of s 129(3) of the NCA, the practice in the court has been to postpone the declaratory order of special execution, to allow a debtor the opportunity to settle the arrears to retain their home.
However, to circumvent the postponement of same, lenders have applied for immediate money judgement against the debtors for the full accelerated outstanding balance of a mortgage loan. Thereafter, such lenders then swiftly apply for a warrant to execute against the home owner’s moveable and immoveable property.
S 129(4)(b) of the NCA prohibits the reinstatement of a credit agreement, in this case a home loan, after the execution of any other court order enforcing that agreement. In essence, the granting of a warrant to execute against the property or the mere attachment thereof, does not simply constitute as a Court Order, for the purposes of this provision. What prevents reinstatement in terms of Section 129(4)(b) is only the sale in execution of the immovable property and the realisation of the proceeds of such sale. Prior to the realisation of the proceeds of the sale, the mere attachment is no hindrance to the reinstatement of the agreement. The fact that the mortgaged property has been attached pursuant to a default judgment and an order declaring the property specially executable, is of no moment. Simply put, the execution against immoveable property does not prevent the revival of a home loan agreement until the proceeds of the execution have been realised.
The court refrained from establishing a numerus clausus regarding the setting of a reserve price. The court merely stated that in terms of s 26(3) of the Constitution grants the court the discretion to make such an order. The court further stated that save in exceptional circumstances, a reserve price should be set by a court, in all matters where the execution is granted against immovable property, which is the primary residence of a debtor. The use of such discretion should be exercised on a case-by-case basis taking into consideration all the relevant facts.
It is for all the aforesaid reasons that the Court ordered that in all matters where execution is sought against a primary residence, the entire claim, including the monetary judgment must be adjudicated at the same time. I addition to this, the execution against the movables and immovable property is not a bar to the revival of the agreement until the proceeds of the execution has been realised and that only in exceptional circumstances, shall a reserve price be set by a court in all matters where execution is granted against immovable property, which is the primary residence of the debtor.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)