Are you in danger of losing your home because of lockdown layoffs? Your flat or house is probably your most important asset and a great source of emotional comfort ‒ but given the pandemic layoffs and precarious economy, you may be concerned that you could lose your hard-earned property. What are the chances of your home being repossessed, and what are your rights in fighting back?
South African law allows that, if you default for three months or more on your monthly mortgage payments, the bank or other mortgage lender may cancel the agreement, repossess your house, and sell it in order to recover the outstanding money you owe them.
Previously, court rules allowed repossessed homes to be sold without a reserve price. Fortunately, more stringent rules have since been put into place. There were many heart-breaking stories of banks repossessing homes when an owner was three months in default, and the property was sold at a sheriff's auction for less than the amount outstanding. This is despite banks trying to get as much as they can for their clients and is largely determined by market conditions. In these instances, the customer was left without a home and with potentially lifelong debt.
If you are concerned that you could find yourself in a precarious situation, there are several options to explore immediately. "There are actions to consider if you cannot afford your home," says personal finance website JustMoney's commercial manager, Sarah Nicholson. "You can consider renting out your property, restructuring your loan over a longer term, or, if you have problems repaying multiple loans, you could consider debt counselling."
"Rather than changing your cellphone number and hiding from your creditors, it's far better to approach the bank and have an honest conversation about the situation you find yourself in."
See JustMoney's article on possible solutions if you cannot afford your home here. If you have always paid the monthly loan amount, and in full, and have little outstanding debt, the chances of holding onto your house are far better than if you have been on a rollercoaster ride for some time. Read an article on asset repossession and what banks want you to know here.
You may decide there is no option but to sell your home. This way, you are likely to get a better price and avoid going through the stress of a legal process and associated costs. Some banks have developed their own systems and tools to help their customers to sell their properties and could support you in the process. Read a JustMoney article on the benefits of selling your home pre-legal action here.
Should you continue to hide under the duvet and default without communicating, a representative of the bank will contact you by phone or in writing. Depending on the situation, they should initially offer you options such as spreading the bond over a longer period, or receiving debt counselling. Should you receive a section 129 notice, this is the final step before the legal process begins. It will inform you that you are in arrears for a certain amount at a given date. This notice is issued in terms of section 129 of the National Credit Act. Find out more about a Section 129 letter here.
"See this as a last chance to take action and prevent your creditors taking legal action," advises Nicholson. "Do avoid delays at this stage, as you have only 10 days to apply for debt review. This is the process whereby a debt counsellor assesses your outstanding debt and implements a restructured debt repayment plan."
If this process fails, the bank can ask its legal team to get a summons from the High Court or Magistrate's Court. This is delivered by a sheriff. The bank then has to formally apply to court for the right to auction off your property.
A judge must check that legal and fair processes have been followed, taking into consideration whether this is the primary residence of the debtor, as well as alternative ways of settling the judgment debt. Banks must show evidence of the property's market value, the amount owing on the bond and rates and taxes. It is worthwhile checking that this information is all correct.
If the sale has to go ahead, the money goes towards covering the outstanding amount on the loan and costs. Whatever remains will be paid to you. You can only be evicted from a house sold on auction when the property has been transferred to a new owner. You cannot be evicted before a transfer has taken place.
"The current economic climate is really worrying for many people whose household finances have already been under pressure pre-COVID-19," says Nicholson. "It's essential to address the 'elephant in the room' as soon as possible and get information and help. Check where your money goes, hold a family meeting to talk about finances, and inform yourself as much as possible about your options."
You can access plenty of information free on the JustMoney website. It offers articles, budgeting tools, online calculators, guides and a full range of financial products and services from reputable providers. For advice you can bank on, access the website here.