When you’re battling to pay the instalments on your home loan, your bank offers you a number of remedies. The one that’s right for you will depend on your circumstances. What you want to avoid at all costs is a sheriff’s auction.
All of the banks say that repossession – which leads to a sheriff’s auction – is a last resort and that their intention is always to keep you from losing your home. But all of the banks, with the exception of Investec, refused to say how many properties they have repossessed over the past five years.
If you have no option but to sell your property, and you have not been able to sell it yourself, your bank can help you. Most banks offer some form of assisted sales service. Absa offers Help You Sell; First National Bank (FNB) has QuickSell; Nedbank has its Assisted Sales Programme; and Standard Bank offers Easy-Sell.
Although Investec does not offer a similar service, the private bank does encourage distressed homeowners to sign a special power of attorney that authorises the bank to sell your property on your behalf, by way of private treaty or auction. This way you have a better prospect of obtaining a better price than at a sheriff’s sale in execution, Howard Tradonsky, head of risk at Investec Private Bank, says.
Amos Kahn, head of legal recoveries at Nedbank Home Loans, says the financial losses to both clients and the bank are “significant” when a property is sold in execution.
“Sales in execution are dominated by speculators. The prices achieved are not good for the bank or our client,” Kahn says.
Nedbank estimates that, when sold at a sheriff’s auction, a property typically fetches 50 to 60 percent of the value.
The banks offer homeowners in distress more or less the following range of options. Kahn explains Nedbank’s offering:
* Catch up quickly. Clients who have missed their mortgage bond payments but who are able to catch up can make an arrangement with the bank to meet their current monthly obligations and catch up their missed payments.
* Catch up over time. Clients who can’t catch up missed payments but who are able to make regular monthly instalments are assessed to see if their account can be restructured over a longer period. This option is available to clients who can afford the new, reduced instalment.
* Go for debt counselling. “We formally advise clients of their rights under the National Credit Act to approach a debt counsellor within a set period of time. We actively participate in and support debt counselling arrangements that meet the guidelines of the National Debt Mediation Association,” Kahn says.
* Sell. “For clients who can’t afford reduced instalments, we provide the Nedbank Assisted Sales Programme. This programme entails the marketing and selling of clients’ houses via some of the country’s leading estate agents in normal, non-distressed circumstances. The prices clients get for their asset are far better in this process than from a foreclosure,” Kahn says.
If a client is unable or unwilling to sell via the assisted sales programme, Kahn says the bank has no choice but to limit its losses, as far as possible, by selling the property via the foreclosure process (see “Foreclosure: how it works”, below).
“The bulk of repossessions are on properties owned by clients who either refuse to talk to us or refuse the options we make available. Many of these clients believe that their financial affairs will dramatically improve before the auction date, and they will be able to pay back their missed payments and cancel the sale,” Kahn says.
Early this year Nedbank launched a website (www.nedbankco.za/HomeLoansHelp) for home loan clients in distress. The site was developed in response to a reluctance from clients to participate in the bank’s debt recovery programmes. The site, which features a calculator, is designed to help clients see the cost implications of all of the options open to them.
Steven Barker, head of home loans at Standard Bank, says the bank’s customer assist department may also offer you a “payment holiday” – which is a break from paying your home loan for a period of one to three consecutive months – or a debt consolidation deal, where multiple debts are consolidated with the aim of reducing the interest and monthly charges you pay to service various debts.
Arrie Rautenbach, head of retail markets at Absa, says the bank offers indebted homeowners the option to reduce their monthly instalment. The service is called Help You Stay.
“Absa also has the debt solutions helpline, which is operated by debt solution specialists who analyse the customer’s financial circumstances and then offer a tailor-made solution to ease the customer’s debt,” Rautenbach says.
The solution may involve the restructuring of a payment, extending the term of the loan or helping you to sell your property, Rautenbach says. The debt solutions helpline (0861 227 353) operates from 8am to 4.30pm, Monday to Friday.
Vincent Tadden, the head of collections at FNB, says the bank always seeks a solution for the arrears, “as it is always the intention of the bank to keep the customer in his property. We will only take legal action as a last resort.” The remedies for distressed bondholders at FNB include all of those on offer by the other banks including the option of paying only interest for a short period.
Tadden says all options are subject to full analysis of income and expenditure, property value and disclosure of other debt.
FORECLOSURE: HOW IT WORKS
The foreclosure process is a legal one, Ombudsman for Banking Services Clive Pillay says. Summons is issued and served, judgment is taken, the property is declared executable and then it is sold.
Pillay says in terms of recent case law, banks are now required to alert a defendant (client) to section 26 of the Constitution, namely, the right to have access to adequate housing.
“If you feel that the summons for an order for execution would infringe your rights under section 26, you should place that information before the court,” Pillay says. If the foreclosure would infringe this right, the court will refuse to order the property executable.
Amos Kahn, head of legal recoveries at Nedbank Home Loans, describes the process Nedbank follows before it forecloses.
* The bank contacts you numerous times (by phone and post).
* The bank enters into detailed conversations with you to understand your situation and reach a solution. This includes offering you the option to catch up on your arrears, to go for debt counselling or to sell your property.
* Once the bank has established that you are not able to rehabilitate your loan, and are unable or unwilling to sell your property to reduce the debt, the bank forecloses.
* The bank instructs its attorneys to issue a summons.
* The summons is delivered by a sheriff of the court to your chosen address.
* An application to the High Court is made to allow the property to be sold by a sheriff of the court. A judge assesses the application and ensures that a fair process has been followed.
* The sheriff sets a date for the property to be auctioned and advertises the auction.
* The bank calculates a market-related reserve price in an attempt to maximise the price that you will receive, to offset your loan.
* If the reserve price is not met, the bank will buy the property and then sell it on the open market, via estate agents or auctioneers.
* When the property is sold any proceeds are credited to your account, less the costs incurred.
* If there is a shortfall, it will be collected from you.