Constitutional Court to the rescue of debtors

A ConCourt decision has provided a lifeline for homeowners who fall behind with their bond repayments, to stop their homes from being sold.

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Durban - A recent Constitutional Court decision has provided a lifeline for homeowners who fall behind with their bond repayments, to stop their homes from being sold.

The judgment found that homeowners could reinstate their credit agreement with the bank if arrears on the bond account were paid in full.

Importantly, the court said the homeowner only had to pay the arrears owed and not legal costs the bank had charged without these costs being properly discussed with the homeowner.

The court was dealing with the case of Western Cape woman Nomsa Nkata whose property was sold in execution for R1 million by First Rand Bank Limited after she fell into arrears and default judgment was granted against her.

The Constitutional Court set aside the sale of the property and declared that the credit agreement between Nkata and the bank had been lawfully reinstated.

After default judgment was granted in September 2010, the house was initially not sold as Nkata reached an agreement with the bank to continue paying her bond in terms of a “quick-sell agreement”.

In March 2011, she paid the arrears of R87 500 in full.

The bond account fell in and out of arrears between 2011 and 2012.

With the total debt standing at R1.3 million and arrears of R33 716, Nkata’s house was sold on auction in April 2013.

At that time legal costs of R32 598 had been added to her bond account.

Nkata’s case landed in the Constitutional Court after differing decisions by the high court, which found in her favour, and the Supreme Court of Appeal, which agreed with the bank’s view.

In its judgment, the Constitutional Court said while consumers had a duty to pay creditors diligently this was “not always possible” especially with regard to mortgage bonds which could run over many years.

The judgment said banks had to acknowledge the imbalance in negotiating power between themselves and consumers.

“They (banks) ought to realise that at play is not only the profit motive but also the civilised values of the constitution.”

In the case, Nkata had argued that default judgment obtained in 2010 ought to have been rescinded after she brought her account up to date in 2011 as the credit agreement had been reinstated.

Instead, the default judgment and writ of execution against the property remained in operation and the bank sold her home.

In response, the bank had said the credit agreement was not reinstated because legal costs had not been paid by Nkata when she paid the arrears in 2011.

Nkata said these costs were not presented to her and she was not told that she had to pay them.

The court found that at the time the arrears were paid, the legal costs had not been agreed to by Nkata and had not been assessed as being reasonable.

“Ms Nkata paid R87 500 because she wanted to discharge her full arrears and save her home, which was under attachment, only to be told by the bank that she still owed relatively small amounts labelled legal costs, which were never assessed and disclosed to her properly.”

The Socio-Economic Rights Institute, which was an amicus curiae (friend of the court) in the matter, said the judgment was a “lifeline to distressed credit consumers”.

Keamogetswe Thobakgale, an attorney for the institute, said the court’s judgment had confirmed the importance of fair dealing between very powerful banks and distressed consumers.

The Mercury