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It’s rare that a customer wins a case against a bank, so here’s one for the history books.
This week Valerie Naidoo of Chatsworth in Durban – representing herself in court against two advocates – overturned the foreclosure of her home by SA Home Loans (SAHL), which then sold the property at auction for a tenth of its market value.
The judge slammed the bank for its “egregious” conduct in pursuing its legal case even though Naidoo had settled her arrears in 2009 and then several times thereafter.
This comes in the same week that Human Settlements Minister Mmamoloko Kubayi said government plans to change the Home Loan and Mortgage Disclosure Act to enable the state to investigate consumer complaints about home loans and raise penalties for lenders over non-compliance, according to Bloomberg.
Naidoo’s case goes back 15 years. In 2009 she fell into arrears on her home loan and received a summons from Changing Tides 17, part of SAHL, to pay arrears of R18 093. Naidoo settled this within a matter of days.
SAHL decided not to pursue litigation at this stage. It waited until she again fell into arrears in 2013, dusted off the previous summons issued in 2009 and revived legal proceedings.
The landmark 2016 Nkata v FNB ConCourt judgment makes it clear that any defaulting borrower who settles the arrears has automatically reinstated the mortgage agreement. Many banks see a loophole here since defaulting borrowers are also required to pay the ‘reasonable’ legal costs of the case – provided they are ‘taxed’ (authorised by the taxing master) or agreed. In Naidoo’s case, these costs had not been taxed, so she correctly argued that her mortgage bond had been reinstated because she had settled the arrears.
Once a mortgage bond has been reinstated, it stops any further legal action in its tracks. Bank clients do not have to approach the courts to assert this right. It is automatic. Credit providers are required to have proper systems in place to identify when a reinstatement has taken place.
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The Nkata judgment makes it clear that should the borrower again fall into default, the bank must start fresh legal proceedings.
In other words, start with a Section 129 notice of default in terms of the National Credit Act (NCA), then proceed to issue a new summons and book a court date, a process that can take 18-24 months.
Should the defaulting borrower again settle the arrears, the mortgage bond is again reinstated, and so the process continues.
The Section 129 notice is important since it gives the consumer an opportunity to negotiate a payment plan, or consult a debt counsellor, or dispute the debt to avoid legal proceedings.
SAHL and its lawyers, Strauss Daly Inc, tried to circumvent this inconvenience when Naidoo again fell into default in 2016, by which time the Nkata judgment had come into effect.
The bank used the old 2009 summons to sell and transfer her home.
Her R800 000 home was sold at auction in 2021 for about R100 000, which was, on the face of it, the deal of a lifetime for the new buyer. There was no ‘reserve price’ requirement in 2016 (that only came in 2017) to stop properties from being sold at auction for a pittance.
But Naidoo stuck to her guns, bringing a court application to reverse the transfer. As she remained the lawful owner, she resisted the buyer’s efforts to evict her from her home.
She was vindicated in the Durban High Court when Acting Judge Harrison declared that Naidoo’s credit agreement had been reinstated and that the 2013 judgment against her was without force or effect. For this reason, he set aside the 2021 sale and transfer.
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He also directed SAHL to reimburse the auction buyer’s transfer costs to the tune of R119 096.
The bank was further ordered to pay the auction buyer’s legal costs, including the costs he had incurred in the eviction proceedings.
The court was not impressed with SAHL’s argument that Naidoo remained in default because she had not paid legal fees.
Naidoo referred the court and the banks’ two advocates to the relevant part in Nkata, which reads: “The legal costs would become due and payable only when they are reasonable, agreed or taxed, and on due notice to the consumer.”
The judge had some harsh words for SAHL: “It has oft been said that litigation is not a game. Litigation is also not a game show where a plaintiff can ‘bank’ a breach and default judgment, and ‘bank’ the declaration of executing against immovable property, and then, at its own instance and at a time when it suits them, play the default judgment and execution order as a trump card to enforce as against a recalcitrant debtor.”
Let’s hope judges across the country read this judgment, which correctly reaffirms rights that should not have to be argued in court.
This is unbecoming of a financial institution of SAHL’s stature, argues consumer advocate Leonard Benjamin.
“It [SAHL] fought the application tooth and nail and, even to this day it remains adamant that it did nothing wrong and was entitled to sell Naidoo’s home.
“Perhaps most disappointingly, it has refused to apologise to Mrs Naidoo for the flagrant violation of her Constitutional rights.”
This article was republished from Moneyweb. Read the original here.
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