In a recent interview, Standard Bank joint-CEO Sim Tshabalala claimed the bank only sells debtors’ homes in execution “as a last resort”, and it was eager to develop lifelong relationships with its clients.
This ought to be good news for those involved in legal action with the bank, but it certainly is not the experience of the Kudoos family of Glen Marais in Johannesburg, who took out a mortgage loan with the bank in 2001.
The Kudoos run a family business, supplying goods and services to government entities, which means they sometimes experience delays in getting paid, and therefore occasionally fell into arrears on their mortgage payments. The bank tolerated this over the years because the Kudoos always settled the arrears when payments came in.
In March 2017 the family again fell into arrears and notified the bank by e-mail that the bond payments would be late, but as they had done in the past, would catch up on the arrears once payments came in. This worked fine with the bank in the past, but this time the family received a registered letter advising it to pay up in 10 days or face legal action.
The Kudoos hurriedly sent another email querying the registered letter, and this time received a response from the bank’s attorneys, repeating the threat to launch legal action unless the full arrears, now amounting to three months’ bond payments, were paid within 10 days.
The family wrote back pleading with the attorneys to allow them an opportunity to catch up their arrears, as they had always done, by paying double instalments in the coming months. They received no reply from the attorneys, but in July were summonsed to appear in court. Realising they stood to lose their home, they consulted an attorney who advised paying their arrears before the home was transferred to a new owner. The attorney advised that rather than defend the matter, they should use their available funds to catch up on the arrears, which would automatically reinstate the mortgage bond. This is based on a Constitutional Court judgment in Nkata v FirstRand Bank where the court overturned the sale in execution of the plaintiff Nomsa Nkata’s home and instructed the bank to reinstate her mortgage bond after she had settled her arrears, in rather similar circumstances to that of the Kudoos family. This judgment in theory makes it more difficult for banks to foreclose on clients’ homes, and compels them to seek a more accommodating approach to clients in financial difficulty.
But when the family’s attorney perused the summons, he noticed that the bank had done something that – to his knowledge – had never been done before. The bank had cancelled the mortgage loan agreement, thereby making it impossible for the Kudoos to reinstate their mortgage bond, even if they did catch up on the arrears.
Financial and legal adviser Leonard Benjamin believes the bank did this to circumvent the National Credit Act (NCA).
“The NCA allows a bank customer to reinstate a mortgage bond once the arrears amount is settled. But Standard Bank’s decision to cancel the mortgage loan agreement makes it impossible to reinstate the bond. In my opinion, this has been done in extreme bad faith.”
What this means is that, for the Kudoos to save their home, it is no longer enough for them to pay the arrears. They will have to pay the full outstanding balance of about R900 000.
“Standard Bank gains nothing from the cancellation. Its rights would be no different if it had kept the agreement in force,” says Benjamin. “Whether it cancelled or kept the agreement in force, it would be entitled to exactly the same amount and will be able sell the property in execution. However, for the debtors the implications of its decision to cancel the agreement are life-changing as they would be deprived of their right to reinstatement, which, to all intents and purposes, will result in their home being sold in execution and their eventual eviction.”
Even if the bank were now to decide that it acted too hastily in cancelling the agreement and it should allow the Kudoos an opportunity to catch up arrears, its decision is irreversible as the NCA prohibits the reinstatement of a credit agreement even if both the bank and the debtor would like to do so.
“In the absence of a good explanation, Standard Bank’s actions are indefensible and simply vindictive and it is difficult not to conclude that the bank’s sole reason for the cancellation is to circumvent the Nkata judgment and thereby, to obstruct the consumers in the exercise of their rights and to sell the property at all costs,” says Benjamin.
In the summons, Standard Bank seems to suggest it cancelled the agreement because it had previously given the Kudoos an opportunity to reinstate the home loan, which they had done. The implication was that they had blown their one chance to reinstate the home loan and would not receive a second one.
The Kudoos are defending the action in the High Court in Johannesburg, but Benjamin believes the matter may have to be challenged all the way to the Constitutional Court to stop banks attempting to circumvent the law.
“If Standard Bank can get away with this behaviour, then consumer protection laws and the Constitution have no meaning.”
Several recent judgments make it more difficult for banks to foreclose on homes, packing muscle on constitutional protections against arbitrary deprivation of property. Is this a new ruse to foil a system they see as increasingly stacked against them? Banks are guilty of some outrageous circumventions of the law, such as delivering summonses to the wrong address and then turning up in court claiming the client has put up no defence.
The recent R60 billion Constitutional Court case by more than 220 applicants against the major lending banks whose homes were repossessed and auctioned for a fraction of their worth is littered with such examples. Many of them end up homeless, or living in shanty towns with no hope of reintegration into the economy. Is that what the Constitution had in mind?
Sim Tshabalala seems sincere in his desire to build lifelong relationships with his clients, but he obviously has no idea what kind of behaviour goes on in his legal collections unit. If he wants to clean house, he should start looking at the win-at-all-costs behaviour of the attorneys he lets loose on clients. So, too, should the other lending banks. One legal expert contacted by Moneyweb with an inside track on the industry believes attorneys are hurting financially, which perhaps explains some of the irrational and aggressive, and sometimes unlawful, cases that are frequently paraded before the courts.
Standard Bank replies
When asked to comment on the reasons for cancelling the Kudoos’ loan agreement, rather than reinstating their bond, Standard Bank spokesperson Ross Linstrom replied as follows: “As per the Code of Banking Practice, Standard Bank does not comment on the details of a particular customer’s situation with parties other than the customer or those mandated by law to act on behalf of the customer. We have and continue to act in a manner that treats customers fairly, with utmost dignity and within the parameters of the applicable legislation. We are committed to building and keeping relationships with customers as long as possible and we will only use legal action as a last resort. We also hold any partners to our business to the same principles and ethics.”
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