Widow faces eviction despite claim she settled bond arrears

Valerie Naidoo faces eviction from her home in Chatsworth, Durban, after SA Home Loans (SAHL) repossessed and sold her property in 2021 using a “non-existent” judgment claiming she had fallen into arrears.

She has now approached the Durban High Court, asking it to set aside the sale and transfer of her property, and to order the Deeds Office to revive the title deed in her name.

Read: Everything you need to know about buying a distressed property in SA

The property, conservatively valued at roughly R800 000, was sold on auction for R102 000 on 26 July 2021 and transferred to the buyer a year later.

No authority to auction

Naidoo alleges in court papers that the sheriff who sold the property did not have the authority to do so because the 2013 warrant of execution (allowing the property to be sold at auction) was without legal force because she had settled the claimed arrears amount of R18 093 when summonsed by SAHL in 2009.

“When I received the summons in 2009, I immediately contacted SAHL to inquire how much I must pay to settle the arrears,” Naidoo tells Moneyweb.

“Within a matter of days I paid the requested amount by which SAHL claimed was in arrears, thereby extinguishing the arrears.”

Her court papers show that SAHL acknowledged receipt of these funds, with a ‘nil’ arrears balance reflecting on her mortgage loan.

In terms the National Credit Act (NCA), and confirmed by the Constitutional Court in the 2016 Nkata v FNB ConCourt judgment, any defaulting borrower who settles the arrears has automatically reinstated the mortgage agreement. This means that any legal action launched against the defaulting borrower is stopped in its tracks.

The ConCourt’s ruling in Nkata v FNB makes it clear that in the event of a new instance of default by the borrower, the lender must start fresh legal proceedings.

However, when Naidoo fell into arrears again in 2016, SAHL used the 2009 summons it had issued against her for the previous default. SAHL obtained judgment against her in 2013 and then used that judgment to sell her home in violation of the NCA and the ConCourt’s ruling in Nkata. This was despite making an arrangement to repay and catch up on the arrears.

Redundant legal process

Legal consultant Leonard Benjamin, who is helping Naidoo in this case, says credit providers are deliberately undermining the Nkata v FNB judgment by continuing to pursue foreclosure using redundant legal proceedings, as the arrears have been settled.

This means that in the event of any subsequent default – a highly likely event in the life of a 20-year mortgage bond – the lender dusts off the legal proceedings launched in the first instance of default, instead of commencing fresh legal proceedings. Benjamin says this conflicts with the binding effect of Nkata v FNB and undermines the NCA.

He says credit providers are not only flouting the Nkata judgment, but finding ways to make it as difficult for consumers to reinstate credit agreements, including adding untaxed (unauthorised) legal costs to the arrears, which pushes the borrower further into arrears.

“It is fair to say that Nkata was not welcomed by credit providers. It has imposed onerous administrative burdens on them because they have had to put systems and procedures into place to identify instances where the agreement had been reinstated,” Benjamin says.

“It undermines their attempts to foreclose because they can no longer simply revive previous legal proceedings when the consumer has again defaulted. It should not, therefore, come as a surprise that they have tried to undermine the effect of Nkata, by fair means and foul, including counting on consumers’ lack of awareness,” he says.

In Naidoo’s case, Nkata appears to have been ignored as SAHL went ahead and repossessed her home based on a judgment obtained in 2013.

“This was at a time when judicial oversight was less vigorous and, particularly relevant, the amendments requiring the judge to set a reserve price [a minimum selling price at auction] was not yet law. That only came into effect in 2018,” says Benjamin.

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“Consequently, the property was unlawfully sold in execution at which, it appears, there was only one person who attended and bid the princely amount of R100 000 for property worth at least R800 000,” he adds.

The NCA was intended to counter consumer abuses

The Nkata judgment clarified the operation of Section 129(3) of the National Credit Act, which embodies the right to reinstate a credit agreement.

The NCA came into effect in 2007. Prior to that the consequences for a consumer who missed monthly repayments were catastrophic. Using an ‘acceleration clause’ in the home loan agreement, credit providers called up the entire outstanding balance. In effect, it meant the consumer lost the right to repay the debt in monthly instalments. The only way for them to save their home would be to pay the entire outstanding amount.

“The effect of the acceleration clause was to make the loss of the consumer’s home inevitable because it was impossible for most consumers, who were already struggling, to pay the entire outstanding balance.” says Benjamin.

“Section 129(3) of the NCA was revolutionary because it means that consumers only have to pay the arrear instalments, and taxed [authorised] legal costs, to avoid the sale of their home.”

One of the main purposes of the NCA is to level the playing field between borrowers and credit providers. A consumer’s right to reinstate a credit agreement in terms of Section 129(3) is one of the most innovative measures introduced. Certain aspects of Section 129(3) were unclear and only clarified by the Constitutional Court in 2016 in the Nkata judgment.

Credit providers should have their loan records audited

“In this case, the mortgage loan agreement had been reinstated before Nkata was decided,” says Benjamin.

“In the light of Nkata, SAHL, like all credit providers, should have audited its records to ensure that it was not relying on judgments that had been rendered invalid because the mortgage loan agreement had been previously been reinstated.

“The circumstances leading to the invalid sale of Ms Naidoo’s home were, accordingly, completely avoidable.

“The fact that SAHL was executing on a case that had started in 2009, and there was no reserve price, should have acted as a red flag,” he adds.

“Where legal proceedings had commenced several years ago, it is highly unlikely, if not inconceivable, that the mortgage loan agreement had not, at some stage or other, been reinstated.”

Moneyweb wrote to SAHL in February asking for a response to the claims in Naidoo’s court papers.

Sikhumbuzo Mthembu, legal advisor at SAHL, replied as follows: “We note that Ms Naidoo has instituted legal proceedings against SA Home Loans in connection with or in relation to the matters raised in your email. On the advice of our counsel, we will respond to all allegations in documents to be filed at court.”

Last week, we contacted SAHL again. It had nothing further to add, we were told.

* Valerie Naidoo’s name has been changed at her request.