Now, the Cape High Court clarified the terms of the Uniform Rules of Court – which apply to legal servings throughout South Africa – that the sheriff has to service notice of summons on a debtor by personally handing over the document and additionally, explaining what it is about. If a sheriff is unable to personally serve summons, for some reason, a lender has to go back to court to ask for new direction serving the summons before a sale in execution can take place, Ashton said.
Another key ruling of the Cape High Court is that courts now have the power to postpone granting a sale in execution application by a bank where the outstanding amount on a home loan is relatively small. In these instances, lenders must try to negotiate with the homeowner before applying for permission to sell the property on auction.
Ashton said a postponement will give the distressed homeowner the opportunity to sell their property privately to settle their bank debt. Homeowners should generally get more for their property privately compared with a forced sale, she added.
According to Robert Krautkramer, a director at Miltons Matsemela, the Constitutional Court has, for example, also ruled that homeowners who are in arrears with their loans may reinstate their loans once they catch up on their arrears even after a bank obtains judgment, and before the house is sold on auction.
However, while these judgments give the consumers more muscle, they are not without implications for the granting of home loans by banks.
The setting of reserve prices does not bode well for the banking industry and may result in even tighter lending criteria, such as the need for a borrower to get a surety to stand in as additional security, just in case the bank is unable to persuade a court to allow it, to sell the property in future, he said.
In turn, this would place further strain on the current property market, where stock appears to be ample, but buyers few.
It should also be borne in mind that in addition to the purchase price, the buyer of the auctioned property must also pay arrears that may be owing on a municipal account. Such arrears are common place when properties are sold on forced auction, and can easily run into hundreds of thousands of rands.
On top of this the buyer must pay 10% auctioneer’s commission, plus VAT. If a property is therefore to be sold at a reserve price which “resembles market value”, the buyer is likely to end up paying far more than if the property were bought normally.
This may dissuade many property speculators now from buying properties on forced auctions which has an implication for the ability of banks to unload properties that it has repossessed, he said.