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Sales in execution: Know your rights

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28 Mar 2013

The National Debt Mediation Association (NDMA) has in the past two months, January and February 2013, successfully mediated and helped to stop 18 sales in execution out of 26 requests received.

Mphahlele says this situation normally arises where the balance owed by the consumer is extremely high because they are so far in arrears, additional legal costs are involved, the value of the house is less than the bond outstanding, or a second or third bond was registered against the property.

In most cases consumers approached the NDMA when the credit provider had a valid court order but even under these circumstances credit providers were willing to offer concessions or rectify omissions after the consumer’s financial circumstances were properly presented or gaps identified in the process followed by the credit provider to acquire the court order.

When the bank sells your property to recover the money it lent you, it’s known as a sale in execution and the property is sold in a public auction held by a Sheriff of the Court.

In many cases, this is the banks’s last resort after following steps outlined in the National Credit Act, which includes an opportunity provided in section 129 of the Act to work on a plan to bring payments up to date.

Many consumers do not respond to section 129 notices or do not speak to their banks immediately when they experience financial difficulties.

A sale in execution usually results in properties being sold for less than the outstanding balance, which is the amount that you owe on the bond.

Many consumers do not understand why there are still outstanding amounts after a sale in execution.

“The consumer is liable for the payment of any shortfall and legal costs, including the costs to sell the repossessed property – this shortfall is the difference between what the property is sold for and what you owe on the bond plus costs incurred,” says chief executive officer of NDMA, Magauta Mphahlele.

Mphahlele says this situation normally arises where the balance owed by the consumer is extremely high because they are so far in arrears, additional legal costs are involved, the value of the house is less than the bond outstanding, or a second or third bond was registered against the property.

Mphahlele uses a recent case that came before the NDMA as an example. 

The matter involved a consumer who owed R726 948 on his bond and had fallen into arrears.

His bank sold the property in execution for R730 000, but claimed the consumer still owed R11 641 which was made up of additional legal fees and interest.   

“When the consumer came to us he was unhappy that he had to pay the shortfall as he had managed to find a buyer for the property who made an offer of R750 000 before it was sold in execution, but the bank had for some reason rejected this offer,” explains Mphahlele. 

After the NDMA investigated and the merits of the case became clear, the bank agreed to write off the shortfall and close the account. 

If you receive a S.129 letter (a letter stating that a consumer is in arrears and informing the consumer of certain rights), you should respond immediately as delaying action will lead to further legal action and unnecessary additional costs, says Mphahlele.

The consumer’s credit profile was also updated at the credit bureau. 

This case demonstrates that consumers who take proactive action once in trouble are better off at the end.

Unfortunately many consumers leave matters until it is too late or do not honour arrangements made with the credit provider.

A case in point is a consumer who had multiple properties and due to him losing his job was unable to service his agreements.

It took three years of various arrangements and court challenges between the parties and when the matter reached the NDMA, it was difficult to mediate a solution as it was clear from the history of the case that the consumer had failed to honour various arrangements made with the bank.  

Mphahlele advises consumers who find themselves in a similar situation to ensure that they understand their rights and the options available to them.

When making an offer, consumers must not act under pressure and make commitments they cannot realistically meet.

They should consult an expert to help them draw up an income and expenditure statement with the aim of developing a reasonable and sustainable offer to catch up with arrears.

“If you receive a S.129 letter (a letter stating that a consumer is in arrears and informing the consumer of certain rights), you should respond immediately as delaying action will lead to further legal action and unnecessary additional costs,” says Mphahlele. 

“Negotiate with your credit provider or ask the NDMA to advise you on what the best solution for you might be or to mediate on your behalf for other (alternative) arrangements to bring repayments up to date.”

You also have the right to approach a Debt Counsellor or an Alternative Dispute Resolution Agent.

Mphahlele says if you are struggling with paying off your mortgage do not wait for the bank to commence with legal action.

Many banks have distressed mortgage assistance programmes and are able to advise on how to avoid a sale in execution.

You can also look for a buyer who will approach the credit provider with an acceptable offer, on condition that the buyer is approved and the offer is maintained.

In some cases this may be a higher offer than the bank will get through a sale in execution, avoiding or reducing a possible shortfall.

In cases where the shortfall is not explained, consumers have the right to have all charges and fees explained and to be provided with a statement in that regard.

“It’s traumatic enough losing your home, so you don’t want the process to leave you over-indebted at the end of it.

“Take action and ask for assistance so you can exercise your rights and take control of your financial future,” she adds.

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