After the rather dismal revelation that a company called Brusson Finance had allegedly ripped off as many as 900 clients using a slick financial scheme that basically sold their houses from under their feet, I decided to look into this case in more detail.
And what a tangled case it is: not something I would have thought could have been dreamed-up by your average butcher and estate agent over a few beers in the neighbourhood pub.
Of course, the best place to start was with the judgment that was handed down by Judge Eben Jordaan in the Free State High Court in Bloemfontein on 22 July this year.
The applicants were Matile and Makolobe Ditshego along with the National Credit Regulator and the respondents were Brusson Finance (Pty) Ltd, Amanda Boshoff, Absa Bank and the Registrar of Deeds. Essentially the Registrar of Deeds and Absa Bank do not feature in the judgment at all and, for the sake of brevity, I have largely ignored their roles.
The circumstances that led to this judgment are complicated and show just how neatly a web of contracts, memoranda and deeds can be used to bamboozle an experienced homeowner, let alone someone who has only ever owned one house.
Let me summarise the facts:
- The Ditshego’s lived in a house in Dobsonville, Soweto that was valued at about R260k and was bonded to the tune of about R93k. So there was a lot of equity in the property;
- The Ditshego’s needed to raise R40k to pay off their vehicle but because they had been blacklisted by various credit bureaus were unable to get funding from any of the traditional banking groups or financial institutions;
- They approached Brusson Finance and were assured that they could raise the funds because they had a lot of equity in the property they were buying.
From here onwards the paper-trail starts getting pretty convoluted particularly if we believe that the funding scheme was dreamed up by estate agent Ian Lockyer and former Mulbarton butcher Mike Basson.
In the judgment, Judge Jordaan discounted the claim, made by Brusson Finance, that it was acting as a pawnbroker and therefore didn’t need to be registered as a credit provider with the National Credit Regulator.
In essence, Brusson Finance tried to claim that the Ditshegos had pawned their house to raise money and it (Brusson Finance), helped them to do so by acting as the ‘pawnbroker’. I’m not surprised the Judge Jordaan threw that out in its entirety.
In order to start the process, the Ditshegos were told by Brusson Finance’s representative to sign a blank offer-to-purchase and a blank deed-of-sale document. They were also told to sign a memorandum of understanding between the two of them along with a memorandum of agreement between the Ditshegos, Brusson Finance and its investor Amanda Boshoff.
The Ditshego’s were adamant that they did not want to sell their house and were apparently reassured by Brusson Finance’s representative that the documents were to allow the property to be used as security.
But Brusson Finance had actually dreamed up a very cunning scheme: put in a simple form they would sell the house to an “investor” at a predetermined price. The investor, with a decent credit rating, would secure a bond over the property for the full purchase price.
The sellers would pay occupational interest for the property and they would also pay the transfer costs and an amount of R5 000 to Brusson Finance in administration fees and for facilitating the agreement.
So in the quest to get R40k, the Ditshegos effectively sold their house for R270k paid the outstanding bond of R102k to Absa, registered a new bond for R168k in the name of the new investor Amanda Boshoff and were paid R24 190 by Brusson Finance.
A deed of sale document records Amanda Boshoff as the seller of the property, the Ditshegos as the purchasers of the property at a price of R210k payable in minimum instalments of R2 827,12 for a period of 24 months. The interest rate was set at 16,15% when the prime interest rate was 12,5%.
The monthly instalments represent interest on the purchase price and not capital redemption.
In addition, the Ditshegos must pay the taxes, levies, services, water, electricity directly to Brusson Finance who will then pay it to the local authority or other service providers. Boshoff must keep the property insured but the Ditshegos must pay the insurance premiums and these, too, must be paid to Brusson.
In terms of the memorandum of agreement, Brusson is bound as a surety and co-principal debtor in favour of the investor, Amanda Boshoff. Moreover, if the Ditshegos were to default in terms of payment then Boshoff would have to cancel the agreement and be bound to sell the property to Brusson for the same price she’d paid for it.
In taking the case to court, the Ditshegos (and the National Credit Regulator) contended that the agreements were all inter-related and represented a single transaction. They also alleged that the effect of the transaction was a loan against property as security (in other words a reverse mortgage) with Brusson as the effective credit grantor.
If the Ditshegos did not fulfil their obligations then Brusson would obtain transfer and ownership of the property without any reference to the amount of the loan in proportion to the value of the property. They allege that the transaction amounts to an illegal and void pactum commissorium (the automatic appropriation and disposition by a creditor of things, given by way of a pledge or mortgage).
The judge also found that the transaction amounted to an illegal and void form of parate executi (allowing immediate execution).
In his judgment, Judge Jordaan says that it is clear that:
- The investor doesn’t intend buying the property and never takes occupation of it;
- The seller doesn’t really intend selling it and doesn’t vacate it;
- The investor pays nothing and stands to lose nothing if anything goes wrong;
- The seller sells the house for much less than the market value and buys it back for R42k more;
- This money (less 15%) goes to Brusson;
- In the event of a default, Brusson ends up as the owner.
It’s really quite a neat little scheme: convince someone to sell their house, find a new investor and persuade the people who sold the house in the first place to buy it back at a higher price.
Of course Judge Eben Jordaan found in favour of the Ditshegos, declared the contracts unlawful and void and ordered that Ditshegos must be put back in the position they were in before they entered into these agreements.
Fair enough. But this is just one case and there are apparently at least 900 others that are waiting in the wings because Brusson Finance’s marketing efforts seemed to have attracted an enormous number of suckers anyway.
That such schemes are unlawful doesn’t surprise me because there are so many people trying to make money for nothing.
What does surprise me is that no criminal charges have yet been laid against the directors of Brusson Finance who cooked up this scheme in the first place.
And, let me add, that criminal charges should be considered against those members of the legal profession who handled all the documentation, drafted all the agreements, finalised the deeds of sale and handled the respective transfers.
Why should they be absolved? They are as guilty (perhaps more so if that’s possible) as anyone else involved in these transactions.
The complexity of this scheme is not something that could have been devised by your average butcher over a couple of beers with his mate the estate agent.
Clearly there were others who must have a sound understanding of contractual law otherwise how would they be able to draft the agreements that were used in evidence in the Bloemfontein High Court.
The National Credit Regulator has now forwarded the judgment to the Hawks and the National Prosecuting Authority and it may lead to criminal charges being brought against the directors of Brusson Finance.
I’d like to see the criminal charges extended to those members of the legal profession who must have been involved in the entire ‘pawnbroking’ scheme.
For there is no doubt in my own mind that the hands and minds of legal experts are certainly involved somewhere too.
Criminal charges should certainly be brought against all these parties – but whether they will ever stick is another matter. Although, given the fact that Jackie Selebi was sentenced to 15 years in jail, you never know.
*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice. Contact him at paddy@neomail.co.za.
Readers' Comments Have a comment about this article? Email us now.
I am one of the property owners who was cheated by Brusson finance, I did not have any money to fight them ,My house was taken over by the so called financer ,and now is collecting rent from the people he rented it to ,while I am running around renting from other people. My house was in Ennerdale x5. - VK
Print
