On banks and home evictions

Banks are usually not regarded with much affection or even love by those who use them. Sometimes it seems easier to make small talk by slagging off the banks than by talking about the weather, the dismal performances by South African sports teams, or whether Princess Sisulu has gone complete around the bend and whether she has become certifiably paranoid.

It was therefore not surprising that the following snippet from Legalbrief caught my attention. However, the report also raises interesting constitutional questions which have not been fully dealt with by our Courts:

Thousands of black home buyers on FNB’s books have been overcharged by up to 100%, according to bond recalculator Emerald van Zyl in a Sunday Tribune report. The home loan accounts were inherited by the banking giant when it took over the bond book of failed finance provider Saambou in 2002. Van Zyl says FNB has not done much to sort out the problems left in the wake of Saambou’s collapse. Van Zyl, who has been fighting Saambou’s excess charges since he discovered his own bond had been miscalculated, said each of his nearly 2 000 clients had been overcharged by the bank, but black home buyers far more so than whites. FNB spokesperson Virginia Magapatona refused to comment on the overcharging, but insisted the bank denied ‘in the strongest possible terms that it engages in discrimination in any form’.

I have no idea if these allegations are true. The fact that the Bank has refused to comment on the allegations that they overcharged many bondholders, does seem to give some credence to the allegations. The question I am wondering about is the following: what would happen if a bond holder defaulted on a bond, the bank wished to sell the house over which the bond was taken with a view to evict the former owner, but where the bank had been overcharging the bondholder for the bond for several years (as is alleged in this case)?

Does our Constitution constrain banks in such a situation? Does it place a duty on the state to pass legislation to protect bond holders who are being exploited and bullied by banks or should our courts develop the law to protect bond holders from the mighty and sometimes rather unscrupulous banks who might want to make a fast buck with their home loans? Should the right of access to housing not play a role in all of this?

Section 26 of the Constitution states that:

Everyone has the right to have access to adequate housing.

The state must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right.

No one may be evicted from their home, or have their home demolished, without an order of court made after considering all the relevant circumstances. No legislation may permit arbitrary evictions.

In Jaftha v Schoeman the Constitutional Court held that any measure which permits a person to be deprived of existing access to housing, limits the rights of that person in terms of section 26(1) of the Bill of Rights. But what if those measures are not taken by the state but by a bank, which is a private entity. Does section 26 apply horizontally (in other words to a private company like a bank) and if so, to what extent does it bind the bank?

The Supreme Court of Appeal (SCA), in Stander Bank v Saunderson displayed its particular fetish for freedom of contract and its grave concern about any interferance with the free market when it had to decide whether section 26(1) would ever protect a defaulting debtor whose mortgage had not been paid. (If only Julius Malema had focused on issues like this, instead of on the issue of the nationalisation of mines, maybe we would begin to believe that he is not a greedy tenderpreneur being paid off by BEE fat-cats wanting a bailout from taxpayers, but rather a person who is really concerened about the excesses of capitalism.)

The SCA found that the nature of a mortgage bond was that it “curtails the right of property at its root, and penetrates the rights of ownership, for the bond-holders rights are fused into the title itself”. This meant that a bank who had secured a debt by a mortgage bond could apply immediately to have the property declared executable – even where it had not first tried to attach the moveable property of the home owner.

It further held that although section 26(1) might conceivably provide some protection for home owners who had defaulted on their bonds, cases where execution against a mortgaged property conflicted with section 26(1) would “likely be rare”. Even where a property was residential and where an owner stood to lose their access to housing, the bank would be assumed to have the right to sell the house over which the bond was taken.

I am not sure that this decision is a wise one as it does not strike the right balance between the interest of banks on the one hand and the interest of home owners on the other. Obviously banks need to have some certainty that their rather large loans to home owners in the form of mortgage bonds were secured by the property over which the bond was registered in order for them to continue lending money. But often ordinary citizens who do not have access to the lawyers and can easily be intimidated by large banks, lose their homes because banks decide to enforce their rights in a rigid and heartless manner – even where only small amounts are outstanding on mortgage payments.

It seems to me that where only a small amount was outstanding on a bond or where the bank tried to call up a bond where its own hands were not clean – because it abused the legal process to intimidate the home owner, it overcharged a client or it gave the impression to the client that it would not take action because it entered into negotiations with that client – it should not be easily allowed to be granted execution against a mortgaged property. The North Gauteng High Court moved in this direction in ABSA Bank v Ntsane but the legal position at present seems less than clear.

In this legal vacuum banks continue to call up mortgage debts and to sell houses in execution and evict the former owners, thus depriving them of their right of access to housing. This happens especially where poorer home owners default on their bond repayments because of circumstances beyond their control.

Maybe it is time for the legislature to step in. After all the state has a duty to respect, protect, promote and fulfil the rights in the Bill of Rights. This means that where the right of access to housing is being threatened by powerful private actors such as banks, the legislature has a duty to pass legislation which would protect property owners.  What is required is to balance the interests of the banks, who need to use mortgage bonds to secure home loans, against the interest of home owners, who needs to be protected  from banks who wish to abuse their enormous power to intimidate and even evict people willy-nilly from their homes.

Where a bank has overcharged a client for many years and, even worse, where this was done on a discriminatory basis, it would surely be unconscionable for the bank to be able to sell the house over which the bond was secured and to evict the former owners from their house. Where only a small amount of the bond is outstanding or where the owner of the house has made substantial payments to the bank and then loses his or her job and falls behind, surely some legislative mechanism should be found to provide at least some protection for home owners?

In any case, this area of our law demonstrates how constitutional issues can permeate parts of our law which are traditionally considered part of the private law and calls into question the rather strange distinction still being made in our law between private law and public law.

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