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Thursday, June 1, 2006
Mortgage defaults

Deneys Reitz on insurance case law: The Standard Bank of South Africa Limited v Saunderson and Others (SCA : 15 December 2005)

In July last year, a Cape High Court ruling (the Snyders decision) stipulated that banks could no longer deprive defaulting mortgagors of their homes unless the bank had informed them of their constitutional right of access to housing. This decision was the outcome of nine cases brought by Standard Bank against certain of its mortgagors, the bank each time seeking an order declaring the bonded properties executable, as well as claiming repayment of monies lent and advanced.
The court’s judgment went even further, extending the protection offered to mortgagors by asserting that they must be given an opportunity to convince the court that, due to pressing personal circumstances, their homes should not be sold in execution. The nine mortgagors eventually won the case on the basis that the bank had not proved its right to execute against the immovable properties of the mortgagors. Amidst considerable protest from the banking sector, the ruling was seen as an extreme example of a more robust implementation by the judiciary of Constitutional principles.
The bank took the matter on appeal. In what is seen as a landmark victory for the banking industry, the Snyders decision was overturned late last year, once again placing banks in a stronger position in relation to their home loan clients. In a unanimous ruling by five appeal court judges, it was decided that the Constitutional Court case on which the Snyders decision was based, Jaftha v Schoeman [2005 (2) SA 140 CC], had been misinterpreted by the judge in the lower court. That case related only to the poorest of the country’s homeowners, and those most at risk of losing their only source of shelter due to a disproportionately small outstanding bond debt. In most cases, people buying RDP houses are doing so with the assistance of a government subsidy and do not follow the usual mortgage bond route. For these people, losing their homes would mean they would have no other possible access to adequate housing. The principles do not apply to defaulting mortgagors who will still have access to housing if the mortgaged property is sold.
The Appeal Court also issued the following practice direction, to act as a guideline in these types of case in future: In a summons initiating action claiming relief that embraces an order declaring immovable property executable, the bank must inform defendants of their rights. This means that the summons must draw such defendants’ attention to s26(1) of the Constitution, which accords everyone the right to have access to ‘adequate’ housing. Only where defendants show that orders for execution will infringe this s26(1) right, will the bank be called upon to justify the grant of the order. Should defendants plan to allege their constitutional right to housing is being infringed, they should be prepared to supply compelling evidence to that effect. The matter may be taken on appeal to the Constitutional Court and we will advise clients of the outcome if that happens. In the meantime, mortgagees and other creditors should proceed on the basis of the SCA decision. By Michelle du Plessis, Deneys Reitz

Copyright © Insurance Times and Investments® Vol:19.3 1st June, 2006
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