Category: Home Loans
Municipalities cannot hold a new property owner liable for a previous owner’s historical municipal debt, the Constitutional Court ruled on Tuesday.
The precedent-setting ruling gives relief to home and business owners, who have been saddled with years of historical municipal debt – as long as 20 years – and have been denied municipal services until the debt had been paid. The outstanding debt relates to water, electricity, rates and taxes associated to a property.
In a ruling majority written by Justice Edwin Cameron, the court found that upon transfer of a property, a new owner is not liable for old municipal debt. The court upheld a ruling by the high court in Pretoria in November last year – mainly that the liability of the old municipal debt rests with the previous owner.
Absa bank was handed a stunning defeat in the South Gauteng High Court last week when its attempt to obtain summary judgment against two home owners was slapped down by the judge.
The matter must now go to trial for oral evidence, which will take a year or two.
Absa was attempting to obtain summary judgment against the home owners, James Grobbelaar and Kevin Jenzen, on the grounds that they allegedly defaulted on their loans. But when asked to provide evidence of the loan agreements, Absa produced a standard loan agreement – not the one signed by the defendants.
The bank claimed the original documents had been destroyed in a fire – as they have done in scores if not hundreds of other similar cases. Instead of attaching the loan agreement to its court papers, Absa relied on a so-called “standard agreement” and claimed the originals were no longer available due to a fire which supposedly destroyed thousands of bank documents in 2009.
Securitisation experts have long argued that the prevalence of fires within the Absa group is highly suspicious, particularly as these fires seem to occur with abnormal frequency whenever a client seeks to ascertain whether or not their loan has been securitised. Securitisation is the practice of bundling loans together and on-selling them to investors as a way of freeing up capital by the banks. In doing so, banks lose legal title to the loans and in theory cannot then bring legal action against the borrower, though they have managed to side-step the law by drawing a veil of secrecy over this activity. Banks typically issue a bare-faced denial when borrowers ask whether their loans have been securitised, or they demand that borrowers provide proof of securitisation – a virtual impossibility, given the banks’ secrecy surrounding this practice.
Justice Roland Sutherland issued judgment against the bank, arguing that Rule 18(6) of the court rules requires a plaintiff to produce the relevant documents when seeking to press their case. Absa had not done so. “There is no doubt that a failure to annex the loan agreement constitutes non-compliance with this rule,” said Justice Sutherland.
Advocate Douglas J Shaw, who represented Mr Grobbelaar, argued that the bank had to prove that the documents were in fact destroyed in a fire, something that can only be done in a trial in a year or so, and not in the quick process (summary judgment) that Absa sought to use.
Adv Shaw also spoke of “The Myth of the Standard Agreement”. In its court papers, Absa had attached the agreement that they say is the one they usually use, the so-called “standard agreement”. Adv Shaw held up four different Absa agreements, one with 18 clauses and another with more than 100. He pointed out there were many more variations of the so-called “standard agreements” being used by the bank. It was therefore impossible to ascertain what were the contents of the loan agreement signed by the defendants.
Absa‘s own documents also revealed discrepancies. The interest rates charged the homeowners were disputed, casting further doubt on the bank’s cause of action, and the standard agreement did not correspond with the mortgage bond that had allegedly been lodged with the deeds office.
“Many people who have already received summary judgments or default judgments from Absa can now join an appeal through the court process,” says Adv Shaw.
The judgment reads in part (Absa was the plaintiff in this case, and Grobbelaar and Jenzen the defendants): “In my view, these arguments inspired by the missing loan agreements have in large measure touched upon an important consideration but have obscured the critical point. The starting place must be to recognise that what is critical in legal proceedings is dictated by the relief sought. In summary judgment proceedings, to defeat the plaintiff’s application a defendant must put up a basis why the plaintiff cannot get judgment without the merits of a defence being tested. Whilst a classical defence might contradict the facts upon which the plaintiff relies, it also remains open to a defendant to merely demonstrate that the plaintiff’s averments, where the facts are peculiarly within the knowledge of the plaintiff, need to be proven and an opportunity to test the substance of those averments is appropriate.
“In my view, it would be inappropriate to pre-judge the merits of the defendants’ allegations, and the plaintiff should extricate itself from its regrettable predicament on trial, not by way of summary judgment.”
Justice Sutherland cautioned that while there was a “very real prospect of professional debtors exploiting the processes of the law to unduly delay and obfuscate litigation,” this was an occupational hazard and a fair adversarial litigation system ought to leave this door open. “The essence of the present controversies lies in the realm of marshalling evidence, and the responsibility to construct cases in ways to meet such a challenge is what the legal profession is for.”
A new movement representing people who have been adversely affected by Absa’s fire story has been launched. Stay tuned for more details. Advocate Shaw is an adviser to this group.
Saambou bank deliberately manipulated interest rates on its bond accounts to increase profits at a time when the bank was undergoing a “squeeze on its profit margins”.
These are the allegations made by forensic accountant Gregory Johnson, in a report submitted to the North Gauteng High Court in an ongoing case between bond recalculator Emerald van Zyl and FNB, the bank which took over Saambou’s home loan book after Saambou was placed under curatorship in 2002.
Van Zyl alleges that FNB owes former Saambou bond holders millions in incorrect and illegal interest charges.
In 2006, FNB recalculated all the Saambou bonds, and paid back R154 million to clients, but Van Zyl claims this is just the tip of the iceberg.
For the court matter, eight bond accounts were chosen as test cases. In analysing the interest charges on these accounts, Johnson found that:
Six of the eight account holders were originally charged the Saambou base interest rate on their accounts. The other two were charged the base rate, minus 0.75 percent, and the base rate plus 0.25 percent respectively.
Between 1990 and 1999, Saambou started to increase the rates it charged these clients. By 1999, all eight were being charged rates between 0.5 and 3.5 percent higher than the base rate.
Of the eight account holders, only three missed bond payments.
Some of the increases in rates occurred before they missed payments.
The interest rate changes could therefore not have been as a result of a change in the risk profile of the clients.
The analysis of the overcharges runs until 2004, two years after FNB took over the loan book.
Johnson says the reasons for the manipulation had little to do with the risk profile of the clients and more to do with the bank’s profitability.
In an affidavit made by Dawid Botha, a former member of the Saambou board of directors, it emerged that to get more people to deposit their money with the bank, Saambou offered higher and more attractive interest rates.
However, this then put a “squeeze” on profit margins, which needed to be managed by increasing the amount of interest paid by home loan clients.
“Increases in the bond debtors’ rates above the base rate had nothing to do with how the debtor managed his/her account, or the risk associated with the account. These increases were all related to Saambou’s own profitability and Saambou’s risk profile, which deteriorated in the late 1990s,” Johnson said.
When the bank was placed under curatorship in 2002, about 80 000 home loans were taken over by FNB.
A separate analysis of more than 77 000 Saambou bonds, also done by Johnson, indicates that:
White bond holders paid an average interest rate of 15 percent.
Indian clients paid an average rate of 15.5 percent, and coloured clients an average of 16.5 percent.
Black bondholders were charged an average interest rate of 18 percent.
FNB chief marketing officer Bernice Daniels said: “All matters incidental relating to Saambou will be dealt with thoroughly in the appropriate forum, being the court.
“FNB strongly rejects any allegations that race plays any role in determining the rates applicable to mortgage bonds.”
In previous statements, the bank has stated that “the claim of racial discrimination is based on wholly inappropriate and insufficient information for any legitimate conclusion to be drawn”.
The bank has also said Van Zyl stands to benefit financially from any amounts recovered if his legal action is successful.
“Since giving interviews to various media, Emerald van Zyl issued a letter to FNB demanding that FNB pay him R1.8m, as well as waive his debt to FNB of R400 000 owed to the bank for legal costs due to the postponement of the trial in November 2011.
“He has threatened to go to the media with further allegations should we not agree to his demands,” Daniels said in a previous statement.
Weekend Argus (Sunday Edition)