Disgruntled bank customers are calling for a class action suit against the banks after new evidence suggests banks are concealing their securitisation activities from customers, the courts and investors, in what could turn out to be the largest banking fraud in South African history.
Scores of South Africans have added their voices to the growing clamour for a class action suit against the banks in response to what may turn out to be the biggest fraud in South African history. This follows publication of research coordinated by Advocate Douglas Shaw suggesting that banks are securitising home loans but hiding this fact from the courts when seeking judgment against customers allegedly in default.
Securitisation is the banks’ practice of bundling loans together and on-selling them investors who buy and sell these assets on the JSE and other stock markets. Once a loan is securitised, the bank loses legal title to the loan.
Fifty people, represented by Housing Class Action, are taking the countrys four major banks, Nedbank, Absa, Standard Bank and FNB, to court.
Johannesburg – A class-action lawsuit to force banks to stop repossessing the homes of South Africans and then selling them off at a fraction of their value is expected to be heard in the high court.
Fifty people, represented by Housing Class Action, are taking the country’s four major banks, Nedbank, Absa, Standard Bank and FNB, to court. They want either their repossessed property returned or substantial monetary compensation.
While banks often reject allegations that they care little for ordinary South Africans, the human rights group says it has records of houses being sold for R200 or R300, with the worst case being a house sold for R10.
“In most cases, properties are sold for 30 percent below market value,” the organisation said on Tuesday.
It has taken on the services of advocate Duncan Shaw, a specialist in banking law from Scotland.
“This matter may become a class action whereby the banks might have to pay back everyone in the country in the same position,” said the organisation, which is linked to the Financial Services Sector Campaign.
It said Shaw had studied the practices in other countries and found that most – if not all – the other countries require banks to sell repossessed homes at market value.
It said that despite the constitution and the country’s laws, the judiciary, sheriffs and the police acted contrary to the law in most cases.
“Whatever the law and the constitution say in defence of the people, in real, practical terms, working-class black people do not have the right to own property in certain areas in South Africa in 2015,” the organisation said.
It also plans on hauling other institutions to court which it believes have acted negligently in allowing the repossession to take place and the homes to be sold for less than their market value.
The group’s spokesman, Ian Beddowes, said they had put together a 200-page submission, but a court date had not been set.
“We’ve been up against syndicates which involve the courts, the police – people don’t want to deal with the issue of evictions. Most evictions are illegal and against the laws of South Africa,” Beddowes said.
“In South Africa, we have one of the most predatory banking systems in the world. The banks consistently do not comply with the provisions of the act that deals with repossessions.”
On Tuesday, Absa rejected the allegation that it was selling repossessed homes far below market value.
“As we have said previously, Absa does its utmost to ensure that our customers remain in their homes. With regard to sale in execution, auctions are a last resort after the bank has exhausted all possible rehabilitation solutions and resources available to the bank to recover the bad debt,” the bank said.
It said it had established a programme in 2011 to assist financially distressed home-owners to sell their properties privately before having the bank get involved.
“This programme is aimed at ensuring the highest possible price for the property is reached, as it is clearly in our and our customer’s best interest.”
FNB Home Loans head of operations Calvin Ndlovu said that if a property was purchased at a public auction, it was auctioned by the sheriff on behalf of the court.
“The bank has no authority over the auction process and therefore refers you to the sheriff’s department involved in the particular claim(s) made,” Ndlovu said.
After three years, the Moores finally own their house. Again! Six years ago, the Vereeniging couple fell prey to a reverse mortgage scam known as the Brusson scheme, named after the unregistered credit provider who managed to dupe about 900 people into handing over ownership of their properties in exchange for a loan. The Moores received notice that the sheriff of the court would attach their property in August 2011, but less than two weeks ago, they knew that their home was safe. This is because the Legal Resources Centre (LRC), which is representing about 100 people affected by the scheme, won a judgment in the high court in Joburg on September 26 to return ownership to the Moores. Although the bank was not party to the scheme, Acting Judge Mohammed Chohan found Absa could not attach the property because the Moores had not intended to transfer ownership of their property to a third property. ‘It was amazing,’ a relieved Christine Moore said. ‘It was a stressful period but we can now breathe again.’
The LRC won a similarly favourable judgment on September 25 in the case of the Radebes, who in 2007 were also caught in the scheme. ‘We’re over the moon, we’re so happy. We thought it would never end,’ the Radebes said. The LRC has been battling with 90 different cases involving Brusson Finance, which was never a registered credit provider and has since gone into liquidation.
Essentially, Brusson would deceive homeowners into signing over ownership of their properties into a third party ‘investor’ to secure loans. ‘Quite clearly, the Brusson scheme was widespread and would seem to have targeted the most vulnerable of people, namely those who were already over-indebted,’ Judge Chohan wrote in his judgment. In a statement issued after the judgments were handed down, the LRC said these two rulings were vital for future similar cases involving the Brusson scheme and banks, which it accused of reckless lending. ‘With such a favourable judgment, the LRC is in a better position to litigate on behalf of the other 90 clients we are currently assisting, some of whom are in various stages of litigation,’ the LRC said.
In the Moore and Radebe cases, Absa and Nedbank, respectively, had provided the loans to the fake investors, although Judge Chohan said there was no doubt there would be other financial institutions that had made loans to the Brusson scheme. The banks argued in the two cases that the homeowners should have known or foreseen of the binding consequences of the contract with Brusson. But the judges in both matters, Judge Chohan and Judge Caroline Nicholls, to different extents, agreed that the homeowners had no intention of selling their properties and were deceived by Brusson. Both judges said the banks were still entitled to pursue claims against the investors.
Judge Nicholls ordered Nedbank to pay the legal costs in the Moore case, while Judge Chohan ordered each party to pay its own legal costs.