Homeowners who are under financial pressure and worried about falling into arrears on their home loan repayments should act quickly and do their utmost to prevent their properties from being repossessed and sold off at a sheriff’s auction.
StatsSA data for Quarter 3 of 2020 shows that unemployment increased substantially by 2,2 million (52,1%) to 6,5 million compared to quarter 2 of 2020. As millions of South Africans lost their jobs or experienced major dips in income in 2020, most of SA's major banks and credit providers responded by offering relief options to customers struggling to make ends meet.
READ: Distressed? SA's banks have provided over R45.5bn in Covid-19 relief
Absa Home Loans Head of Collections, Mbuyiselo Khumalo, says that 135 000 home loan accounts received relief under the first three-month Absa Payment Relief Programme offering, and 42 000 under the programme’s extension period. Interestingly, the percentages of customers coming in to make arrangements was roughly the same as before lockdown. Still a “substantial proportion of customers opted for payment relief, indicative of the financial difficulties that consumers currently experience.”
But as financial pressures mount, Gerhard Kotzé, MD of the RealNet estate agency group warns that properties disposed of via sheriff's auction are ‘more often than not’ sold for considerably less than the outstanding balance on the home loan.
"This leaves the former owners in a terrible position: still in debt to their bank for the remainder, without a home and with a wrecked credit record."
There are 3 different phases facing homeowners in financial distress when it comes to their home loan:
- Distressed Sales
- Sale in Execution
- Properties in Possession
"A court ruling in 2018 set the precedent that when a primary residence has been repossessed and is being sold in execution of a debt judgment, there must be a reasonable and court-approved reserve price in place,” says Kotzé.
The idea behind that ruling, he says, was to prevent repossessed properties from being sold for ridiculously cheap prices at sheriffs’ auctions - or being taken ‘into possession’ by the banks for just a token payment if they remained unsold at auction.
If the Bank’s reserve price is not met at the ‘Sale in Execution’, the Bank has the option to buy back the property - a ‘Property in Possession’.
SEE | Buying property on auction | Everything you need to know
A borrower defaults on their home loan to the extent that the only alternative for the Bank is to recover the debt via repossession. The Attorneys representing the Bank will apply for a judgment at the magistrate’s court. Assuming the mortgage in arrears is not recovered, the borrower’s movable assets will be auctioned. If the sales from the movable assets auction do not cover the mortgage in arrears, the property is auctioned: a ‘Sale in Execution’.
Up until this point, the borrower may try to sell the property: a ‘Distressed Sale’
Business Insider research on the ground recently found that the repossessed properties on recent sheriffs’ auctions in Johannesburg were being sold at an average of 42% below their municipal valuations - and in some cases at much bigger discounts - and that there was no reserve price placed on any property which was being offered for sale on auction for a second or third time.
READ | Is buying a repossessed home the bargain worth risking?
“Homeowners who find themselves in financial difficulties should never just give up on the situation and wait for the sheriff to attach their property and auction it off,” says Kotzé.
“A much better option is to immediately contact a reputable estate agent who can help them to enrol in one of the assisted-sale programmes that have been set up by the banks specifically to help financially distressed sellers. They will then be able to sell their property on the open market - before the bank goes to court to seek a debt judgment against them and start the process of repossession.”
Properties sold through the bank assisted-sale programmes, he says, are currently selling for an average of 85% of market value, and another major benefit includes the fact that sellers’ credit records remain intact. The banks also offer certain benefits to make assisted sales even more attractive to buyers, such as reduced bond registration fees.
'Temporary liquidity constraints'
Khumalo, says the uptake of assistance and debt relief offered by the bank has been significantly higher than initial projections. Equally so, the customers’ ability to rehabilitate their situations after the expiry of payment relief has exceeded our expectations.”
At the end of September, about 7% of customers whose payment relief had expired, were late or in arrears with their payments, but Absa is anticipating these percentages to drop significantly due to the distressed customer assistance programme, Siyasizana - We are helping each other” – which launched mid-year.
Siyasizana, Khumalo says, was shaped from insights gleaned from the first relief response and was “designed to specifically focus on customers with temporary liquidity constraints”, with interventions and credit solutions personalised to each person’s circumstances.
“Other options including debt restructuring, debt consolidation and asset realisation are also offered to customers, where appropriate.”
Also on the table are “short- and long-term payment plans, comprehensive debt review processes, and distressed property refinance options”, including a dedicated team who actually assists customers to sell and move to a more affordable home if it comes to this.
And beyond homeownership, Absa, in partnership with the National Treasury and the South African Reserve Bank, offer government-guaranteed loans to small and medium enterprises that are not able to meet their financial obligations during the lockdown period.
They take a holistic view, Khumalo explains, “This is about customers’ financial future and what we can do to help them… we really believe and treat court-mandated repossessions as a last resort.”
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