THE ELSIE GUNDWANA JUDGMENT… A WARNING TO THE BANKS…OR NOT?

Limitation on banks right to seize and auction off (mortgage holder) defaulters’ properties

 Traditionally banks were able to rely on ‘rubber stamped’ orders, handed down by High Court Registrars, to seize and auction off the properties of their mortgage holder defaulters (defaulters).

However, the recent Constitutional Court (CC) judgment in the Elsie Gundwana case (Elsie Gundwana v Steko Development CC & Others) is argued to have slightly altered the above position.

Brief facts of the above case are as follows:

• Ms Gundwana approached Nedbank and borrowed R 25 000 to help her purchase a house;
• Upon her subsequent default, a Registrar granted a default order declaring her house specially executable;
• When she then failed to enter an appearance to defend her case, her property was sold in execution to Steko Development CC;
• Steko Development CC obtained an eviction order against Ms Gundwana, which she since then has been resisting until the recent handing down of the judgment (in her favour).

Main outcome of the above judgment:

1. The CC declared rule 31 (5) of the Uniform Rules of Court unconstitutional to the extent that it permits the sale in execution of the home of a person.

With regards to the above the CC held that the  “…willingness of mortgagers to put their homes forward as security for the loans they acquire is not by itself sufficient to permit the Registrar to grant an order declaring immovable property executable.”

As a result of the above, banks will now have to obtain a judgment from a Judge or Magistrate permitting them to seize and auction off the properties of their defaulters.

Note: some years ago, a similar rule to the above, relating to Magistrate Courts had already been declared as being invalid, in the Jaftha v Schoeman case. However, banks have been circumventing this case by approaching Registrars to obtain orders permitting them to seize and sell properties in auction, even when the facts allowed for the approaching of a Magistrate Court.

2. The CC also held that alternative means to collect debt should be preferred over the selling of consumers’ homes.

With regards to the above, the CC held that therefore Judges and Magistrate should look at facts such as whether the mortgage debt in question is disproportionate or low in relation to the value of the house or the value already paid in, when determining whether to allow the rescission of the judgment and therefore the subsequent sale of the house.

NOTE THE FOLLOWING:

• The above judgment is said to apply retrospectively;

• Therefore if found that the default judgment was granted by a Registrar, an aggrieved debtor can apply for the original default judgment to be set aside;

In doing the above,

• Provide reasons for not having brought the application for the rescission for the judgment earlier;
• Set out a defence to the claim for judgment against you;
• In addition to the normal requirements for rescission, also show that a court with full knowledge of all the relevant facts existing at the time of granting default judgment would nevertheless have refused to execute against your specially hypothecated property.
• It seems that banks are not put off by this judgment. They believe that although this matter will now entail more administration on their part, when seeking to collect debt by seizing and selling property belonging to their defaulters, the position regarding this matter remains ultimately the same.

Further reading on the above, click on the following:

• http://www.saflii.org/za/cases/ZACC/2011/14.html – (the judgment);
• http://www.ncf.org.za/docs/publications/consumerfair/2011/vol31/part4.pdf