Imagine receiving the below notice from attorneys, threatening to sell your house if you cannot pay the R39 000.00 arrears off on your home loan:
“You are hereby given 10 (ten) business days from date of delivery of this notice to rectify your default and to pay the full arrears and interest thereon, as specified above, as well as any further arrears, interest and costs (including the costs of enforcement) which may accrue after you receive this notice.”
As you are already in arrears with your home loan and listed on a credit bureau as a late payer, you cannot even apply for an unsecured loan or a second home loan to cover the outstanding debt. Furthermore, as your income is R15 000.00 per month, you do not have savings or reserve funds to settle the arrears.
This was the dire situation of Helen (her real name kept confidential) when she contacted me on 26 July this year, says Meyer de Waal, an attorney in Cape Town who assists first time buyers with their subsidy applications.
Rising interest rates and the general costs of living creates huge pressure on consumers in South Africa. In particular first-time buyers who previously bought their homes when the interest rates were at the lowest curve of 7-8 % are now faced with increased interest rates of 11.75%. Many home-owners struggle to keep up with their home loan repayments.
THE IMPACT OF THE INCREASED HOME LOAN INTEREST RATES:
To illustrate this, a home loan repayment of R500 000.00 that is paid back over 20 years at an interest rate of 7 % would cost a homeowner R3 876.00 per month. In contrast, a home loan repayment of R500 000.00 that is paid back over 20 years at an interest rate of 11,75 % would cost a homeowner R5 418.00 per month. Helen bought her first home a few years ago and took up a home loan with a bank. Her home loan rate was determined at 9.27 % at a risk rating of a weighted average interest rate of a 2.43 times credit costs multiple.
Although Helen qualified for a FLISP subsidy (as it was then called, now known as First Home Finance subsidy), neither did the very own bank who granted her the home loan advise her of the possibility to apply for a FLISP subsidy, or the estate agent who sold the property to her, or the consultant who assisted with the home loan application.
“The interesting aspect I identified when I studied the sale agreement when Helen purchased the property is that the estate agent who sold the property to Helen was paid a “professional fee” of R30 000.00 on a property sales price of R450 000.00. Little consideration was given to exercise a duty of care, as required by the Property Practitioners Act towards the buyer, in my opinion, says De Waal.”
THE SITUATION COULD HAVE BEEN DIFFERENT
If the subsidy was paid out when she purchased the property, her home loan debt would have been close to R79 000.00 less, as that is the subsidy that was paid out to her in 2023.
LOWER HOME LOAN INTEREST RATE THAT COULD HAVE BEEN
If she received her subsidy when she purchased the property, her home loan debt would have been less.
With a lower home loan debt, she would most likely have qualified for a lower home loan interest rate, as her loan to value, which means the risk of the loan to the Bank, would have been reduced. With a lower risk rating, a bank can consider a lower interest rate for a home loan client. With a lower home loan debt, the home loan instalment of Helen would have been less to pay each month and perhaps her R39 000.00 debt to the bank would have been less or not even existed.
Through factors beyond her control, she fell in arrears with the monthly installments and in July 2023, her arrears were +/- R39 000.00. The Bank instructed attorneys to write her a letter of demand in terms of Section 129 of the National Credit Act (NCA). De Waal says, in terms of Section 129 (1) (a) of the NCA, the parties, meaning the bank and the client, must develop and agree on a plan of repayment. Usually this “plan of repayment” is ignored as the litigation attorneys “smell blood” and revenue as they make their money through the litigation process to attach the property and sell the property.
The attorneys will most likely also receive the instructions to attend to the transfer of the property once sold on an auction or a bank quick sell process. Most notably, the litigation attorneys are not instructed to reach out a hand to assist the home buyer, but to protect the risks of the bank, their client.
THE RESULT OF AN AUCTION OR QUICK SALE PROCESS
Often, when a property is sold on an auction or through a “quick sell process” it is sold for less than the market value (to achieve a quick sale) and often also for less than the outstanding bond amount due. The previous homeowner is then faced with a shortfall after the transfer of the property that must be paid off to the bank, explains De Waal. The previous homeowner is left without a home, a bad credit score and a huge debt to repay. They are furthermore then sterilized to enter the property ownership market or other debt loans again in the future.
THE SECTION 129 (1) (a) PLAN OF REPAYMENT
We requested the bank through their attorneys to provide proof that such plan of repayment was considered and up to date, however, no such plan was provided. In fact, when we advised the attorneys that Helen can qualify for a subsidy of R79 422.00, they ignored the proposal in terms of section 129 (1 (a) and again threatened to proceed with legal action if the arrears are not paid immediately. “We were ready to support Helen all the way”, says De Waal, even wanting to act for her on a pro-bono basis as MDW Inc. were of opinion that she was unfairly treated, and that the bank lacked exercising a duty of care to assist Helen to raise the subsidy. The Flisp/First Home Finance subsidy that Helen could qualify for was established as R79 492.00. Her home loan arrears were +/- R39 000.00.
As stated by Francois du Toit of MDW Inc:
“I realized that I had to pull out all stops to assist Helen to obtain her subsidy approved as a retrospective (late) subsidy application. After completing an interview with Helen, I was able to establish that she will be able to qualify for a First Home Finance subsidy. It was a chase against time as the litigation attorneys kept on threatening to proceed with the litigation process to sell the house of Helen on an auction or a “quick sale” process.” says du Toit.
Usually, a first home finance subsidy takes 21 working days to obtain approval. In a record time of just 7 days, Du Toit was able to obtain the subsidy approval and present it to Helen. She was in tears and so was the entire team at MDW INC. The approved subsidy letter was presented to the litigation attorneys, reflecting that the amount of R79 492.00 will be paid into the home loan account with the arrears of R39 000.00. This meant that after the payment of the subsidy into the home loan account, the arrears would be eliminated, and she would have a credit in the home loan account of almost R40 000.00.
A GOOD ENDING
The subsidy was paid into the home loan account of Helen in the first week of October 2023. The litigation attorneys were provided with proof of payment and requested to ask the Bank to restructure the home loan of Helen now that a substantial portion of the capital amount of the home loan was repaid. Helen not only saved her home from the banks, but also now will most likely enjoy the benefits of a lower home loan repayment every month. Furthermore, to top it off her situation improved significantly as she not only secured a new job but also received an additional raise in her salary.
Meyer de Waal
23 October 2023