When can the bank repossess your house?

If a person has unlawfully occupied your home or property, what can you do?

Unfortunately, it’s not as simple as phoning the police and having them removed. It may seem unfair or illogical, but an illegal occupier does have rights under South African law.

The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE Act) protects the rights of those who occupy property illegally. The Act aims to “provide for the prohibition of unlawful eviction; to provide for procedures for the eviction of unlawful occupiers; and to repeal the Prevention of Illegal Squatting Act, 1951, and other obsolete laws.”

But what about people with home loans who fall into arrears? Can your home loan provider simply evict you from the property, or do the rights of unlawful occupiers apply to you too? We find out.

Tip: Check whether you qualify for a home loan 

Your home is the loan collateral

According to Bowman Gilfillan, a law firm based in Sandton, an eviction carried out in the context of a bank repossession would be subject to the PIE Act, just like any other eviction.

“The bank’s rights to the property arise out of the mortgage bond, which the owner has registered over the property in favour of the bank. The mortgage bond is security for the loan that the bank has made to the owner or other relevant party.

“The relevant question here is in what circumstances and to what extent the bank can execute against its security without a court order, and whether the owner has subsequent recourse to court. The question of eviction of unlawful occupiers is a separate, though related, issue,” says the firm’s spokesperson.

The bank and evictions

Mbuyiselo Khumalo, Absa’s head of collections for Retail Home Loans and Structured Mortgages, notes, “The relationship the bank holds is primarily with our client who is the registered owner of the property. If there are illegal occupants we would not be in a position to effect any legal action against them, by virtue of us only holding mortgage over the property.”

“In the scenario where we have bought the property in a sheriff auction and become the registered owner of the property, we have the right to initiate formal eviction proceedings against such illegal occupants, in line with set legislative and judicial processes for evictions.”

Simphiwe Madikizela, head of special projects at FNB Housing Finance, points out that if a homeowner misses a mortgage repayment, the mortgage provider will contact the client to inform them of the default. Furthermore, the bank will seek to find out why the instalment was missed, and will negotiate with the client to pay the instalment or reach a suitable arrangement.

Khumalo notes that there are a number of options Absa offers its clients in distress. However, the first step is for the client to contact the bank and inform them of their situation, offering the most appropriate resolution based on their (the homeowner’s) circumstances.

“We proactively attempt to make contact through our call centre within our pre-legal environment. If contact is made, the following would be some of the options we offer, depending on the client’s circumstances,” explains Khumalo.

Options offered: 

• A payment arrangement. This is subject to an affordability assessment, and can be customised to allow the client to pay as little as 25% of the agreed instalment, for a period of time. This will allow the client to get into a better financial position, in order to recommence payments in line with the original contractual requirements.
• Rehabilitation. Here Absa would look at restructuring the client’s arrears over the bond term to take them out of arrears, in scenarios where they are unable to pay the full instalment and arrears.
• “Help U Sell”. This is a programme that seeks to assist clients to downsize the scale of debt on the home loan, by marketing the property via estate agents, so as to sell the property at as close to market value as possible. This option comes with the added benefit of a rebate (concession) which is offered on the shortfall post- the property being sold, to allow the consumer to rehabilitate themselves out of the distressed situation.

When would a bank look at repossessing a property?

When mortgage payments are missed, Khumalo points out that the bank follows legislative and judicial processes defined by the courts and other regulatory bodies. These include, as a last resort, a sheriff auction if the bank is unable to reach an amicable agreement with the client.

The sheriff of the court is the entity accountable for the selling of the property after all avenues have been exhausted.

“The foreclosure process is normally initiated after six months of missed payments. The repossession can start happening after a further nine months in the litigation process,” explains Khumalo.

He emphasises that repossession is seen as a last resort, only to be followed once all other avenues have been explored.

“The loan agreement signed by the client at the origination of the bond gives the client’s consent for the bank to take the necessary action should the client default on payments. It is on this agreement and consent that the bank bases any action to commence on foreclosure,” explains Khumalo.

READ MORE: Asset repossession: What banks want you to know

Madikizela agrees that a sale in execution is the worst-case scenario, stressing that the bank will always try to assist clients to retain their home.

The courts have to grant judgment and declare the property executable in the bank’s favour before a sheriff auction can be set in effect.

“FNB’s policy is that the bank will only as a last resort instruct the sheriff to proceed to sell a property to settle an outstanding debt,” explains Madikizela. “When a bank applies for a sale in execution order, it must present all material facts to a judge in open court, including showing that there has been a sustained non-payment of instalments. The bank incurs substantial costs during this process.

“FNB’s policy is to explore every possible avenue to settle the arrears. This includes offering customers revised payment options. FNB offers its customers its QuickSell platform on which properties can be sold on the open market via estate agents, often allowing customers to obtain higher prices for their properties,” adds Madikizela.

What are your rights as a homeowner?

At any stage of collections action taken against you as a homeowner, you can engage with the bank or the mortgage provider in order to agree on a “feasible plan to assist with your debt situation,” Khumalo notes.

If, at any stage, you feel that the bank is not following the correct process, you have the right to approach the Ombudsman for Banking Services, and thereafter an appropriate judicial entity, to seek the appropriate guidance.

Madikizela offers the following advice for homeowners:

• Approach your bank before you default on a payment, to seek revised payment options.
• Make arrangements while the arrears are still low.
• Be aware that missed payments have a negative impact on your credit rating.
• Always remain in contact with your bank. When calls, SMSs, and letters from the bank are ignored by the customer, the lender becomes increasingly concerned.
• Seek to sell the property via normal market channels to realise a profit and prevent losses or a negative credit review.

“The bank encourages clients to contact us as early as possible. This allows us to find the best possible solution for all parties, and help clients manage their financial distress,” adds Khumalo.