Banks can’t make homeowners pay for botched repossession cases – court
· Citizen
The Mpumalanga High Court recently threw out three cases against three different mortgage lenders for the shoddy manner in which they attempted to repossess residential properties without doing proper valuation reports, as required by the courts.
Visit chickenroad.qpon for more information.
The three mortgage lenders at the receiving end of justice in this case are Standard Bank, FirstRand and Nqaba Finance.
Homeowners can take comfort from this damning ruling, particularly the court’s instruction to the three lenders not to load the costs of the botched court applications onto the customers’ home loan accounts.
This has routinely happened in previous such cases, and has the effect of driving distressed customers even deeper into default – making it even more certain that they lose their homes.
A copy of the ruling was also ordered to be delivered to the Council of Property Valuers.
Courts are often confronted with so-called ‘drive-by’ or digital evaluations as required under court rules, but these are presented to the courts without any evidence that a physical inspection has taken place.
What is perhaps most interesting about this case is that all three cases were unopposed and might have snuck through the court conveyor belt had an attentive judge not intercepted them.
Acting Judge HF Fourie raised concerns about the way mortgage lenders were arriving in court with a draft order for default judgment already prepared and shoved under the judge’s nose for stamping.
The problem with this approach is that Court Rule 46A considers repossession and sale in execution (public auction) a last resort, for which banks are generally required to submit a detailed valuation report.
Details, not ‘speculation’
Valuators frequently claim they could not get access to the property, and then default to the next best thing – a desktop or drive-by valuation. But this lacks the particularity required by courts, such as the number of rooms, bathrooms, cupboards and doors.
Court rules allow judges to excuse the absence of the required documents provided there is a strong enough reason. But this has opened the door to abuse by lenders, with valuation reports being prepared in a peremptory and shoddy manner.
The Mpumalanga High Court ruling now makes it harder for lenders to get away with these abuses.
“If it is not seriously evident from the report or affidavit by the valuator which attempts have been made to gain access to the property, and in what way the valuator was prohibited from gaining such access, I find no reason not to accept that no serious attempt was made by such a valuator and that the Court ought not to accept the valuation as anything else than speculation on a possible value for the property,” ruled the court.
Fourie refused to rubber-stamp three unopposed applications after identifying serious defects in the valuations submitted to establish reserve prices for the properties.
The court decided to hold the mortgage lenders to account for their procedural failures, and noted that the costs of court postponements and repeated valuations will presumably end up being billed to the homeowners’ accounts.
Because the financial institution does not bear the financial consequences of its botched cases, there is little incentive to get the process right.
“I believe that it is unfair to a consumer if an erroneous charge is billed against their account …” ruled Fourie.
In one case involving Standard Bank, the court was presented with eight different affidavits relating to the valuation of the property.
Fourie found that not one was sufficiently compliant to be accepted.
Misleading
The judge also raised concerns about the manner in which some affidavits appeared to have been commissioned, including one instance where the documents created the appearance that the same person had sworn affidavits on the same day in towns hundreds of kilometres apart.
In none of the matters was an explanation offered for the non-compliance, or the manner in which the properties were valued, or the affidavits ultimately deposed to, says the ruling.
“It is evident that the applicants either did not notice the deficiencies with which their hired guns provided their reports, or alternatively, the applicants have become so accustomed to this lackadaisical approach to the process that they merely advance these documents into the Court system in the hopes that same would not be picked up by the court ultimately hearing the matter.”
The court ordered fresh valuations and ruled that the wasted costs arising from the defective proceedings may not be charged to the homeowners’ accounts.
The banks respond
Moneyweb reached out to the lenders concerned for comment.
Standard Bank says its preferred approach is to obtain a physical inspection of the property wherever reasonably possible.
“However, access to a property is dependent on the cooperation of the occupier or owner and is not always within the bank’s control. In circumstances where access cannot be obtained despite reasonable attempts, alternative valuation methodologies may be utilised.
“Importantly, valuation outcomes are not based solely on a physical inspection. Independent data sources, market data, and comparable sales information are also considered in order to support and inform the valuation process.”
Asked whether the bank intends reviewing its valuation processes in light of the court ruling, Standard Bank says it regularly reviews its processes and documentation as part of its ongoing governance framework.
“We respect the judgment and the court’s observations regarding the valuation evidence presented in this matter. While the Bank’s primary option is to conduct a physical inspection of the property, this is not always possible due to lack of co-operation by the occupier or owner of the property.
“Standard Bank remains committed to ensuring that courts are provided with accurate, reliable, and comprehensive information when considering applications under Rule 46A. As part of the Bank’s normal governance and compliance processes, our procedures are reviewed on an ongoing basis to ensure alignment with legal requirements and evolving judicial guidance.”
No response was received from FirstRand.
Eskom Finance Company
Eskom Finance Company (EFC) acts as the appointed servicer and loan originator for Nqaba Finance 1.
In response to Moneyweb questions, EFC replies that its policies require property valuations be conducted through physical inspections. It does not rely on desktop valuations as a substitute for such inspections.
“Foreclosure matters on behalf of Nqaba and EFC are managed by a panel of independent attorneys, who are required to act in accordance with all applicable laws, regulations, and court procedures,” says EFC.
This article was republished from Moneyweb. Read the original here.