A R60bn robbery of SA homeowners

Over the past 20 years and more, thousands of working people, across the social spectrum in South Africa, have been made homeless and effectively robbed of billions of rands. These are men and women who, through losing their jobs, falling ill or being injured, find themselves in arrears with their mortgage payments, sometimes for as little as three or four months.

The issue is particularly poignant now with the continuing rise in domestic unemployment and reports of brutal evictions carried out by the notorious “Red Ant” eviction unit. It brings to mind a famous union song that mentions a worker who “heard the auction hammer, just a-knocking down his home”.

It is a tragic reality that extends from small, two-room township houses to the three bedroomed bungalows of middle-class suburbia and beyond. These are “sales in execution” where a sheriff auctions off houses without any reserve price, with some homes being sold for as little as R100.

Because there is no reserve, bidding, even for a house valued at R1 million or more, can start as low as R10. This is an open invitation to corruption that can involve collusion between sheriffs, lawyers and estate agents.

Although all such sales are supposed to be advertised, some may not have been and other advertisements may perhaps have been given little prominence. “But there are cases where there was only one bidder, a house was sold for R100 and resold within a week for R25 000,” says King Sibiya of the Johannesburg-based Lugelo Lethu Human Rights Foundation.

Scottish-born advocate, Douglas Shaw, of Banklawadvisor, agrees that such incidents are quite commonplace. “And they affect people right across South African society,” he says.

Shaw caused a minor stir last year when he highlighted this travesty by publishing international comparisons of such sales that he had gleaned as part of a PhD project. South Africa, he pointed out, has “the worst record in the world” for the sales of homes of people in debt.

Belatedly, the labour movement, the SA Communist Party and senior figures in the Justice Department now seem to have agreed that this “broken system” must be scrapped; that, at the very least, if the houses of indebted homeowners are sold, the price should at least be at close to market value.

But there are also other mechanism that can be used. For example, if a retrenched worker is perhaps three or four months in arrears with a mortgge payment and finds a new job, the amount in arrears can be incorporated into the existing mortage. This would mean only a slight increase in monthly payments — and save house and home.

Such a system operates in countries such as Britain. And, in Ghana, for example, a reserve price of 80% of the market value is demanded for such forced sales.

Because nothing has been done and low-price auctions and evictions are continuing, Shaw is taking a case to the Constitutional Court on behalf of more than 290 clients who have lost their homes through sales in execution. They are seeking a declaratory judgement that such sales, all well below market value, are unconstitutional.

This is, to all intents and purposes, a class action that, if successful, will set a precedent and could allow those deprived of their rights in such sales to seek compensation. The argument is that such sales should not have been made at prices sometime 90% below recognised market value.

While it is impossible to establish an exact figure for the undersold value of such homes, Shaw estimates that it probably now totals “at least R60 billion”. He points to cases where people affected have sometimes dutifully made mortgage payments — often at high, flexible interest rates —for ten years or more before falling into arrears.

They may have a R1 million bond and still owe, perhaps R500 000 on a house valued at perhaps R1.5 million when, through misfortune, their home is sold from under them for as little as R150 000. “The person who could not meet the payments — the person ruined by the sale — is then pursued for the remaining balance,” says Shaw.

The system is clearly immoral, open to widespread corruption, and in desperate need to be fixed, especially given the gloomy economic outlook for the sellers of labour, right across the board. Something needs to be done now, better late than never.