South Africa’s biggest banks face R60 billion lawsuit

Alarm bells have been raised over alleged unethical foreclosure practices by South African banks, such as Standard Bank, which are now facing a R60 billion class action for allegedly selling repossessed homes far below market value.

For years, efforts have been ongoing to try to change banks’ foreclosure practices, which have resulted in homes being sold for as little as R100.

Recently, the Johannesburg High Court ruled against Standard Bank, which attempted to foreclose the Sandton home of South African Federation of Trade Unions (SAFTU) general secretary Zwelinzima Vavi.

The Vavis owe around R1.68 million on their bond, and were in arrears of just over R85,000, around four months’ worth of instalments.

The arrears were accumulated around three years ago, and since then, the Vavis appear to have serviced their bond punctiliously, said Judge Stuart Wilson in the ruling.

They also took steps to reduce their arrears from just under R170,000 when the application was instituted to around R85,000.

“The latest home loan statement filed shows around 18 months of apparently perfect adherence to the Vavis’ obligations to pay their monthly instalments,” Judge Wilson said.

”Standard Bank has placed nothing before me that explains why execution against the Vavis’ home is a proportionate means of recovering the arrears.”

Rather than permitting the foreclosure, he said the Vavis seem entitled to rehabilitate the loan agreement by paying their arrears.

“Nevertheless, in the absence of more information, I cannot presently conclude that foreclosure against the Vavis’ home is a proportionate means of liquidating their arrears.”

In light of these findings, Wilson postponed the matter indefinitely, adding that Standard Bank may renew the application if and when it presents evidence that foreclosure would be proportionate.

Standard Bank responds

Daily Investor reached out to Standard Bank for comment on the court case. The bank clarified that the matter was postponed, and no final court order was granted dismissing its application.

“At Standard Bank, we are committed to supporting our clients through financial challenges. We strongly encourage clients to engage with us at the earliest signs of financial distress.”

“Early engagement enables us to work collaboratively to find solutions that are sustainable and mutually beneficial,” the bank added.

Where the Vusis are concerned, Standard Bank said that they have been in arrears since 2015. Over the years, it has extended multiple opportunities to the homeowner to regularise the account.

“Legal proceedings were only initiated in 2022, after all other avenues to resolve the matter amicably had been exhausted. Legal action is never our first course of action – it is a measure of last resort.”

“We understand the economic pressures that many South Africans face, and we remain committed to doing everything reasonably possible to assist our clients in resolving their financial obligations.”

“Even when legal proceedings are underway, we remain open to engaging with clients to explore viable solutions, including the possibility of settling arrears.”

Standard Bank added that each case is assessed individually, with the aim of reaching a fair and reasonable outcome for all parties involved.

Homes sold for next to nothing

Home foreclosures have also received attention recently due to a R60 billion class action lawsuit against South Africa’s major banks, alleging that they unlawfully repossessed their homes and resold them for well below market value.

The lawsuit, headed by Advocate Douglas J Shaw and the President of the Lungelo Lethu Human Rights Foundation, Nkululeko Xhelithole, seeks to help individuals who have lost their homes to banks.

All class members have entered into mortgage bond agreements with the defendant banks at different times and locations.

These banks have obtained court orders allowing them to sell the properties through execution sales when the individuals fall behind on their bond payments.

Shaw and Xhelithole explained the impact that these foreclosures have had on South African homeowners on the SAfm podcast.

Xhelithole said that they are dealing with thousands of people who have lost their homes through auctions. In many cases, someone shows up at the owner’s property and tells them they’ve bought it at auction.

Often, there’s no court order involved. And if there is, people aren’t given time to negotiate with the banks or enter into payment arrangements.

The issue was even more pronounced a few years ago. In 2017/18, Shaw achieved a major legal victory when banks were required to provide a reserve price when they sold someone’s house.

Before then, the banks sold houses at sheriff auctions without a reserve price. This meant that banks could sell people’s homes for next to nothing.

According to Shaw, some homes even went for as little as R100 to R500. This led to substantial losses, and the owners still owed large sums to the bank after the auction.

Everyone loses

Rule 46A of the Uniform Rules of Court seeks to protect debtors from unjust foreclosures by mandating judicial oversight and introducing proportionality into the foreclosure process.

“According to Rule 46A, no house in South Africa can ever be sold at a fraction of its original or current price,” Xhelithole said.

“That’s one of the things that we have taken up with the banks because we have seen how our people are suffering.”

Banks are selling homes without consulting homeowners. Many people have been paying bonds for 15 or more years, and suddenly their homes are sold without any attempt to save the property.

Instead, Xhelithole said that the repossession process should take several years worth of effort to find a way to keep the home.

However, while progress has been made, the situation remains far from ideal. Even with the reserve price regulation, Shaw explained that homes are still being sold for 50% to 70% of their value.

Worse yet, instead of looking at how they can improve their practices, banks are fighting tooth and nail to keep the current system in place.

“It’s incredible how unbelievably unethical our banks are. And one might think this happens in the rest of the world. It doesn’t. Rich or poor countries, they’ve had laws in place decades ago. Sometimes, this has never been allowed.”

What is particularly strange about this issue is that selling homes for these absurdly low prices doesn’t benefit banks, either.

“It’s very difficult to explain, because when banks sell people’s properties for less than they’re worth – for R500 – they also don’t get their money,” Shaw said.