Bond Foreclosures

Bond Foreclosures

If you default on your Bond the Financial Service Provider, i.e. the Bank or the Finance House has a right to proceed with the foreclosure of your property. Foreclosure is commonly known as ‘repossession’.

If the consumer stops paying or pays irregularly and fails to make any proper arrangements with the Financial Service Provider, the Financial Service Provider has no option but to proceed with the foreclosure.

What Can Be Done To Stop A House From Going Into Foreclosure?

Most Financial Service Providers do not proceed with foreclosures lightly as they also tend to lose money when they proceed with the foreclosure process.

Communicate with the Financial Service Provider. They will normally assist you to try and rehabilitate your home loan. Sometimes you cannot make payments due to circumstances out of your control, such as you being retrenched. The banks may look at providing a ‘payment holiday’. Regular communication with the Financial Service Provider is therefore absolutely essential.

Financial Service Providers can change the terms of the loan (with your consent) to extend the loan duration. Something this simple may be enough to prevent the foreclosure from proceeding.

Alternatively, the house can be marketed and sold – thereby preventing the foreclosure of the immovable property. Most Financial Service Providers offer different types of assistance programs to help home owners market and sell their properties.

What Are Foreclosure Proceedings?

Firstly a Letter of Demand will be sent to the Debtor and /or Sureties claiming that the outstanding amount be paid within a stipulated period. 

The next step is that a Summons will be issued by the Financial Service Provider’s Attorneys.  The Financial Service Provider’s Particulars of Claim will set out in the cause of action and must inter alia comply with the following guidelines relating to the Summons:

The Summons must inter alia contain:

  •         a description of the Parties;
  •         cause of action
  •         address for service; and

·       the summons must bear a physical address for service where all notices and subsequent documents can be served, as well as a postal address and where available, a facsimile number and an electronic mail address;

·           explain the reason why the Court has the necessary jurisdiction;

The Plaintiff’s Attorney details;

  • the physical address provided for service must be within 15 kilometres of the Court;
  •   the Plaintiff may indicate in the summons an alternative preferable way of service;
  •   the Parties can also agree to the exchange or service of subsequent notices and documents by way of facsimile or electronic mail;
  •   the summons must contain certain jurisdictional averments with regards to:
  •   the cause of action;
  •   location of property; and
  • any abandonment of part of the claim or set-off in order to bring the claim amount within the jurisdiction of the Magistrates’ Court.

Default Judgement

If the Defendant (Consumer) fails to defend the matter, the Plaintiff can get Judgement by Default against the Defendant. This means that the matter is heard by the Court as an unopposed matter.

Defendants have a right to defend the matter and they can oppose the matter. Consumers often oppose the matters to try and delay the foreclosure.

Judgement against a Defendant can have drastic and severe consequences for a Consumer.

The negative consequences include:

  • a bad credit record, preventing you from obtaining credit in the future;
  • A judgment is valid for up to 30 years and can stay on your credit record for five years (but only if debt obligations are settled)
  • Non-compliance with the Court Order may cause the Bank / Creditor to issue a Warrant / Writ of Execution in terms whereof the Sheriff of the Court may attach and sell so much of the Consumer / Debtor’s property necessary to satisfy the judgment.

Sheriff of the Court and Sale in Execution

This is normally the last step in the proceedings. The Creditor, at this stage, still has not settled the debt or made adequate arrangements that are acceptable by the Financial Service Provider.  

The Sheriff of the Court will take possession of the property in terms of the Court Order, after Judgement was granted by the Court.

The Financial Service Provider sets a reserve price on the property to cover the outstanding debt, and if this reserve price is not reached at the auction, the bank will likely buy the property, and it then becomes a property in possession. A sale in execution usually results in properties being sold for less than the outstanding balance, which is the amount that you owe on the bond.

When the property is sold at Auction the Bondholder will remain liable for the payment of any shortfall and legal costs, including the costs to sell the property at the sale in execution. This shortfall can be astronomical.

Many property investors purchase properties in distress from the Sheriff of the Court at bargain prices.

Homeowners and Financial Service Providers must keep the communication lines open between them. When communication fails, the Financial Service Provider will have no option but to proceed with foreclosure.

 

Martin Vermaak

 

Practising Attorney