King Sibiya, founder of the Lungelo Lethu Human Rights Foundation, has sent a petition to President Ramaphosa detailing rampant abuses by the banks. He appeals to the President to make it far more difficult to evict defaulting home owners and to allow financially distressed customers at least six months to get back on their feet before recommencing bond repayments – as is common in many other countries. The petition also calls on the President to order an investigation into the criminal liability of banking executives and directors for knowingly selling properties for less than their value after the Constitution was introduced in 1994.
Written by Lungelo Lethu Human Rights Foundation
Petition to President Cyril Ramaphosa
Dear Mr President.
The Lungelo Lethu Human Rights Foundation (LLHRF) traces its roots to the anti-eviction movement of the 1980s. Our founder King Sibiya was one of the architects of the ground-breaking Mngomezulu versus City Council of Soweto case in 1986 that provided greater security of tenure for black South Africans facing eviction by the government for participation in the rent boycott.
Our over-riding aim is to assist people facing eviction with appropriate legal defence. We have assisted thousands of evictees, and have had some notable legal successes.
We are under-staffed, over-worked, and lack the resources of other bodies tasked with bringing equity to a field massively skewed in favour of the banks. But we toil on, because for thousands of poor people, they have nowhere else to go.
Architect of the R60 billion class action suit against the lending banks
LLHRF is the architect behind a R60 billion class action suit against the four major banks, recently filed in the South Gauteng High Court, over legal abuses that have resulted in more than 100,000 South Africans being evicted from their homes since the Constitution came into effect in 1994. This figure is based on PhD research by Advocate Douglas Shaw into eviction practices in SA. We estimate that the evictees suffered financial damages in the form of foregone home equity to the tune of R60 billion as a result of their homes being sold at auction for a fraction of their worth. This is due to the courts allowing homes to be sold in execution without a reserve price (a practice now effectively abandoned due to a recent change in High Court Rule 46 allowing for reserve prices – this after our many years of campaigning).
We understand that land expropriation without compensation is a necessary and important debate that must occur to remediate the original sin of apartheid: dispossession and removal of the original inhabitants of the land.
But we would point out that while land expropriation may benefit a few, a far more effective and less challenging solution – and one that would benefit hundreds of thousands – lies right under our noses: a simple change to the law to raise the legal threshold for eviction. Homes are financed by way of 20 year mortgage bonds, which are enforced in terms of the law of contract. Though banks would persuade us that they make every effort to reach accommodation with defaulting clients and rely on eviction as a last resort, our experience points in another direction entirely: banks initiate legal proceedings once the client is three months in arrears, and this results in eviction with more frequency than we believe the Constitution would tolerate. Most evictees do not understand the law and simply neglect their rights when faced with legal challenge by the banks.
From our discussions with the banks, it is an actuarial certainty that the average South African will either sell the property or default within seven years of the 20 year life of a mortgage bond. In other words, the current 20 years mortgage is designed to defeat the consumer. We would argue that a 8-9 year mortgage bond offered through Postbank or other state-assisted system, while it would marginally raise monthly repayments, would go a long way to eliminating the epidemic of evictions we are witnessing.
International best practise
If the Constitution is to have any meaning, South Africa must adopt international best practices when it comes to pursuing defaulting clients and evicting them from their homes. Most developed, and developing countries, treat customers in financial distress with more compassion. In fact, it is becoming increasingly difficult to evict people from their primary residences in many overseas countries as lawmakers realise that it was the banks themselves that engaged in reckless lending resulting in the financial crisis of 2008, the consequences of which are still being felt today.
Recent research by Advocate Douglas Shaw proves that South Africa’s sale in execution practices inherited from apartheid-era lawmakers are among the most abusive in the world. Most European countries allow defaulting customers a reasonable period of time, from six months to two years, to recover from financial distress before the banks may launch legal proceedings for the recovery of their debts.
Inability of the poor to afford legal counsel
Thousands of evictees and others in financial distress have turned to the Lungelo Lethu Human Rights Foundation for legal assistance. The reality is these people are unable to afford legal counsel to give effect to their Constitutional rights (to dignity, justice, access to housing, and no arbitrary deprivation of property). The banks and other creditors have endless resources to pursue clients through the courts. For ordinary people, this is a patent denial of access to justice and violation of the Constitution.
Human rights abuses
The epidemic of evictions is a human rights abuse. Just one shocking example should suffice: one young lady, Mrs Mapule Molokome, arrived at our door in complete distress having just been evicted from her home in Vosloorus a day after her husband had passed away. She was nine months pregnant and was forced onto the street, where she gave birth to her child two days after being evicted. No civilised country would allow such a monstrous violation of human rights to occur. But this is by no means a lone example.
We have numerous cases before us of pensioners being evicted from their homes when their mortgage loans are fully paid up. When they re-occupy their homes, as they are lawfully entitled to do, the “new owners” open charges of trespassing against them with the police. They are then arrested and criminally charged. Mr John Mojake of Randfontein is a case in point, but there are numerous others. These are people who have never been criminally charged in their lives, yet now they face the indignity of jail for trespassing in their own homes (they all have legitimate defences against the banks which allow them to remain in their houses). It hardly needs mentioning that this outrage is a consequence of the 1959 Trespass Act, which is an apartheid-era act intended to remove black people from the land of their ancestors.
The law must be changed to bring an immediate halt to the reliance on the Trespass Act to evict people.
Systems put in place to assist those in financial distress have failed
Based on figures from the National Credit Regulator, nearly half the roughly 20 million credit active consumers in South Africa are in some form of distress – meaning they are in arrears by three months or more on at least one account. That is an epidemic. Banks are clearly guilty of reckless lending yet suffer no consequences because of their dominion over the legal system.
Criminal liability of banking executives
We would urge your office to order an investigation into the criminal liability of banking executives and directors for knowingly selling properties for less than their value after the Constitution was introduced.
Need for a consumer body to assist clients in legal disputes with the bank
The National Credit Regulator was put in place to mediate disputes between the public and grantors of credit. The Regulator must remain neutral, but neutrality is vague and fluid state where the balance of resources and information lies in the hands of the banks. Consumers are reliant on the banks providing correct account statements and records of interaction. Forensic examinations of mortgage accounts in cases we have seen show an error rate of 70-80% in bank statements due to over-charges on insurance, administration, insurance and unlawful (and untaxed) legal charges. In many cases, these illegal charges have forced consumers into default, the end result being the loss of a home and ultimately, eviction. Yet no banking executives have ever been held to account for this gross violation of the Constitution, human rights and various statutes intended to prevent such behaviour. It is time this changed.
What is needed is a body intended to SUPPORT the consumer, ENFORCE consumer rights, CHALLENGE unlawful behaviour by the banks, and NOT to mediate between disputants given the unequal playing field already described. This would remove thousands of cases from the court roll and force a change in banking behaviour. It would put banking executives and their attorneys on notice that their wilful violation of the law will result in prison time. The NCR does not, and cannot, fulfil this role.
In 2017 the Parliamentary Standing Committee on Public Finance held hearings on finance and banking, and recommended establishing a fund, paid for by the banks, to assist clients in legal disputes with banks. The Committee recognised the gross imbalance of resources between consumers and banks, and the resultant bias in legal outcomes. We support this suggestion of a legal fund for consumers, and urge that this be immediately established.
Effects of evictions
For most, eviction is a life destroying experience, for reasons often beyond their control, such as the loss of a job or unforeseen economic circumstances. Many of the people evicted end up living in shanty towns with no hope of reintegration with the economic mainstream.
Some repossessed homes have been sold at sheriffs’ auctions for as little as R10 and then immediately on-sold for massive profits. This, naturally, opened the door to property speculation, fraud and criminality, while the banks continue to pursue the client for any loan shortfall. Any system that allows a repossessed home to be sold for R100 or R1,000 is an invitation to criminality. Fortunately, this will become more difficult due to the changes in High Court Rule 46 which allows judges to impose reserve prices on properties being sold in execution. While this is welcome, it by no means addresses all the challenges being faced by ordinary people in their relationships with the banks.
From our experience, courts are unmoved when informed that a sale in execution will result in the eviction, thus rendering the Constitutional right to adequate housing a nullity. To provide the Constitution with more backbone, judges must consider the rights of the defendant when he or she raises the right to housing as a defence, particularly at summary judgment stage.
Common abuses by the banks and courts
Many of the cases we have seen involve gross abuses of court processes by the banks – such as non-service (of Section 129 notices in terms of the National Credit Act, or of summons), inability to attach loan agreements (claiming these cannot be found or were destroyed in a fire), and incorrect and unverified Certificates of Balance (that include unlawful legal, insurance and administration charges).
Another common abuse is the charging of credit insurance and similar insurance products intended to settle the outstanding arrears on a home loan as the result of unforeseen circumstances, such as the borrower losing his or her job. In most cases we have seen, this insurance policy is not honoured, and the defaulting client’s home is repossessed when the home owner loses a job or is injured at work. That being the case, these products are being sold under false or fraudulent pretences. They are often sold to unwitting borrowers by the bank’s in-house insurance company, without explaining the pitfalls and benefits, nor pointing to competitive products sold by competitors. This is a clear violation of the Financial Advisory and Intermediary Services Act.
The banks are aware of these statutes yet still flout them. When the consequence is a home owner being evicted, more serious penalties should be imposed on the responsible individuals in the banks and their seniors.
A more serious abuse has recently come to light: self-dealing by banks using repossessed properties as their stock in trade. Repossessed home are being sold to companies controlled or owned by the banks, and then on-sold for large profits to third party buyers. Therein lies the incentive to repossess homes for as little as R100.
Deceased Estates Act
We have also seen numerous cases where deceased estates are the cause of untold familial disputes. One family member is able secretly to approach the master of the court and instruct the master to authorise the transfer of the family home into their names – to the exclusion of other family members.
The Deceased Estates Act requires a claim to be registered within 2 weeks of the death of a person. Culturally, and practically, this is often very difficult and results in many families being excluded from the division of the estate. This law needs to be changed to allow more time for claims to be registered, and to prevent one family member claiming the spoils of the estate to the exclusion of others.
It is also too expensive for the surviving spouse of a deceased person to change the title deed into their names. Hence, many properties in South Africa remain in the name of the deceased person, and this complicates matters further down the line when the children attempt to claim their rightful inheritance. This should be made simpler, and free to the public, with legal fees paid for by the fund recommended by the Parliamentary Standing Committee of Finance in 2017.
Abuses in the Deeds office
Another abuse that has come to our attention – which is a legacy of apartheid – is the Deeds offices issuing title deeds on unproclaimed township land in violation of the Deed Registries Act. Hence, we have illegal title deeds being issued, and everything that flows from that is likewise illegal – including repossessions and evictions.
We are also aware that banks are securitising mortgage loans, but are not reflecting the change in ownership at the Deeds offices. Securitised mortgage bonds should be correctly endorsed at the Deeds office, and the home owner is entitled to be informed of this fact (which would also strengthen their defence in the event of a legal dispute with the bank). Such a step is vital in levelling the legal playing field between banks and their customers.
Investigation in the Docufile fire of 2009
Many cases involving Absa Bank (and to a lesser extent the other banks) that have come to our attention include a summons which relies on documents that have been “recreated”. The bank claims these are the same as the originals, which it is unable to produce in court, as it claims the originals were destroyed in the Docufile Midrand storage facility fire in 2009. It presents a standard affidavit in court saying it has endeavoured to find the copies, but was unable to do so because the originals were destroyed in a fire. The bank also claims not to have electronic copies which it is required to do in terms of the FAIS and other acts. Yet we also know of cases where Absa clients, having been told their documents were destroyed in a fire, have inadvertently been given copies when they went to their local branches and asked for them. Suddenly, they were available on the computer system.
We would suggest that the Docufile fire case needs to reopened as a potential crime scene and investigated by competent and trained individuals from the commercial crime branch, and we would be willing to present leads, including a former staff member, who have knowledge of the fire.
The importance of reopening this case is as follows: Absa (and to a lesser extent other banks) are repossessing homes and evicting borrowers using “recreated” documents which cannot be verified as truthful, claiming the fire for the loss of the originals.
During the tenancy of the late Housing Minister Joe Slovo, a proposal was approved to grant roughly 33,000 black borrowers outright ownership of their houses, converting their statuses from “Rightful Tenant” to title deed owner. The banks, in discussion with the ministry, determined that the amount owing on these properties to the banks was R1,27 billion. Servcon was established to effect payment to the banks and transfer the title deeds to those qualifying recipients. Yet many of these so-called recipients have been sued by the banks and evicted from homes that were supposedly paid-up by Servcon. A case in point is Solomon Nhlapo, whose case was widely reported in the press. His Soweto home was repossessed by Nedbank and sold at auction to a Nedbank-affiliated company for R100 (the loan was originally taken out with SA Perm, later acquired by Nedbank).
An urgent investigation into the actual status of Servcon homes is required so that the beneficiaries may receive full title to their homes, as promised.
We would therefore petition your office for the following:
1. A change in the law making it obligatory that all repossessed homes be sold at or close to market price (properly determined by the average of three independent valuations).
2. The President to order an investigation into the criminal liability of banking executives and directors for knowingly selling properties for less than their value after the Constitution was introduced; and other abuses as outlined above.
3. A change in the law to raise the legal threshold for eviction, allowing defaulting clients in financial distress a period of at least 6 months to recover and recommence loan repayments.
4. The law must be changed to bring an immediate halt to the reliance on the Trespass Act to evict people.
5. The establishment of a fund, paid for by the banks, to assist clients in legal disputes with the bank. This fund should also be used to assist the beneficiary of a deceased estate to employ legal services to transfer title deeds into their names.
6. The establishment of one or more competitors to the main lending banks, using Postbank and other state-assisted organs, to offer 8-9 year mortgages (as a way to limit default).
7. An amendment to the Deceased Estates Act to allow more time to lodge claims, and to prevent one family member dispossessing other family members through underhanded approaches to the master of the court.
8. An investigation into the Docufile fire of 2009 (and other fires reportedly involving the destruction of loan and other credit-related documents).
9. An investigation into the Deeds office to ascertain irregularities in the transfer of title deeds by the banks.
10. An investigation into the Servcon matter and the status of title deeds involving the roughly 33,000 supposed beneficiaries.
We would be more than willing to share our case history files and evidence to support all of the above, and would appreciate an opportunity to meet with your office to discuss these matters.
On behalf of the Lungelo Lethu Human Rights Foundation (LLHRF)