The Gauteng Local Division, Johannesburg in the case of Absa Bank Limited v Mokebe was recently tasked with considering the correct interpretation of the newly created Rule 46A of the Uniform Rules of Court (“Uniform Rules”), which came into effect on 22 December 2017. Rule 46A of the Uniform Rules deals with the process of selling a property to settle an outstanding debt and allows a court to intervene and set a reserve price for the sale.
It is common knowledge that many individuals simply cannot afford to pay the cash price when purchasing a property. This is often because of the difference in the purchase price of the property and the accumulated wealth of the individual. In most cases a lending institution such as a bank is approached in order to obtain a home-loan to purchase the respective property.
The High Court in Absa Bank Limited v Mokebe held that Rule 46A(8) of the Uniform Rules not only allows, but compels secured creditors (banks or financial institutions etc.) to bring both monetary claims (claim for the outstanding amount), and the claim to declare the immovable property executable (claim to sell the property) simultaneously and states that secured creditors should not apply for a judgment for the outstanding amount first. This is done in an attempt to protect the rights of defaulting home-owners and to bring the process of selling immovable property in line with the right to housing as enshrined in the Bill of Rights.
In the Absa Bank Limited v Mokebe case, there was a lot of debate and argument on the prejudice caused to home owners when the properties are sold well below their market value to settle the outstanding debt without their knowledge and that such a practice continues to exist. The court, however, has confirmed that this has been remedied by the Division’s Practice Manual which provides that proceedings against a defaulting home-owner, requires documents to be served on the home-owner personally (especially if it is a primary residence) to ensure that they are aware of the application. This would, in the court’s view, seek to eliminate some of the prejudices suffered by defaulting home-owners in these instances.
Accordingly, the court held that the main purpose of Rule 46A of the Uniform Rules is that it allows a court to set a reserve price when selling the property on sheriff auctions. This is not to say that a reserve price will be set to an amount to completely settle the debt but, rather empowers a court to set an amount that is just and equitable. Reserve prices are to be determined by the court on a case by case basis and only in exceptional circumstances will a court not set a reserve price.
It should be noted that the process relating to unsecured creditors, such as Body Corporates (in relation to outstanding levies), when applying to a court to sell immovable property has not been affected and remains the same. Accordingly, unsecured creditors are required to obtain a judgement for the amount outstanding and then execute against the movable property of the defaulting home-owner, prior to making an application to sell the home-owners immovable property. Thus, an application to sell immovable property for unsecured creditors would be seen as a measure of last resort, and all other alternatives would be required to have been exhausted prior to resorting to such.
In light of the Absa Bank Limited v Mokebe decision, secured creditors such as banks and financial institutions should be mindful of the sweeping changes made to the process which is to be followed when applying to sell immovable property and that most importantly, the court has a discretion to impose a reserve price to ensure that the property is not sold for an amount that further prejudices the home-owner.
JILLIAN SAN PEDRO works in the Property Litigation Department at Alan Levy Attorneys Notaries and Conveyancers. Jillian can be contacted on email@example.com or 011 326 8050.