The execution against the homes of indigent debtors

(By Luanne Chance and Stephanie Goncalves, Cliffe Dekker Hofmeyr)

As seen in the case of FirstRand Bank Limited v Mdletye and another (98145/2015) [2016] ZAKZDHC 22 (1 July 2016) banks are often faced with the burdensome task of collecting bond payments when a client has fallen in arrears and often as a last resort will approach the court to obtain an order declaring the immovable property executable.

In the Mdletye case, the residents of the property had fallen into arrears in respect of their loan obligations and the bank then approached the court for a money judgment and an order declaring their immoveable property executable. The main issue decided in this case was whether it was appropriate for the High Court, in exercising judicial oversight, to dismiss an application to declare immoveable property executable where a debtor had resumed payment of monthly instalments. The High Court also scrutinised the fine balance between the means used in the execution process to exact payment of the judgment debt, compared to other available means to achieve the same purpose.

In Gundwana v Steko Development & others 2011 (3) SA 608 (CC) the Constitutional Court held that “where execution against the homes of indigent debtors who run the risk of losing their security of tenure is sought, after judgment on a money debt, further judicial oversight by a court of law, of the execution process, is a must”. However, execution in itself is not an “odious” thing and it is part and parcel of normal economic life. The Constitutional Court held that “in instances where there are no other proportionate means to attain the same end, execution may not be avoided”.

In Jaftha v Schoeman & others; Van Rooyen v Stoltz & others [2004] ZACC 25; 2005 (2) SA 140 (CC) the Constitutional Court referred to factors to take into account when a court exercises such judicial oversight which include examining whether there is any disproportionality between this form of execution and other possible means to exact payment.

In reaching the Mdletye decision, the High Court took into account the above factors, including the issue of re-instatement of a credit agreement dealt with in the decision of Nkata v FirstRand Bank Limited & others (Socio-Economic Rights Institute of South Africa as Amicus Curiae) [2016] ZACC 12; 2016 (6) BCLR 794 (CC). The significance of considering re-instatement of a credit agreement is that, unlike the other factors which relate to alternative ways of satisfying the entire judgment debt, re-instatement does not require payment of the full judgment debt, only arrears and specified amounts.

In terms of s129(3) and s129(4) of the National Credit Act, No 34 of 2005 (NCA), consumers who fall into arrears with their loan repayments can reinstate the agreement by bringing their accounts up to date, even after the bank has obtained judgment for the full amount, provided that the lender did not cancel the agreement. The effect being that if debtors bring their bond repayments up to date, the prior default judgment obtained by the creditor will lose its force. However, if the property is sold following an order declaring the property executable, the agreement is not capable of re-instatement.

During the Mdletye hearing, the bank argued that the execution process takes time and that, if the debtors continued to tender payments, the agreement may be re-instated before the property is sold in execution. The High Court agreed that execution takes time but held that if a sale occurred, pursuant to an attachment but before reinstatement, s129(4) of the NCA would close the door to re-instatement of the agreement and declined to grant the order declaring the property executable but postponed this aspect of the application. The High Court held that the bank may still be entitled to this relief dependant on the track record of the debtors in the ensuing period but for present purposes the granting of the order would amount to “disproportionality between the means used in the execution process to exact payment of the judgment debt, compared to other available means to attain the same purpose”.

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