Comfort in court ruling for borrowers as well as banks

The recent ruling by the Appeal Court that banks may indeed sell the property of a borrower who defaults on his bond repayments is not just good news for lending institutions, but by implication also for new borrowers, according to an article in the March edition of Property Signposts Newsletter.

The monthly newsletter is issued by the Chas Everitt International Property Group.

The ruling put an end to months of confusion in the industry, where mortgage bonds to the value of more than R500-billion are registered each year, and is seen as a victory for commercial banks as well as the property market as a whole.

Serious concerns had been raised that banks would severely curtail credit to homebuyers if the properties they were buying could not be regarded as adequate security for their home loans.

This, in turn, would have meant that many prospective buyers would have been unable to raise the required collateral to qualify for home loans, effectively keeping them out of the market. And that would have meant a sharp decline in demand that would have impacted on property values across the board.

The test case before the Appeal Court followed a previous ruling that selling a home in execution to recoup outstanding repayments is unconstitutional because it violates the owner’s right to adequate housing. But the initial ruling specifically applied to people living in RDP houses who were in danger of losing their homes because of very small outstanding debts.

The Appeal Court judges ruled that “adequate housing” does not mean “all housing” and pointed out that luxury homes or holiday mansions can hardly be compared to a modest RDP home.

The ruling restores commercial banks’ rights to safeguard any investment in the property market, reminds borrowers of their obligations to honour valid contracts they conclude with lending institutions when applying for home loans, and, at the same time, protects the poorest of the poor from being turned out of their homes because of paltry debts.
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