A full bench of the South Gauteng High Court ruled on Wednesday (12 September) that repossessed homes may no longer be sold at auction without reserve prices – except in exceptional circumstances.
A reserve price is a minimum price that something may be sold for at an auction. If no one bids at or above the reserve price, the property remains unsold.
The major loophole was that after the court has ruled that the property should be auctioned, it could be sold for whatever the highest offer might be. Banks could set any minimum price, but tended to set it at levels that were just enough to cover their claims.
This had previously led to cases where homes were sold for as little as R10 – on properties that were worth R81,000.
A bank could even decide to auction the house without a minimum price if no one was willing to buy it at the set minimum. The owner of the property could not insist on a minimum price.
As a result, it often happened that speculators would snatch up properties for ridiculously low amounts at poorly attended auctions and then sell them on the private market for huge profits.
The owner then suffers a massive loss because he or she must still pay the remaining debt, while someone else profits from the true value of the property.
The new ruling also means that homeowners can reinstate bond agreements once the arrears and ‘reasonable’ costs are paid up. The power to reinstate bond agreements rests with the borrower, not the credit provider, the court ruled.
From now on judges will have to apply the ruling set by the full bench.