A decision in the North Gauteng High Court, Pretoria in the matter of FirstRand Bank Ltd v Folscher and Another, saw the light during May this year.
This decision has had a marked impact on the manner in which banks execute judgements against mortgagors where the mortgagor previously mortgaged immovable property to the bank as security for a (home) loan.
Previously, the Registrar of the High Court (an official appointed in terms of the High Court Act) had the authority to grant judgements by default (where a mortgagor has not defended the bank’s legal action) which default judgements included an order declaring the mortgagor’s immovable property specially executable for the sum still owed to the bank. Subsequent to this the Registrar would then issue writ of execution (an instruction to the Sheriff) authorising the Sheriff to lay under judicial attachment the immovable property of the mortgagor, whereafter the property could be sold by way of a public sale in execution.
During April 2011 the Constitutional Court held, in a matter of Gundwana v Steko Development and Others, that it was unconstitutional for a Registrar to declare immovable property specially executable when ordering default judgement, to the extent that this permitted the sale in execution of a person’s home.
The decision in the Gundwana matter resulted in uncertainty as to how courts should approach matters where authorisation is sought for the issuing of a writ of execution against a person’s home.
In terms of the relevant court rule (which was amended during December 2010) all relevant circumstances must be taken into consideration before such an order authorising a writ of execution will be granted.
The court in the Folscher matter made it clear that the application of the amended Rule 46 was restricted to writs of execution sought against the judgement debtor’s usual home (also known as a primary residence). Additional immovable properties such as holiday homes, second properties and vacant stands are not protected by the amended rule requiring judicial oversight in the application of or the issuing of a writ to execute against such immovable properties.
The court in the Folscher matter issued a number of important directives to be followed by banks so as to ensure that a home owner is made aware of the bank’s intentions that should action be instituted by the bank and judgement granted against the home owner, execution against the immovable property of the home owner will ordinarily follow and will usually lead to such home owner’s eviction from his home.
The Banks (and other creditors seeking to execute against a debtor’s immovable property) are now obliged to file an affidavit setting out all the applicable circumstances referred to in the court’s judgement of which the creditor is aware or reasonably ought to be aware of, in support of such an order that the property be declared executable and the Registrar be authorised to issue writs of execution.
The court also held in this judgement that where the mortgagor is a legal entity (trust, close corporation or company) the amended rule requiring judicial oversight is similarly not triggered. This would be the case even if the immovable property in question is the primary residence of the beneficiary of the trust, member of the close corporation or shareholder of a company.
Although all major banks have already been made aware of the impact of this judgement, it is important for clients to take note of this important overhaul of the legal process involved when banks foreclose against their clients’ mortgaged properties.