Mortgage defaulters win victory

Ombudsman for Banking Services Advocate Neville Melville sought operational and legal clarity where, for instance, a client defaults on his/her home loan. The situation might be as follows: The property is meant to be sold in execution, but the bank does not get the reserve price at auction. The bank buys the property at a cost of R100, for example, and then sells for a much higher price.

The issue is: If the bank does not get the reserve price at auction, does it credit its client's account with R100 and/or the valuation of the property? If the bank sells the property at a later stage, does the bank credit its client's account with the purchase price?

In the complaint presented to Advocate Melville, the former was the case and the complainant was then held liable for the outstanding balance on the home loan. Melville has informed the banks that procedures of this sort are invalid, and fly in the face of common law and the Code of Banking Practice. In a bulletin issued to the banking industry, he stressed that while the banks are entitled to recoup the principle debt, interest and holding costs, they are not allowed to 'make a profit' out of the resale of the property.

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