Justice for victim of fraudulent finance scheme involving FNB

GroundUp has previously reported on the fraudulent Brusson Finance loan scheme, which took advantage of the financially vulnerable, in How Nedbank took the Radebes’ house and how they won it back again and in Troubling questions about role of banks in scam.

On Friday, 7 May 2015, Judge Prinsloo, of the North Gauteng High Court (Pretoria) found in favour of a Mr Ramachela, holding that the transfer of a home in terms of the Brusson scheme amounted to an illegal mortgage agreement.

To recap:

Brusson Finance (Pty) Ltd (Brusson) (which was liquidated in 2010) advertised that they offered loans to people who had been blacklisted, provided these individuals owned a home. While Brusson was advertising to potential ‘borrowers’ they were also advertising to potential ‘investors’ to invest in Brusson for big returns. Borrowers who approached Brusson for loans signed documents that they understood to be loan agreements, using their homes as security. Instead, the borrowers were actually, unknowingly, approving offers to purchase and instalment sale agreements which allowed for their homes to be sold to ‘investors’. Investors, people with good credit records, signed power of attorney letters, which allowed Brusson to register them as purchasers of the lenders’ homes, and also allowed Brusson to register a mortgage on the home in the investors’ names. The money from the mortgage bond went to Brusson, with some being given to the borrowers (as the loan that they had sought). Many, if not all, of the investors were unaware of this process and subsequently ended up with multiple mortgage bonds to their names. When payment was not made on these mortgage bonds, the banks who registered the mortgages started claiming from investors, who often could not pay and, in turn became blacklisted. The houses of the borrowers were then sold, by the banks, to outside third parties. Brusson profited by receiving most of the mortgage that was taken out, and many of the payments that the borrowers made.

Rigacraft CC v Ramachela and City of Tshwane

This case involved a house initially owned by Mr Ramachela’s father, who had entered into an agreement with Brusson. Mr Ramachela’s father signed what he understood to be loan documents, but actually authorised the sale of his house to one of Brusson’s investors, and a mortgage bond was registered on the house, through First National Bank (FNB), in the name of the investor (in line with the scheme described above). As a result of unpaid instalments, FNB seized the house, and sold it in execution to Rigacraft CC.

Rigacraft CC was the applicant in this case, seeking the eviction of Mr Ramachela and his family, which included his 63-year-old grandmother, his elder sister, and two teenage brothers. Rigacraft relied on the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE) in undertaking the eviction. Mr Ramachela, who was representing the deceased estate of his father, who died in 2012, was legally represented by the Legal Resources Centre.

In South African law, a valid transfer of ownership can only take place when there is an intention from the owner (in this case, Mr Ramachela’s father) to sell, and a matching intention from another party to buy (in this case, the investor). If the intention from both sides is not present, the registration of the property is not enough for a valid transfer of ownership. Mr Ramechela’s argument was that his father had not intended to sell his house, and that, because the Brusson scheme was fraudulent and void, his father had not entered into a valid transaction selling the house, and had remained the rightful owner.

The Court held that the sale, purchase and registration of the mortgage bond which occurred through the Brusson scheme was a fake credit transaction. It was clear that Mr Ramachela’s father was led to believe that he was entering a loan agreement with Brusson and that his home would be held by Brusson as security. He was completely unaware of the investor and the mortgage agreement with FNB. The judge accepted this information, as there was no evidence to challenge this. There was no intention, from Mr Ramachela’s father to sell their home. The sale from Mr Ramachela to the investor, was therefore invalid and, because this first transaction was void, the transfer between FNB and Rigacraft CC could not remain valid.

The Court also found a second reason for the eviction to be denied. The National Credit Act (the Act) strictly regulates credit agreements (such as loans and mortgages). The loan agreement, between Brusson and Mr Ramachela’s father, did not comply with sections of the Act. Brusson was required to register as a credit provider, in terms of section 40 of the Act, because they had entered into more than 100 credit agreements and because the credit provided, to all borrowers, amounted to more than R500,000 (although these credit transactions were illegal, they still meant that Brusson was required to register). This means that in terms of section 89(2)(d) of the Act the credit agreement was unlawful and in terms of section 90(3) the credit agreement was invalid from the beginning.

For the above two reasons, the Court found that the estate of Mr Ramachela’s father remained the true owner of the house, and not Rigacraft CC. Mr Ramachela and his family, were therefore not in unlawful occupation in terms of PIE, and as a result Judge Prinsloo concluded that it would not be just and equitable to evict Mr Ramachela and his family from his late father’s home.

The full judgment is available online here.

Mateenah Hunter is a human rights lawyer/activist. She is a Policy Development and Advocacy Fellow at Sonke Gender Justice and tweets at @MateenahHunter.