Troubling questions about role of banks in scam

“We are currently in the process of finalising the application, and have close on 40 investors as applicants, and more than a hundred people whose properties were involved will be respondents in the case,” says Johan du Toit of Du Toit’s attorneys. A Pretoria-based lawyer, Du Toit is yet another legal entity picking through the wreckage that Brusson Finance, a loan company-cum-property refinancing company, left in its wake when it imploded.

The Legal Resources Centre (LRC) has been fighting a long, hard battle to help former homeowners involved in the scam get their houses back. Claire Martens of the Legal Resources Centre (LRC) explained how this scheme worked in a September 2014 article: How Nedbank took the Radebes’ house and how they won it back again.

In a nutshell, the first marks of the con were people who wanted a loan, but couldn’t get one from registered banks because of they were blacklisted. Brusson Finance advertised that these folk would readily get easy cash as long as they had a property that could be re-mortgaged (bonded). People taking out the loans with Brusson Finance would then be presented with agreements, which they signed under the impression that their property was used as security for the loan. In real­ity, these doc­u­ments autho­rised the sale of their fam­ily home to a third party.

The second marks of the Brusson fraud were people with good credit records who invested by injecting cash into the con (to give to the loan takers as well as the fraudsters feeding off the scam). Properties were transferred to investors, and some of these Brusson backers had more than a handful of homes in their names despite obviously not having the financial gearing to service these home loans.

When the scheme imploded Sunday Times reported that banks didn’t check how overstretched investors were. “One investor, Thokozani Chamangwana, earned R8,851 a month, yet had seven bonds registered in her name to the value of R1.2-million from Absa, Standard Bank and Nedbank,” the Sunday Times reported. “Another investor, Eric Muniz, had six bonds to the value of R606,000 against his name - a monthly repayment of R6,085, when he only earned R7,697 a month.”

The swindle fell apart because its owners, Mulbarton butcher-cum-nightclub owner, Mike Brusson, and realtor, Ian Lokyer - were taking massive tranches of cash out the operation. And because this was an illegal and unsustainable fraud. The scheme was declared illegal in 2010, and the company was hit with a liquidation order. Lawyers will still unravel the mess for some time to come.

In the court documents being prepared by du Toit, an investor details how he was pulled into the scam. “During or about October 2008 a runner from Gys Louw Incorporated (transfer attorneys) came to see me,” the unnamed investor says, and relays how he was told about “an excellent investment opportunity” by a representative from Brusson Finance.

“I was assured that Brusson is a perfectly valid financial scheme that I would be investing into and that they (Gys Louw Incorporated) as attorneys would not have been involved in the scheme had there been any possible discrepancies,” the investor says in his affidavit.

“Newspaper advertisements of the scheme known as Brusson Finance CC were published, which invited homeowners in need of finance to contact Brusson for assistance, regardless of whether the homeowners had a good or bad credit rating,” the investor states. These adverts invited people to apply for loans for “a holiday, their business, restructuring of their finances, more available cash each month or consolidation of their debt”.

People were offered loans if they offered their homes as security. Du Toit told GroundUp, “Investors in this scheme were supposed to have received a commission for helping to finance the operation, but some investors only received a very small amount back, and then only for a few months. There are many investors who received nothing.”

“In preparing the court documents we’ve discovered that there are some investors who had up to six properties refinanced in their names, and who were not even earning an income of R20,000 a month. I really don’t know how those bonds were registered, and how these transactions went through the banks,” says du Toit.

“What we do know is that it transpired that representatives from Brusson Finance orchestrated this con through the banks, although we have yet to discover if Brusson Finance had people on the inside of the banks helping them get these bond agreements through,” the lawyer says. “It is obvious that most of the bonds shouldn’t have been granted. We hope that as we go to court the facts around this case will come to light. It is certainly going to open up a can of worms about how banks passed bonds that we’re confident will be declared as reckless in terms of the National Credit Act,” du Toit states.

Du Toit says that since the monthly payments on the properties in the scheme weren’t being serviced, most investors had to start paying the monthly bond instalment, together with property rates and taxes, themselves, to avoid foreclosure. People who took loans with Brusson Finance and who mostly still resided in the properties that had been re-mortgaged, refused to make payment once the con started unravelling. But many investors didn’t have the financial depth to service the bonds, and subsequently the homes were repossessed.

Sunday Times reported that some 900 home owners were trapped in this scam which promised easy money, but instead re-mortgaged people’s houses with unaffordable monthly repayment rates. Du Toit reckons hundreds of investors were also involved. The con saw Brusson Finance get a cut of up to 55% of the original price of the home. It left homeowners struggling to buy back their properties, and investors exposed to the hilt without any return for risk.

Du Toit said that people often got involved in fraudulent schemes despite the fact that the public is warned about this on a regular basis. He added that this seemed to make con artists increasingly creative about how they set up scams, which people still fell prey to because of the lure of easy money.

Meanwhile the LRC reports that it has secured another victory for a client whose home was restored back to him after Nedbank had received an execution on the home. A default judgement was handed down against Mr Sathekge in his absence in September 2011.

“In the order … in Sathekge v Nedbank and others, the judge restored ownership to Mr Sathekge and ordered the register of deeds to re-register the property in his name. The judge also set aside the agreements made between all the parties involved, including the investors and Nedbank,” a statement from the LRC reads.

“The court in its discretion ordered that ownership of the property be restored to Mr and Mrs Sathlege. The fact that the judge took the matter further shows that he was sympathetic to the plight of Mr Sathekge, thereby ensuring that Mr Sathekge’s rights are respected and upheld,” LRC states.