Am I responsible for home loan arrears accumulated during hard lockdown?

The long answer

Yes, unfortunately, they can. Although in this period, banks have been encouraged to find solutions to assist their clients who are struggling to pay their home loans. For example, Standard Bank has offered a 90-day instalment relief on debt payments for customers who earn R7,500 per month or less, and whose bond was not in arrears as at 31 March 2020 when the hard lockdown began.

It is always better to approach the bank to discuss your options when you can’t pay rather than wait for them to start sending letters of demand. They can issue a letter of demand after you have been 20 days in arrears. They will usually start with the foreclosure process after you have missed payments for three or more months.

Some banks will help you sell your house on the open market rather than auctioning it off. You will get far more on the open market than through an auction.

I quote golegal.co.za below on the process that banks follow when you have defaulted on your home loan:

• The bank gets in touch with the debtor to discuss a default on the monthly bond payments and how to move forward.

• Several options are put forward (to the debtor) from selling the property, to catching up on payments, to debt counselling.

• Some banks offer assistance in selling the home on the open market which will bring in more money and protect the debtor from what could be long-term financial ruin should the house be repossessed.

• If there can be no solution, the bank moves towards foreclosing (notice to move out as your bank is taking ownership of the house).

• A section 129 letter of demand is issued, this is the final step before the legal process begins. It informs the debtor that they are in arrears for a certain amount at a given date and a person is given ten days to respond.

• If there is no solution, the bank’s legal team gets a summons from the High Court or Magistrate’s Court (depending on the cost of the property).

• The summons is then delivered to the debtor by a Sheriff of the Court.

• A judgement order needs to be granted and obtained and the bank then applies for the right to auction off the property after which a judge determines that fair and legal processes have been followed.

• The money from the auctioned off property may cover the outstanding debts, loan amounts and costs. In most cases it is not enough, as legal fees also need to be paid and the house is often sold at a loss, making the debtor liable for the shortfall.

One of the best ways to avoid having your house repossessed is to go into Debt Review under the National Credit Act. When you get a Section 129 final letter of demand from the banks, you are given ten days to place yourself in Debt Review before the legal process of repossessing your house starts. 

In Debt Review, you appoint a Debt Counsellor who is registered with the National Credit Regulator (NCR) and must have an official NCR number. 

The Debt Counsellor looks into your finances to see if you are “over-indebted”. If the counsellor finds that you are over-indebted, he or she helps you work out a plan to start making payments in agreed instalments that you can manage while still having enough money to cover your necessary expenses. The Debt Counsellor will also negotiate with the bank and anyone else that you owe money to, and draw up a draft structured repayment plan which will be submitted to your creditors. Then the Debt Counsellor will get a court order or approval that accepts the structured repayment plan. 

As long as you pay what has been agreed to in the payment plan, the bank cannot repossess your house. 

If you are in Debt Review, you will be listed at the Credit Bureau, so that you will not be able to apply for any credit as long as you are under Debt Review. Only when the Debt Counsellor finds that you are no longer over-indebted, can you stop being under Debt Review, and then your name will be cleared at the Credit Bureau.

Wishing you the best,
Athalie