When can the bank repossess your house?

By Jessica Anne Wood

A person has unlawfully occupied your home or property, what do you do? Unfortunately it is not as simple as phoning the police and having them remove the occupier. Like you, even an illegal occupier has rights.

The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE Act) protects the rights of those who occupy properties illegally. The Act aims to “provide for the prohibition of unlawful eviction; to provide for procedures for the eviction of unlawful occupiers; and to repeal the Prevention of Illegal Squatting Act, 1951, and other obsolete laws.”

But how does this affect people with home loans who stop paying? Can your home loan provider simply evict you off the property, or do the right of unlawful occupiers apply to you to?

When contacted for comment, Bowman Gilfillan highlighted: “An eviction carried out in the context of a bank ‘repossession’ would be subject to the PIE Act, just like any other eviction.”

Bowman Gilfillan added: “The bank’s rights to the property arise out of the mortgage bond which the owner has registered over the property in favour of the bank. The mortgage bond is security for the loan which the bank has made to the owner/other relevant party. The relevant question here is in what circumstances and to what extent the bank can execute against its security without a court order, and if so whether the owner has subsequent recourse to court. The question of eviction of unlawful occupiers is a separate, though related, issue.”

The bank and evictions

Mbuiselo Kumalo, Absa’s head of collections for Retail Home Loans and Structured Mortgages, noted: “The relationship the bank holds is primarily with our client who is the registered owner of the property. If there are illegal occupants we would not be in a position to effect any legal action against them by virtue of us only holding mortgage over the property. In the scenario where we have bought the property in from Sheriff Auction and become the registered owner of the property, we have the right to initiate formal eviction proceedings against such illegal occupants in line with the set out legislative and judicial processes for evictions.”

Simphiwe Madikizela, head of special projects at FNB Housing Finance, pointed out that if a homeowner misses a mortgage repayment, the mortgage provider will contact the client to inform them of the default. Furthermore, the bank will seek to find out why the instalment was missed and will negotiate with the client to pay the instalment and reach a suitable arrangement.

Kumalo highlighted that there are a number of options Absa offers to clients in distress. However, the first step is for the client to contact the bank and inform the bank of their situation, offering the most appropriate resolution based on their (the homeowner’s) circumstances.

“We proactively attempt to make contact through our Call Centre within our Pre-Legal environment and if contact is made the following would be some of the options we offer based on the clients circumstances,” explained Kumalo.

  • A payment arrangement. These are subject to an affordability assessment being performed but can be customised to offer down to 25% of the instalment for a period of time to allow the client to get into a better financial position whereby s/he can recommence payments in line with the original contractual requirements.
  • Rehabilitations. We would look at restructuring the client’s arrears over the bond term to take them out of arrears, in scenarios where they are unable to pay the full instalment and arrears.
  • We also offer what we term as “Help U Sell”. This is a programme that seeks to assist clients to downsize the scale of debt on the home loan, by marketing their property through a number of property estate agents to sell the property to as close to market value as possible. This proposition also comes with an added benefit of a rebate (concession) which is offered on the shortfall post the property being sold to allow the consumer to rehabilitate themselves out of the distressed situation.

When would a bank look at repossessing a property?

When asked how soon a bank would reposes a property following a homeowner not paying their mortgage repayments, Kumalo explained: “We follow the set legislative and judicial process defined by the courts and other regulatory bodies. These include the last resort of a sheriff auction if we are unable to reach an amicable agreement with our client. The Sheriff of the Court is the entity accountable for the selling of the property after all avenues have been exhausted. The foreclosure process is normally initiated after six months of missed payments from our client. The repossession can start happening after a further nine months in the litigation process.”

Kumalo emphasised that repossession is seen as a last resort, only to be followed once all other avenues have been explored. “The loan agreement signed by the client at the origination of the bond agreement gives the client’s consent for the bank to take the necessary action should the client default on payments. It is on this agreement and consent that the bank bases any action to commence on foreclosure,” explained Kumalo.

Madikizela agreed that a sale in execution is the worst case scenario, stressing that the bank will always try to assist clients in retaining their home.

The courts have to grant judgment and declare the property especially executable in the bank’s favour before a sheriff auction can be set in effect.

Madikizela explained: “FNB’s policy is that the bank will only as a last resort instruct the sheriff to proceed to sell a property to settle an outstanding debt.

“It is a requirement that when a bank applies for a sale in execution order it must present all material facts to a Judge in open court, including showing that there has been a sustained non-payment of instalments. The bank incurs substantial costs during this process.

“FNB’s policy is to explore every possible avenue to settle the arrears. This includes offering customers revised payment options. FNB offers its customers its industry leading QuickSell platform on which properties can be sold on the open market via estate agents, often allowing customers to obtain higher prices for their properties,” added Madikizela.

What are your rights as a homeowner?

During any stage of collections action taken against you as the homeowner, you can engage with the bank or the mortgage provider in order to agree on a “feasible plan to assist with your debt situation,” Kumalo noted.

If, at any stage, you feel that the bank is not following the correct process, you have the right to approach the Banking Ombudsman, and there-after an appropriate judicial entity to seek the appropriate guidance.

Madikizela offered the following advice for homeowners:

  • Approach your bank before you default on a payment to seek revised payment options.
  • It will be easier for consumers to make arrangements while the arrears are still low as compared to when they are very high.
  • Missed payments have a negative impact on your credit rating.
  • Always remain in contact with your bank. When calls, SMS, letters from the bank are ignored by the customer, the lender becomes increasingly concerned.
  • Seek to sell the property via normal market channels to realise a profit and prevent losses or a negative credit review.

“The bank sees sheriff auctions as a last resort and at all times encourages client to contact us as early as possible in order to allow us to find the best possible solution for all parties involved and help clients manage their financial distress,” added Kumalo.

Tip: Need a home loan? You can apply through Justmoney with one of our trusted partners.

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