When you’re facing financial strain, it can be difficult to keep up with your debt. Unfortunately, if you refrain from paying your debt, your creditors have the right to take legal action against you. This includes repossessing your assets. But before you hand them over, here’s what you should know.
JustMoney spoke to some of South Africa’s biggest banks about asset repossession and how they can assist you.
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The process leading up to repossession
According to the creditors we spoke to, there is a certain process they need to follow before repossessing your assets.
“We follow the process as prescribed by the National Credit Act (NCA), and contact you to discuss putting in place alternative payment arrangements. If, for whatever reason, we cannot reach an agreement, a Section 129 default notice is sent to you. If you don’t voluntarily hand back the vehicle, a court order for the return of the vehicle is obtained and executed by the sheriff of the Court,” says Lebogang Gaoaketse, head of marketing at WesBank.
Remember that after getting the notice, you must take action within 10 business days. You can either pay the debt or apply for debt counselling.
Kuben Gounden, CEO of retail collections at FNB further explains: “If you don’t settle the arrears or make a suitable payment arrangement, the bank follows the legal (foreclosure) process.”
He says a summons will be served to you, followed by a judgment against you. This includes an order for monetary judgment, as well as an order to declare the immovable property specially executable.
According to the law, execution against movable property must be exhausted before execution can take place against immovable property. However, if your property is mortgaged as security against your loan, your creditors have the right to ask the Court to declare your property “specially executable” - meaning it can be sold without selling movable property first.
Once judgment is obtained, a warrant of attachment for the immovable property is issued and served by the sheriff to attach the property. Once the property is attached, a sale in execution is arranged for the sale of the immovable property.
Gounden says the notice of sale is advertised in the Government Gazette and local newspaper. This advises about the date and venue of the sale. On the day of the sale in execution, the sheriff then sells the immovable property on a sheriff’s auction to the highest bidder.
“Once the property is sold, the transfer of the property to the purchaser takes place in the Deeds Office, and the proceeds received from the sale in execution of the property is paid to the bank,” says Gounden.
The summons is valid even if it wasn’t served in person
According to Gounden, the court rules provide for various forms of service in addition to personal service.
“If the customer doesn’t advise the bank of a change in address, the summons can be validly served on the chosen domicilium address (address you’ve chosen for all your notices to be sent) of the client,” he says.
Your assets can be repossessed even after skipping one payment
“From a vehicle finance view, we’re legally entitled to take possession if a customer has reneged on the contractual agreement” says Ewald Kellerman, chief risk officer of home loans at Absa.
He says there’s no stipulated timeframe regulating this. However, the bank considers repossession to be a last resort, and the implementation of this decision is informed by the NCA guidelines.
On a home loan, the balance becomes “due and owing” when the customer misses a payment, says Kellerman.
He adds that for repossession purposes, the bank is mandated to follow the foreclosure process stipulated by the rules of court, and so the time to foreclose is legislated and monitored through the courts, which is also in line with the NCA.
According to Gaoaketse, the general rule of thumb is that, falling behind with three instalments qualifies you for repossession action.
“Having said that, we have many customers who have accounts that are more than three months in arrears, where arrangements to pay them off were negotiated and are in place. In other instances, we encounter customers who are up to date, electing to give their assets up due to unaffordability,” he says.
Auctioning your assets
The bank will take possession of the asset, value the vehicle or home, and then prepare it for auction, where it will be sold at the highest possible price, says Kellerman.
According to Kellerman, if you don’t surrender the asset voluntarily, then a full legal process will follow, where the court will issue a court order to cancel the agreement, and this will incur additional cost(s) for you.
Importantly, it’s possible for you to sell the vehicle or home yourself, as long as the bank’s settlement value is achieved, he says.
The NCA states that if there’s a shortfall in the sale of the asset, you’ll still be liable to pay for it. If there’s a surplus, the bank will credit your account.
Creditors can assist if you’re struggling to pay your debt
The bank will do everything possible to work with customers in financial distress to remediate the situation, says Kellerman.
He says in instances where you find that you’re unable to pay the full instalment, you need to contact your home loan or vehicle finance provider and enquire about arrangements that could be made, or considered relevant to your situation.
“We have a variety of assistance options available to customers when they’re experiencing distress of a short-term nature, where we look to accommodate the customer with a lower instalment for a specific period of time. Should the distress be of a long-term nature, we have a dedicated team to assist the customer in selling the property and making the move into a more affordable home, says Kellerman.
As soon as the customer falls into arrears, the bank’s collections department contacts the customer to find out why, and how the bank can help to settle the arrears, says Gounden.
There are various payment arrangement options that can be made with the consumer, which also include special arrangements which depend on the customer’s circumstances.
“We assist customers who have been retrenched by lodging claims for retrenchment if applicable (where clients have retrenchment cover),” he adds.
“We have a rehabilitative strategy and we’ll attempt to assist customers, even up to the date of the sale in execution. If the customer can prove that he can repay the arrears, then we will assist that customer. We try our best to keep customers in their homes,” says Goundon.
“Generally, arrangements are concluded to pay off the arrears, depending on the customer’s affordability. We have arrangements in place that extend to even longer than six months,” says Gaoaketse.
Broken arrangements are followed up on telephonically, and re-instated, or revised. Where telephonic contact is lost deliberately or otherwise, the bank’s customer liaison agents will be instructed to visit and continue the discussion face-to-face.
Gaoaketse says the outcome of many of those discussions would be the conclusion of further arrangements, and where those further deliberations fail, the last resort would then be considered.
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How does repossession affect your credit score?
“This will definitely impact your credit rating and your ability to access credit in the future. That’s why it’s so important for you to be proactive in talking to the bank or your financial institution about your financial distress in order to make special arrangements,” says Kellerman.
“Our aim is for you to remain in your home and not incur legal costs. We don’t want you to end up losing your home as a result of short-term financial distress,” he adds.
In simple terms, credit scores are improved by paying your accounts on time. This is a very important contributing factor to your credit score. Most financial institutions score you on the extent of use of your credit facilities such as a credit card and revolving personal loan, says
The judgment taken against you remains on your credit report until you settle the full judgment amount, says Gounden.
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Should you find yourself in a difficult financial position, which will influence your ability to meet your loan instalment commitments, the first step is to speak to your bank, advises Kellerman.
He says the sooner you advise your bank of your financial situation, the sooner you’ll be able to look at the different options that could assist you in your time of need. You can easily manage your debt by consolidating it.
If you are struggling to stay up to date with your debt, debt counselling can prevent your assets from being repossessed.