Banks should be careful about rushing into bond foreclosure proceedings, when the arrears owed are not significant. Instead, the bank should try to engage with the consumer and see if a settlement can be negotiated to prevent foreclosure and the consumer losing their home.
In FirstRand Bank Limited v Makaleng, Mr Makaleng was in arrears for R12 945.53. The bank sent him a notice on 23 July 2015 in terms of the National Credit Act to settle the arrears. He did not respond to the notice and the bank issued summons against him on 20 August 2015 claiming payment of the full outstanding balance of R262 331.23 plus interest. The bank also sought an order declaring the immovable property, which had been bonded in favour of the bank as security for the loan advanced by the bank to Mr Makaleng, executable.
Mr Makaleng did not defend the action and the bank applied for default judgment. The Johannesburg High Court noted that:
- the summons was not served personally on Mr Makaleng;
- the amount that was in arrears was low and had been outstanding for only about 3½ months.
The court was therefore not prepared to grant the default judgment. Instead it postponed the matter, ruled that the matter could not be set down in less than six months and required the bank to file an affidavit on the next hearing date detailing all the efforts made by the bank to negotiate a settlement with Mr Makaleng, in order to prevent foreclosure.
Leave to appeal to the Supreme Court of Appeal was granted. The appeal court concluded that the order made by the High Court was not appealable, because it was not final in effect. Accordingly, the appeal was struck from the roll.
The facts in this case highlight that when a consumer faces the prospect of losing their home, a court has a discretion to postpone a matter for a reasonable period to allow the parties to reach a compromise. The mere fact that there is a default, a contractual entitlement to claim the full outstanding balance and to enforce rights under a mortgage bond, is not always sufficient to convince a court to grant judgment for the full outstanding balance and to order the property specially executable. It will be a lot cheaper and less time consuming for banks if they resort to litigation as a matter of last resort and keep proper records of engagements with the consumer in order to assist the consumer in trying to bring the arrears up to date, particularly when the arrears are small.