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Foreclosure

Sales in execution: judge tells attorneys to stop cutting corners

The Gauteng High Court has taken attorneys to task for cutting corners when approaching the courts when the reserve price is not achieved at a foreclosure sale, and it set out the procedure that should be followed when asking the court to reconsider the reserve price.

“In many instances, practitioners, who may be justifiably fatigued in their endeavours to obtain execution for their mortgagor clients, are tempted to do as little as possible in these applications. A common approach appears to be that the view is taken that after the first sale in execution fails, the process no longer requires input from the homeowner. Such an approach is a figment born of the past [and] is not consistent with the spirit and import of rule 46A,” Judge Denise Fisher said in a judgment handed down on 15 February.

Rule 46A, “Execution against residential immovable property”, was added to the Uniform Rules of Court with effect from 22 December 2017.

Judge Fisher said one of the aims of the rule is to protect debtors by ensuring that homes are not sold in execution for prices that are not market related.

Changing Tides, the trustee of the SA Home Loans Guarantee Trust, placed four cases before the judge in chambers. The applications sought to amend the reserve price set in terms of the original application for foreclosure.

Judge Fisher said the four cases were examples of an attempt to interpret the rule “in a way that allows for a revisiting of the reserve price with as little trouble and expense to the creditor as possible and with limited regard to the rights of the homeowner”.

She called the four cases “irregular steps”, and she declined to entertain them or to make an order in respect of any of them.

Judge Fisher said it could not simply be assumed that the reserve price was not the property’s “true forced-sale market value”, because the price had not been achieved.

“What if, for example, the sale was not adequately advertised? What if the auction were held over a traditional holiday period, which meant that appropriate buyers were less likely to attend the sale? There could be many reasons for the failure of the auction, and the only possible inference to be drawn from the failure to reach the reserve is not necessarily that the reserve price is too high.”

Judge Fisher’s judgment dealt with the application of sub-rules 46A(9)(c), (d) and (e), which address what should happen when the property is not sold for the reserve price.

Application in open court, not to a judge in chambers

A request for a reconsideration of the reserve price should be sought by way of an application in open court and not by approaching a judge in chambers.

She said the use of the term “judge” in rule 46(11), which deals with what happens if the purchaser fails to comply with the terms of sale, may have created “the erroneous assumption” that a judge may be approached in chambers once the auction has taken place and failed to achieve a sale at the reserve price.

“This is decidedly not the case.”

She said sub-rule 46A(9)(c) does not use the term “judge”; it provides that “the court” must undertake the reconsideration process.

Judge Fisher said the application for reconsideration should:

  • Seek specific relief in the notice of motion.
  • Satisfy the court that the auction was properly advertised, at least in accordance with the rules.
  • Assert that there are, to the best of the deponent’s belief, no reasons other than the reserve price being too high that could rationally be said to be a reason for the failure to achieve a bid at the reserve price.
  • Be brought as interlocutory to the main application so that the court is afforded access to all documents in the main application and all other interlocutory matters.
  • Be brought as soon as possible after the sheriff’s report is issued.
  • Explain any failure to hold the sale within six months of the handing down of the foreclosure order.
  • Place before the court any additional reliable evidence of the true value that could assist in the reconsideration process – for example, information relating to other recent property sales in the area.

No sheriff’s report, no application

Unless the deponent has personal knowledge of what occurred at the auction, the sheriff’s report provides evidence that the reserve price was not achieved, Judge Fisher said. Without such evidence, the court cannot proceed with a reconsideration application.

Turning to sub-rules 46A(9)(d) and (e), she said the absence of a sheriff’s report would be “fatal” to an application that specifically wants the court to allow the property to be sold at the highest bid received at auction.

Application cannot be ex parte

Judge Fisher said the application for reconsideration must be served on the judgment debtor and cannot be brought ex parte.

Furthermore, “the constitutional imperatives inherent in the application” and the fact that the foreclosure application has to be served personally requires that the reconsideration application must also be served personally on the debtor.

Judge Fisher also expressed her dissatisfaction with some attorneys’ approach to serving court papers on debtors:

  • No date in the notice of application. This was contrary to rule (4)(a)(i), which requires that the notice of application must state the date on which the application is to be heard. Furthermore, rule 46A(7) means the registrar must set the matter down to heard on the date stated in the notice of application.
  • The claim that property is not the debtor’s residence because the sheriff served papers on “a tenant”. It is not unusual for homeowners to rent out rooms or outhouses on their property while still occupying that property.
  • The claim that the debtor has been served because the papers were served on his or her spouse. This fails to take account of the prevalence of divorce or spouses living apart.

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