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Two Standard Bank clients last week succeeded in appealing the bank’s attempt to recover a home loan by arguing prescription – that the debt had lapsed because of the passage of time.
The Prescription Act sets term limits on various types of debt, after which they are unrecoverable. The term is three years for most kinds of debt (such as credit cards, overdrafts, and instalment sales) and 30 years for mortgage debt.
In other words, if you default on a debt and three years pass, that debt is prescribed, provided you do not acknowledge the debt within that period. Should you admit the debt or the bank issues summons against you within the three-year period, the ‘prescription period’ starts running anew.
For a primer on prescription, read How to avoid repossession, and when to invoke ‘prescription’.
Case details
The Pretoria High Court last week heard an appeal by Aubrey Schneider and Stephen Zagey.
They had signed surety on a home loan secured by a company called Simcha Properties 10 in 2006.
Simcha defaulted on the home loan in 2011 and was placed in voluntary liquidation in October 2012.
The bank lodged a claim against the liquidated estate and received a dividend of R130 000.
In September 2014, the bank served Schneider and Zagey as sureties with notices of default for the balance outstanding, which they did not pay. The bank then issued summons in February 2016.
The two appellants argued that their indebtedness had prescribed because they were served summons more than three years after Simcha defaulted, or alternatively, more than three years after the company was liquidated.
The bank took the matter to court and won a summary judgment in 2016 with the finding that, in the particulars of claim, the bank “alluded to the fact that the loan amount was secured by a mortgage bond.”
Here’s the problem …
The problem with this is that the bank had not pleaded the existence of a bond in its court papers. It had filed various annexures that referenced a bond but had not specifically pleaded this point.
The importance of a bond in recovering home loan debts has been argued several times in other cases.
It has also been the subject of considerable academic study, suggesting that when a bond is cancelled (such as when it is transferred to a new owner), and the outstanding debt is not yet settled, the security against the loan ceases to exist, and the debt becomes unsecured – subject to the normal three-year prescription rather than 30 years. The courts haven’t always agreed with this.
In the Standard Bank case, a full bench of the Pretoria High Court dismissed the bank’s claim that the appellants had admitted that their debt was secured by a bond. There was no such admission, nor did the bank successfully argue this point.
The high court ruled that the earlier summary judgment in favour of the bank was to be set aside and that Schneider and Zagey should have been given a chance to defend their case. A summary judgment is where the court issues judgment without a full trial on the grounds that there are no genuine disputes of fact. This was clearly not one of those cases.
Bank may still try to recover loan
This does not necessarily mean the bank will abandon its attempt to recover the alleged loan. But should it do so, the court will have to consider the argument of prescription newly and whether the bank slipped up in waiting so long in trying to recover the outstanding debt.
Advocate Don Mahon SC, arguing for the appellants, persuaded the court that there was no basis for inferring the existence of a bond in relation to Simcha’s indebtedness.
While it seems the parties intended to secure the debt by way of a bond, this does not mean a bond was actually registered.
Banks will no doubt take notice of this ruling and start registering bonds over home loans more speedily.
SOURCE:Standard Bank loses home loan case over existence of bond – Moneyweb
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