A critical analysis of the home mortgage foreclosure requirements and procedure in South Africa and proposals for legislative reform.

Abstract

The execution against immovable property, or foreclosure, involves a delicate balancing of mortgagor and mortgagee rights. From a mortgagor perspective, he or she is protected by Section 26 (1) of the South African Constitution which provides that ‘everyone has the right to have access to adequate housing’. Although the right to have access to adequate housing does not entitle one to a right to ownership of a home, this right ensures that everyone has the right to a fair standard of living and is linked to other fundamental human rights such as the right to dignity, privacy and freedom. From a mortgagee perspective, they are protected by Section 25 of the Constitution which provides for the right to acquire property, and the right not to be unlawfully deprived of such property. Section 25 thus protects a mortgagee’s property rights and, in particular, his real right of security (foreclosure rights). Foreclosure against a home can be seen as an infringement of a mortgagor’s right to have access to adequate housing. However, it must be accepted that during foreclosure, the mortgagee enjoys a right to direct execution against the hypothecated immovable property (the home), in the event of a default by the mortgagor. When a mortgage agreement is signed, the mortgagor hypothecates his home as security for the capital lent by the mortgagee. During foreclosure a balance needs to be struck between the mortgagor’s right to have access to adequate housing and the mortgagee’s foreclosure rights. Unfortunately, South African law has not provided clarity as to the balancing of mortgagor and mortgagee rights during the foreclosure process and this has resulted in much inconsistency and, in some instances, abuse of process. The foreclosure process is currently not regulated by any specific legislation. With the exception of Rule 46A of the Uniform Rules of Court, there is no statute that specifically governs the foreclosure process. This gap in the law is concerning, given the economic and social impact of mortgage and foreclosure. Therefore, the decision to foreclose against a person’s home requires a structured framework. iii In this thesis it will be argued that the current laws governing foreclosure and the debt relief process, namely: the court rules, debt review under the National Credit Act, and insolvency laws, are inadequate and lack clarity, despite being intended to assist mortgagors facing foreclosure. In particular, the current laws do not provide any clarity as to when foreclosure against a home is justifiable or when it is not, nor do they provide any guidelines for the courts to consider during foreclosure proceedings. This lack of clarity has resulted in much confusion, and it is submitted that there is a need for clarity to be established. Therefore, the purpose of this thesis is to expose some of the inconsistencies and lacunae within the current foreclosure process, and to provide recommendations as to how these issues can be resolved. It will be concluded that the current foreclosure process and debt relief mechanisms in South Africa are inadequate as they lack clarity and uniformity. In particular, the current foreclosure process does not provide clarity as to how a mortgagee should exercise his foreclosure rights, nor does it provide adequate protection or debt relief options for South African homeowners. It is submitted that regulation and development of the foreclosure process is urgently needed. Accordingly, it will be argued that a Foreclosure Act is required to establish clarity in foreclosure processes, and to ensure a fair balance between the interests of all parties during foreclosure against a home.