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SALE IN EXECUTION OF IMMOVABLE PROPERTY IN THE MAGISTRATES COURT

An Application to declare immovable property executable is in terms of Section 66 (1) (a) of the Magistrates Court Act 32 of 1944, as Amended. Simply applying the above section has led to abuse by banks, wherein debtor’s immovable property was sold for a price that is substantially less than its market value. Repossessed properties were sold for as little as R100.00 at auctions. The banks could sell the property at any amount and thereafter claim what it can for the outstanding debt from the debtor.

 The case of Jaftha v Schoeman and Others; Scholtz and Others 2005 (2) SA 140 (CC): the court held that the above section of the Magistrates Court was unconstitutional because of its failure to provide judicial oversight over sales in execution against immovable property of the judgment debtors. The clerk of court’s could issue a warrant of execution against immovable property, upon being presented with a nulla bona return from the sheriff.

 In December 2017 section 66 (1) (a) was amended and rule 56A was introduced. The rule implements an application process to declare immoveable property executable in terms of section 66 (1) (a). In the application the court must enquire into all relevant circumstances, which may include:

1. The amount and nature of the debt;

2. The circumstances in which the debt arose;

3. The financial situation of the debtor and his or her family;

4. Any attempts made by the debtor to pay off the debt;

5. The availability of alternatives which might allow recovery of the debt without the sale in execution of the debtors property;

6. The hardship which will be caused to the debtor and his or her family or other occupiers if the sale is permitted;

7. Whether the creditor’s interest will be adequately protected;

8. Any other relevant factors.

    

The court in hearing the above application will also consider whether the property is the debtors’ primary residence.  A court-imposed reserve price could be applied, should the court deem it appropriate in the circumstances. This rule aims to regulate the manner in which a property is declared executable. The above rule is similar to rule 46A of the Uniform Rules of Court.

However, on the 22 March 2018 in the case of Nkwane v Nkwane and others 2018 ZAGPHC 153, the Pretoria high court approved a sale in execution of the debtor’s immovable property for a sum of R40 000.00, without a reserve price, despite the market value of the property being in the sum of R 470 000.00. This is due to the fact that the bank had done all it could to assist the debtor with his financial obligations and due to the fact that it was a force sale. Forced sales consequently result in lower prices being obtained. In a forced sale the buyer is liable for outstanding rates and taxes. The buyer may also be faced with drawn out eviction proceedings to remove any occupants from the property.

It was argued in the above case that setting of a reserve price reduces interest in the sale and may result in the property not being sold at all. This could prejudice both the debtor and the creditor; this argument was accepted by the court. The court went on further to state that, the fact of whether a reserve price should be set or not should be determined by Parliament. The judgment is currently on appeal.

Thus in declaring immovable property executable, judicial oversight MUST be obtained.

Contributor:  NOMBUSO ZAMA (Associate) (Litigation/Collections Department) (Pietermaritzburg Office)

E-mail:  nombusoz@tmj.co.za

Tel:  033 341 9100