A Fin24 reader questions the legality of being charged double interest on outstanding bond debt, as well as R50 000 in legal fees. She writes:
I would like to know if this is legal.
We bought a duplex for R475 000 in 2009. My husband has paid monthly from then until he lost his job, which led to us being in arrears, but a few months later he got a new job and started paying again. Sadly he lost his job again. This has been going on and off for the almost 10 years.
He got another job in 2018 for six months - he paid faithfully and paid extra to cover the months he wasn't paying. After that he lost his job again and wasn't able to pay for four months at the beginning of 2019. Now he's employed again and has been paying almost triple the installments to cover the arrears.
We've been to court numerous times in 2017-2018 where the bank wanted the house, but now we're on track with our payments. When we checked the statement so far, we found that we have been charged R50 000 for legal fees and we've been charged double interest on the initial loan and the arrears.
I would like to know if this is right, or if we can dispute any of this?
Andrew Goldschmidt, Partner at Ashersons Attorneys responds:
Your question contains two parts. The first part is whether the bank can recover its legal fees incurred during the recovery process from you, and the second part is whether the bank is limited by how much interest they can charge you.
To answer the first part of your question, it is common practice for written agreements (like leases or loan agreements) to contain clauses which allow parties to recover legal fees incurred by them in order to enforce the terms of the agreement from the other party. Such a clause does not give the winning party carte blanche to recover all of the legal fees incurred.
In general, the legal fees are limited to the tariff of charges which are set by the Court. If the losing party disputes any of the legal charges then the winning party will need to have their legal fees "taxed" by the Court in order to confirm that the legal fees are reasonable, accurate, and in line with the Court tariff.
There also needs to be a Court order allowing the winning party to recover its legal fees from the losing party. It is therefore advisable for you to request a copy of the legal fee breakdown from the bank together with proof that the legal fees have been taxed by the Court. The bank should also provide you with a copy of the Court order which it relies on. This is the only amount that the bank can recover from you on your bond account. If the bank can’t provide you with the taxed bill, those legal charges which it put onto your statement must be removed.
In respect of the interest charged, there is a common law rule which says that you can’t be charged more interest than the outstanding debt. This is known as the in duplum rule. Basically, it means "double the amount". Therefore, the bank can legally charge you interest on the outstanding balance of the bond account until such time as the interest equals the debt, then interest must stop.
If you make a payment on your bond, that payment will have the effect of reducing the interest, whereafter the interest can start running again. This means that if your payment doesn’t cover the interest and a portion of the debt, you might find yourself in a debt trap that you can never get out of. Once you receive the information from the bank, you might want to speak to a lawyer and ask them to check that the charges are correct.
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