MONEY CLINIC | My home was repossessed after I lost my job. Must I still pay the residual amount?

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A Fin24 reader who was on debt review after having his house repossessed wants to know if he is liable to still pay the residual amount for the house which he no longer owns.

He writes:

In 2010 my home was repossessed as a result of me being retrenched in 2008.

The home was sold for just over R400 000 and the original residual amount was R203 000.

The bank contacted me in 2011 and started action to recover the residual amount. I was not in any position to pay at the time and the amount increased considerably with interest. 

I subsequently started paying this residual amount through debt review together with other accounts that were on debt review. I was able to pay off all other debt and have been cleared off debt review.

I still have an amount in the region of R221 000 to pay to settle this residual amount. I would like to know... 

1. How does the bank calculate the interest on this amount? This was originally a home loan.

2. Now that I am no longer on debt review, does the bank change the recovery calculation? Is there any law that prohibits them from treating this account as a home loan? 

3. Do I have to pay this money to the bank since I'm no longer on debt review and I do not have the home?

4. Does the bank really have to charge any interest on this residual amount? Shouldn't they have to just write off the debt and move on as they have already recovered their money?

Director Liad Hadar and Candidate Attorney, Jason Berkowitz, at Hadar Incorporated Attorneys & Conveyancers responds: 

Dear Reader

1. How does the bank calculate the interest on this amount? This was originally a home loan.         

Interest rates are determined on the basis of a number of different factors. These include the principal loan amount, your financial position, age, debt and credit history. That being said, the interest rate relevant to your matter would have been defined and agreed upon in your loan agreement with the bank. Credit providers are not compelled, by law, to reduce interest rates on outstanding debts. During the debt review process however, a Court, should it find it necessary or equitable, may make an order for such rates to be adjusted. 

2. Now that I am no longer on debt review, does the bank change the recovery calculation? Is there any law that prohibits them from treating this account as a home loan?  

Without having sufficient information on hand regarding your debt review, if you are no longer in debt review, the bank is not bound by any provisions of such a review, meaning that they can proceed against you unabated for the recovery of any residual owed to them. 

3. Do I have to pay this money to the bank since I'm no longer on debt review and I do not have the home? 

Regardless of whether or not you are under debt review, unless the bank’s claim has been settled, one way or another, you remain liable for any balance owed. With regards to no longer owning the property, unfortunately, the forced sale of the property did not satisfy your indebtedness to the bank and, as such, you remain liable to them for the residual (including interest accrued thereon and any taxed legal costs).   

4. Does the bank really have to charge any interest on this residual amount? Shouldn't they have to just write off the debt and move on as they have already recovered their money? 

Unfortunately, as you remain indebted to the bank in terms of your loan agreement, the bank is under no obligation to stop charging interest or to write off the balance owed. It is however important for you to be aware of your common law and statutory protection in terms of the in duplum rule. Literally translated, in duplum means “double the amount”. The common law application of the rule provides that interest on an outstanding debt, such as your home loan, cannot exceed the outstanding principal indebtedness, thus the total owed by you can never be more than double the initial principal debt. 

The statutory in duplum rule, as provided for in the National Credit Act of 2005 (“the NCA”) extended the calculation of such ancillary amounts to not only include the interest charges but to also include charges such as collection costs. 

You can try to negotiate a settlement with the bank on the balance owed by you, which should include an agreement that no further interest or other ancillary charges are to be charged on condition that you keep to such arranged settlement terms.

Questions may be edited for brevity and clarity.

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