High court throws out homeowner’s application to stop his house being transferred to a new owner – but on the grounds of urgency. The case is far from over.
The Cape Town High Court this week threw out an application by a George homeowner to stop Standard Bank’s home loan guarantee company, SB Guarantee, from transferring his property to a new owner after it was sold at a public auction in February.
The case was booted on the grounds of urgency, but the matter is far from over as the homeowner’s legal team weighs its options.
At issue is whether a bank can refuse to allow you to go under debt review so that it can proceed to sell your house at public auction. Debt review, in theory, freezes the legal enforcement process.
Standard Bank argued in its papers that it should not be joined to the case because it exited the picture in 2019 when the borrower’s debt to it was settled by an associate company called SB Guarantee. On this basis, it argued the homeowner was not entitled to enter debt review.
The National Credit Act (NCA) allows over-indebted consumers to go under debt review through a registered debt counsellor, which immediately places a moratorium on legal enforcement actions by creditors.
However, the right to apply for debt review falls away as soon as the bank serves a summons on the consumer.
The homeowner admits he was in default on his home loan but says his primary asset – his home – should be protected from legal action because he opted to go under debt review in November 2024.
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Guarantee companies
In this case, the original judgment issued by the Pretoria High Court was in favour of SB Guarantee (which is not a credit provider), not the bank.
The debt counsellor argued that this meant there was nothing to stop the homeowner from going under debt review.
The bank argued differently, and SB Guarantee proceeded to sell the property.
The next step is to transfer the property to the buyer, which the homeowner is attempting to stop.
The case also highlights the role of SB Guarantee in the bank’s mortgage business.
Most banks have similar guarantee companies that make good on borrowers’ obligations if they default. The purpose is to facilitate securitisation arrangements, where banks bundle similar credit agreements together and on-sell them to investors. This frees up capital and allows the bank to repeat the process.
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When a borrower defaults on a loan agreement, the bank sends a notice to the guarantor to invoke the guarantee. The guarantee company then launches legal proceedings to foreclose on the bonded property, sell it via public auction (sale in execution) and pay over the proceeds received from the sale in execution to the bank.
Even if the auction generates just R1 and is paid over to the bank, the guarantee company is fully discharged from its obligations.
In this case, SB Guarantee claims to have paid the bank almost six years ago, in which case the funds used could not have been from the public auction, says the homeowner.
The case raises some interesting questions for tens of thousands of other homeowners who have agreements with guarantee companies. The bank’s claim against the consumer is based on the home loan agreement. The guarantee company’s claim against the consumer is based on the indemnity and indemnity bond.
The George homeowner argues that the home loan agreement is a credit agreement and can therefore be the subject of a debt review. Neither the indemnity nor the indemnity bond are credit agreements.
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Background
The bank has maintained all along that the homeowner could not go under debt review because of a judgment awarded to SB Guarantee in 2024.
That’s the sticking point: SB Guarantee is a different legal entity and is not a credit provider.
If the judgment had been awarded to the bank, the homeowner would indeed have been barred from applying for debt review.
Curiously, when this case was argued in the Pretoria High Court in May 2025, with the homeowner representing himself, the judge accepted the bank’s argument and dismissed the application, saying the homeowner could not go under debt review as he had been served with a Section 129 notice (a compulsory notice to pay up or go to court).
The judgment is curious because this was the law as it existed in 2011.
The NCA was changed in 2015 to make it clear that up to the issue of summons – rather than a Section 129 notice – a credit agreement could be placed under debt review. On that reading, the judge and the bank got it wrong, says the homeowner, who is appealing the ruling.
The homeowner argues that any sale in execution violates a debtor’s constitutional rights, and it is up to the lender to show why this is necessary and that no alternative remedies are available to it.
In other words, selling at auction must be a last resort.
Debt review is clearly a less drastic solution and does not violate the constitutional rights of borrowers.
ALSO READ: What to do if you start falling behind on your home loan
Credit regulator’s response
Moneyweb reached out to the National Credit Regulator (NCR) for clarity on the rights of consumers in the event of debt review.
This is its response:
“Please be advised that the National Credit Act (the Act) is designed to promote a fair, transparent, and non-discriminatory credit market. This includes, but is not limited to, the prohibition of unfair credit and marketing practices, the prevention of reckless credit granting, and the provision for debt reorganisation in cases of over-indebtedness.
“The purpose and application of the Act are to advance the rights of consumers by ensuring consumer protection and promoting the socio-economic welfare of all participants in the credit market. Any person who contravenes the provisions of the Act may be reported to the National Credit Regulator (NCR) in terms of Section 136.
“A credit provider acts contrary to the Act if it prevents a consumer from exercising any right guaranteed therein. Any credit agreement containing provisions that limit or waive such rights contravenes Section 90 of the Act and is therefore unlawful. These unlawful provisions may be challenged either before the relevant judicial forum (High Court or Magistrates’ Court) or reported to the NCR for investigation and possible referral to the National Consumer Tribunal.
“A consumer who meets the criteria set out in Section 79 of the Act may apply for debt review in terms of Section 86, read with Regulation 24, unless the credit provider has already acted in terms of Section 129 due to default in payment. In such circumstances, once a Section 129 notice has been issued, the credit provider may proceed with enforcement by issuing a summons.
“However, if the consumer applies for debt review before the credit provider issues a Section 129 notice, the credit provider is precluded from issuing a summons, unless the consumer subsequently defaults on their debt review repayments and remains in default as contemplated in Section 86(10). In addition, Section 88(3) provides further protection to the consumer by preventing the credit provider from terminating the debt review prematurely.
“Please note that debt review is a legal process and serves as a statutory defence in court proceedings. Accordingly, a consumer facing a summons may plead debt review as a defence, provided that they can demonstrate compliance with their debt review payment obligations. Debt review is not a payment holiday – a consumer who fails to make agreed payments risks termination of the process and enforcement of the credit agreement.
“It is strongly advised that any consumer under debt review who has received a summons should immediately contact their debt counsellor to verify the following:
a) Whether Form 17.1 was duly notified to the credit provider;
b) Whether Form 17.2(b) was duly notified to the credit provider;
c) Whether the debt restructuring proposal was submitted to the credit provider;
d) Whether the credit provider accepted the proposal or made a counter-proposal;
e) Whether a court order has been obtained restructuring the terms of the credit agreement; and
f) Whether payments made via the Payment Distribution Agency (PDA) have been correctly received by the credit provider (supported by PDA statements).
“Once the consumer has gathered the above information, they should approach a legal representative to defend the summons on the basis of the protections afforded by the debt review process.”
This article was republished from Moneyweb. Read the original here.
