Conveyancing and Property Transfers

 

 

A shortfall occurs when the sale price of a repossessed property is less than the total amount owed to the bank. This total amount includes the original loan, all accrued interest, and various costs associated with the repossession and sale, such as legal fees, auctioneer's fees, and outstanding municipal rates and taxes. The former homeowner is then liable for this remaining balance.

The calculation can be complex. It is generally determined by subtracting the proceeds from the property sale from the total outstanding debt. This total debt includes:

  • The remaining capital on the home loan.
  • All accrued interest up to the date of sale.
  • The bank's legal fees and costs.
  • Sheriff's fees for the repossession and auction.
  • Auctioneer's commission and costs.
  • Any outstanding municipal accounts (rates, water, electricity) that the bank had to pay to get a rates clearance certificate.
  • A key part of the calculation is the sale price of the property. Often, properties sold at a sheriff's auction go for significantly less than their market value, which can drastically increase the shortfall.

The National Credit Act (NCA) provides consumers with important rights. A credit provider must follow a strict process before they can get a judgment for a shortfall.

Section 129 Notice: Before a summons is issued, the bank must send you a formal Section 129 notice. This notice advises you of your default and gives you a chance to rectify the situation by, for example, engaging in debt counseling.

Fair Sale Process: You have the right to challenge the fairness of the property's sale process. If the property was sold for a price that was unreasonably low, an attorney can argue that the bank did not act in good faith and that the shortfall amount is inflated.

Right to Defend: You have the right to file a notice of intention to defend the summons and present your case in court. Ignoring the summons will lead to a default judgment against you, which is why acting immediately is crucial.

Yes, negotiation is often the most effective way to handle a shortfall. Banks would rather reach a settlement than incur further legal costs. An attorney can negotiate on your behalf to:

  • Reduce the shortfall amount: By highlighting any flaws in the bank's legal process or challenging the costs added to your debt.
  • Structure a more manageable payment plan: This can help you pay off the debt over a longer, more affordable period without further legal action.
  • Avoid a judgment: A successful settlement can prevent a judgment from being granted against you, which protects your credit record.
     

A court judgment for a shortfall has a severe and long-lasting negative impact on your credit record. It can remain on your record for several years and will be seen by all future credit providers. This can make it extremely difficult to obtain loans, credit cards, or even rental agreements. The judgment also allows the credit provider to seek a warrant of execution against your movable assets to recover the debt.

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Shortfall Matters

VDM Attorneys - Expert Guidance on Home Loan Shortfall Matters

A shortfall on a home loan, also known as a bond, can be one of the most stressful financial events a homeowner can face. It occurs when a bank or credit provider, after repossessing and selling a property, fails to recover the full outstanding debt, leaving the former homeowner liable for the remaining amount. This shortfall, which includes the original debt, interest, and all legal and administrative costs, can be substantial and have long-lasting effects on your financial future.

At VDM Attorneys, we understand the complexities and emotional toll of these matters. Our dedicated legal team provides comprehensive support to help you navigate this challenging situation, from the moment you receive a summons to a potential court appearance, ensuring your rights are protected every step of the way.

Definition of what a Shortfall is 

In South African law, a "Shortfall" is a specific legal concept that arises in the context of secured debt agreements, most commonly home loans (mortgage bonds) and vehicle finance. It is not a standalone legal action but rather the remaining balance of a debt that a credit provider seeks to recover after repossessing and selling the asset used as collateral. In essence, a shortfall matter is a legal claim for the unpaid portion of a debt that arises after the primary asset securing the loan has been sold. It is a debt that the consumer is legally bound to pay, and the credit provider can use the court system to enforce this liability.

Understanding and Responding to the Summons

The arrival of a summons is a critical moment. It signifies the formal initiation of legal proceedings by your credit provider to recover the shortfall. Ignoring this document is a serious mistake that can lead to a default judgment against you, with severe consequences for your credit record and future financial stability.

How VDM Attorneys can assist with Understanding and Responding to the Summons

  • Interpreting the Summons: Legal documents are often dense and confusing. We will meticulously review the summons with you, explaining the claims made by the bank, the exact amount being sought, and the deadlines for your response.
  • Drafting a Notice of Intention to Defend: The first crucial step is to file a formal notice with the court and the bank's attorneys indicating your intention to dispute the claim. We will draft and submit this document to ensure your position is formally registered.
  • Formulating Your Defense: We will work with you to build a strong legal defense. This may involve arguing that the credit provider failed to follow proper procedures under the National Credit Act (NCA), or that the property's sale was not conducted fairly.

Disputing the Shortfall Amount and Costs

The shortfall amount demanded by a bank is often a point of contention. It can include costs that are unreasonable or a property valuation that is well below market value. Our attorneys are skilled at challenging these figures to ensure the calculation is fair and accurate.

How VDM Attorneys can assist with Disputing the Shortfall Amount and Costs

  • Scrutinizing Property Valuation: We will investigate the circumstances of the property's sale. If the bank sold the house for a price that was unfairly low, we can argue for a recalculation of the shortfall, as a proper valuation and a fair market sale are legal requirements.
  • Challenging Excessive Costs: Our team will meticulously review all costs added to your debt, including legal fees, administrative charges, and maintenance costs. We will challenge any costs that appear excessive or are not legally justifiable under the NCA.
  • Examining the Sale Process: We'll ensure that the credit provider and the Sheriff of the Court followed all legal procedures during the repossession and sale. Any procedural errors could be a basis for disputing the entire claim or a portion of it.

Negotiating a Fair Settlement

Legal battles can be expensive and emotionally taxing. Often, a negotiated settlement offers a more practical and less stressful solution. Our attorneys are adept at negotiating with credit providers to achieve a favorable outcome.

How VDM Attorneys can assist with Negotiating a Fair Settlement

  • Securing a Reduced Amount: By leveraging procedural irregularities or disputing the shortfall calculation, we can often negotiate a reduced, more manageable settlement amount on your behalf.
  • Structuring a Repayment Plan: We can negotiate a realistic and affordable payment plan that fits your current financial situation, helping you to resolve the debt without further hardship.
  • Avoiding a Judgment: A successful settlement negotiation prevents a court judgment from being entered against your name, which is crucial for protecting your credit record.

The Impact of a Shortfall on Your Financial Future

A shortfall judgment can have severe consequences, including:

  • A negative credit record: This can make it nearly impossible to secure new loans, credit cards, or even rental agreements for several years.
  • Impact on employment: Some employers, particularly in financial services, conduct credit checks and may be hesitant to hire someone with a poor credit history.
  • Seizure of other assets: Once a judgment is granted, the credit provider can seek to attach and sell other assets you own (e.g., a car, investments) to recover the debt.

Defending Against a Default Judgment

If you have failed to respond to a summons and a default judgment has been granted, our attorneys can assist with a rescission application. This is a complex legal process to have the judgment set aside.

How VDM Attorneys can assist

  • Assessing Your Grounds: We will evaluate whether you have valid grounds for a rescission, such as a lack of proper notification about the summons or a valid defense to the original claim.
  • Managing the Complex Process: A rescission application requires a deep understanding of court procedure. We will handle all the necessary court filings and represent you in court, arguing why the judgment should be set aside and why you should be given an opportunity to present your defense.
  • Restoring Your Credit Standing: While challenging, a successful rescission can be a vital step toward clearing your credit record and rebuilding your financial life.

In any shortfall matter, time is of the essence. By engaging VDM Attorneys early in the process, you can significantly improve your chances of achieving a favorable outcome and protecting your financial well-being.

Contact VDM Attorneys today for a consultation.