Caught in the debt trap
Namibians continue to be caught in “a debt trap” as some banks continue to add costs to money owed to them, while the original debt is already sky high.
According to Corinna van Wyk, project coordinator of the Legal Assistance Centre’s human rights and constitutional unit, it is clear that many debtors are being overreached by some of the banking institutions and their lawyers.
“One of the issues which is quite perturbing is that the banking institution will obtain a default judgement on the mortgage bond and in terms of the contract. In terms of the judgement the debtor is ordered to pay, in addition to the judgement debt, the legal costs on a specific scale. Before costs may be recovered they are to be taxed by the taxing master who issues an allocatur for the allowed costs. These costs are not subject to any interest.
“The banks, however, usually allow the judgement debtor to catch up the arrears under threat of a sale of execution. But they simply add the lawyer’s fees to the bank i.e attorney own client costs, to the outstanding capital amount on the bond and charge interest on these costs as part of the bond interest rate which is compounded,” van Wyk said.
She said this results in the debtor struggling to make the increased payments and incurring more legal costs; and so the cycle of debt continues. “Other unethical practices is that certain sales in executions are advertised to take place on a specific date – the idea of advertising is to benefit both the debtor and the creditor in getting the best possible price for the “distressed” property – but the sale takes place on a date other than that advertised. We are uncertain of the actual outcome of the sale but it would seem that the debtor’s rights are violated by this clearly unethical and illegal practice,” said van Wyk.
In the past few months, there have been many reports of people losing their homes after they defaulted on payments to banking institutions. According to Dawn Humphries, communications manager at FNB Namibia, the bank makes a huge effort to avoid repossession as it is usually at a loss to the bank as well as to the customer.
Humphries says a debtor who defaulted on his/her payment is contacted telephonically and in writing, advising him/her that the account is in arrears and to negotiate terms for repayment.
“Should these measures not elicit a favourable response or action from the customer, the bank has no other alternative but to resort to the legal process to recover monies owed. The bank instructs an attorney to issue a letter of demand, followed by a summons, judgement and attachment of property. The customer is welcome to intervene any time during this process and make repayment arrangements but the negotiations in this case, will then be with the attorneys,” she said in a statement.
Thaddius Maswahu, marketing manager at Standard Bank Namibia, says the bank’s legal collection policy is dependant on the courts litigation processes and Acts.
“Our modus operandi is thus guided by the Magistrate and High Court rules. These dictate that a formal summons be issued, judgement would only be issued after the response period has lapsed and if the court is in agreement with the facts presented.
“A writ in execution follows, then attachment of the property by the deeds office, notice to customer of such attachment, where after a sale in execution date is set, notice of such sale is provided to the customer, advertisement of the aforementioned sale and only then does the sale in execution take place. However, the customer has until the sale to pay the arrears,” Maswahu explained.
When people have civil debts and judgement is taken against them, the executioner first attach moveable property and only once the amount raised does not recover the judgement debt, the executioner can attach and sell immovable property, Van Wyk says.
“Usually a financial institution will have provided a home loan and secured a mortgage bond over the immovable property. If the home owner does not repay in terms of the loan agreement the banking institution may apply for judgement on the mortgage contract and directly attach and sell the house,” van Wyk told the Economist.
She added that the main issue with the current law is that the procedures, particularly after default judgement, do not require any judicial oversight from the court itself as the Registrar of the High Court or the Clerk of the Magistrate’s Court may simply issue a warrant of execution against immovable property.