Execution of residential property
Residential property and judgement debts: what is the general procedure for a creditor to sell a debtor’s home in execution of a debt?
This article will set out the basic procedure a creditor must follow to sell a debtor’s home in execution of a debt.
In general when a debtor reneges on the repayment of a debt, the creditor is required to approach a Court to confirm the existence of the debt. Once this Court order detailing what is owed to the creditor is obtained, the debt is now a judgement debt and the creditor can apply for a writ of execution to be issued. The writ of execution directs the sheriff to attach the property of the debtor, which property will then be sold to satisfy the debtor’s judgement debt. This process is called the execution of a judgement debt.
The creditor is required to attach the debtor’s movable property (such as a car or television) first and may only attach immovable property (for example a house) if there are insufficient movables to cover the judgment debt. However, where the debt is against immovable property specifically (as is the case with a mortgage bond) the creditor, after obtaining a judgment debt, may attach and sell the immovable property without first executing against the movable property.
A number of judgements have dealt with the tension between allowing a legitimate creditor to lawfully execute against a debtor’s home in order to settle their debt and the debtor’s constitutionally protected right to adequate housing (section 26(1) of the Constitution). In preservation of this constitutional right, the current position is that a creditor is required to first institute proceedings at Court to obtain a Court order which creates a judgement debt and then apply to Court again to obtain an order authorising the issuing of a writ of execution against the debtor’s residential property.
If the Court is satisfied that the execution against the residential property is warranted it will authorise the execution. If this is the case the Court will usually set a reserve price. A reserve price is the minimum value for which the debtor’s property may be sold. Various factors are considered by the court when determining a reserve price.
At this stage, the Court has deemed the debtor’s home executable and has set a reserve price. An auction will take place where the property in question will be sold to satisfy the judgment debt. The property may not be sold for less than the reserve price but, at auction, the reserve price may not be met. This is the scenario that was recently brought before the High Court in the judgment of Changing Tides 17 (Proprietary) Limited N.O. v Kubheka and three other matters ( ZAGPJHC 38). In this case the Court set out clear guidelines of the procedure to be followed should the reserve price not be reached at auction.
The sheriff, following the unsuccessful auction, must submit a report within five days of the auction. This report must set out the details of the auction, the persons who participated in the auction, the highest offer made, and any other relevant information.
The creditor is now required to bring an interlocutory application for the Court to reconsider the reserve price. An interlocutory application is another application within the main application which allows the Court hearing the new application to have access to the documents from the main application. In this scenario the main application is the application for the Court to authorise the execution of the residential property.
In the interlocutory application the applicant must show the Court that the auction was properly advertised and that there is no other reason, other than the reserve price being too high, that the property could not be sold on auction. The relief sought by the creditor is usually that the property be sold to the highest bidder. The Court must then exercise its discretion to reconsider the reserve price.
Summary of the process
- Creditor must obtain a Court order against the debtor (judgement debt).
- If the creditor wishes to execute the judgement debt against the debtor’s residential immovable property the creditor must apply to Court to obtain authorisation for the Registrar to issue a writ of execution.
- The Court may set a reserve price (a minimum price) for the property.
- Once this authorisation is granted, the sheriff may proceed to sell the property in question on auction. If no bid higher than the reserve price is made the property may not be sold.
- In these circumstances the creditor must again apply to Court and request that the Court reconsider the reserve price which it set.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E & OE).
Written by: Chelsea Banks – Candidate Attorney
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