Standard Bank Loses Home Loan Case Over Bond Existence

Standard Bank, Africa’s largest lender by assets and led by South African banker Sim Tshabalala, recently suffered a legal loss in a home loan recovery action. Two Standard Bank customers won an appeal this week against the bank’s attempt to recover a home loan, claiming that the obligation had lapsed due to the passage of time.

The Prescription Act establishes time limits on several sorts of debt, rendering them unrecoverable after a given period. Most loans, such as credit cards and overdrafts, have a period of three years. Mortgage debt has a 30-year term. If a debt is not acknowledged within the specified time frame, it is prescribed. If allowed or if the bank issues a summons during the interval, the prescription period begins again.

The Pretoria High Court heard an appeal from Aubrey Schneider and Stephen Zagey, who signed surety on a property loan secured by Simcha Properties 10 in 2006. Simcha defaulted in 2011, and it was liquidated in 2012. The bank got a payout of R130,000 ($6,952) from the liquidated estate. Schneider and Zagey received default notifications in 2014 but failed to pay, prompting the bank to issue summons in 2016.

The appellants claimed that their debt had prescribed because they received summons more than three years after Simcha defaulted or was liquidated. The bank initially obtained a summary judgment in 2016, alleging that the loan was secured by a mortgage bond. However, the bank did not precisely plead the existence of a bond in court documents.

The Pretoria High Court’s entire bench disregarded the bank’s contention that the appellants accepted that their debt was secured by a bond. The court concluded that the preceding summary decision should be overturned, allowing Schneider and Zagey to defend their case. A summary judgment is delivered in lieu of a full trial where there are no genuine factual disagreements, which was not the case here.

This verdict does not imply that the bank will stop its efforts to collect the loan. The court will review the prescription argument and the bank’s delay in attempting to collect the debt. Advocate Don Mahon SC argued for the appellants, convincing the court that there was no basis to infer the existence of a bond in Simcha’s debt.

The parties intended to secure the debt with a bond, but it was not registered. Following this verdict, banks are likely to hasten the registration of bonds over house loans.

The Supreme Court’s decision emphasizes the importance of a bond when recovering home loan arrears. It emphasizes the need of following legal prescriptions and timetables in debt recovery proceedings. This case sets a precedent for future arguments concerning the prescription periods of various debts, as well as the ramifications of using bonds to secure debts.

Despite this, the Standard Group’s financial performance has improved significantly since Tshabalala took over in 2017. The bank’s latest annual report shows a 27% increase in headline earnings and a 20% increase in overall net income.

Tshabalala’s vision goes beyond the current targets. Standard Bank’s commitment to sustainable finance is on course to exceed its initial R250-billion ($15.6 billion) goal by 2026, demonstrating the bank’s ambition for Africa’s green transition.

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