Purging Mortgage Default: Comments on the Right to Reinstate Credit Agreements in terms of the National Credit Act

• Jurisdiction: South Africa
• Published date: 16 August 2019
• Pages: 165-184
• Citation: (2013) 24 Stell LR 165
• Date: 16 August 2019
• Author: Reghard Brits

165

PURGING MORTGAGE DEFAULT: COMMENTS

ON THE RIGHT TO REINSTATE CREDIT

AGREEMENTS IN TERMS OF THE NATIONAL

CREDIT ACT

Reghard Brits

BComm LLB LLD (Stellenbosch)

Postdoctoral Fellow

South African Research Chair in Property Law, Stellenbosch University*

1 Introduction

Since the National Credit Act 34 of 2005 (the “NCA”)1 came int o effect,

the enforcement of consumer cre dit agreements has become subject to str icter

control .2 The calling up of mor tgage bonds is no exception, seeing that

mortgage agreement s qualify as credit agreements for pur poses of the NCA.3

The intention of this contribution is to investigate one specic debt relief

mechanism that the NCA has int roduced, namely the r ight to reinstate cred it

agreements.4 As with much of the NCA, the idea behind this right is to ext end

greater protection to c redit consumers.5 A lthough full debt en forcement

through litigation and t he execution process can have detri mental consequences

for debtors who default on their loans, reinst atement provides a way to prevent

and even reverse debt enforcement – up to a cer tain point, at least – for those

who can satisfy the requi rements. As I aim to show, reinstateme nt has quite

signicant implications for debt enforcement, particularly in the mortgage

context.

Reinstatement is provided for in sec tion 129(3) and (4):

“(3) Subject to subsection (4), a consumer may –

(a) at any time before the credit provider has cancelled the agreement re-instate a credit agreement

that is in default by paying to the credit provider all amounts that are overdue, together with the

credit provider’s permitted default charges and reasonable costs of enforcing the agreement up

to the time of reinstatement; and –

(b) after complying with paragraph (a), may resume possession of any property that had been

repossessed by the credit provider pursuant to an attachment order.

* I am gratef ul to Prof AJ van der Walt for his v aluable comments

1 All section s of legislation or reg ulations cit ed in this co ntribution r efer to those of the NCA or it s

regulation s, unless other wise indicated

2 In general, s ee JW Scholtz, J M Otto, E van Zyl, CM van Heerden & N Cam pbell (eds) Guide to the

National Cred it Act (RS 3 2011); JM Otto & R-L Otto Th e National Credit Ac t Explained 2 ed (2010); CM

van Heerden & J M Otto “Debt Enfor cement in term s of the National Credit Ac t 34 of 2005” (2007) TSAR

655

3 S 8(1)(b) read with s 8(4)(d) See also Collet t v FirstRand Bank Ltd 2011 4 SA 508 (SCA) para 1

4 For more details on h ow the NCA impacts m ortgage foreclo sure in gene ral, see R Brit s “Impact of

the South Afr ican National Credit Act on th e Enforcement of Mortgage Bond s” in B Akkermans & E

Ramaekers (ed s) Property Law Perspectives (2012) 85-106 and R Br its Mortgage Foreclosure u nder the

Constitut ion: Property, Hou sing and the National C redit Act LLD thesis Stel lenbosch (2012)

5 For the purpos es of the NCA, see s 3

(2013) 24 Stell LR 165

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(4) A consumer may not re-instate a credit agreement after –

(a) the sale of any property pursuant to –

(i) an attachment order; or

(ii) surrender of property in terms of section 127;

(b) the execution of any other court order enforcing that agreement; or

(c) the termination thereof in accordance with section 123.”

The NCA therefore provides a debtor who is in arre ars with his or her credit

agreement with the r ight to reinstate such an a greement by paying cer tain

specic amou nts before the agreeme nt is cancelled.6 As I explain below, the

restriction with rega rd to the timi ng of reinstatement (before cancellat ion)

is problematic but not insurmou ntable. Accordingly, part 4 below analyses

the exact time fr ame within which the debtor m ay exercise the right of

reinstatement, sinc e the NCA also provides some restrictions – e specially

in section 129(4). Reinstatement is effected by paying the th ree amounts

mentioned in section 129(3), which amounts are investigated in par t 5 below.

An import ant issue that I explore is how reinstatement can be reconciled with

the established pri nciples of mortgage foreclosu re and acceleration clauses.

It is pertinent for all the a ctors in the credit i ndustry to pay at tention to

the debtor-in-default’s right to reinstate cred it agreements and to lea rn what

to expect. Debtors should seek to ma ke use of this debt relief mechanism

and creditors (especially mortg agees) should be aware of the effect that the

right of reinstatement ha s on their position. Consequently, the purpose of this

contribution is to set out the legislative f ramework of the right to reinstate and

to analyse how this mechan ism functions, with a part icular focus on mortgage

default.

2 Importance of reins tatement in the mortgag e context

The enforcement of mortgage agr eements (or the calling up of bonds) is

commonly referred to i n South African law as foreclosure. Th is remedy entails

that, when the debtor defaults, the c reditor is entitled to accelerate repayment

of the full outstand ing debt, which enables the creditor t o obtain a judgment

order for this amount. In ad dition, if the debtor is unable to immediately repay

the full outsta nding amount – which is ty pically the case – the cred itor can

apply for (and should generally be granted) an order declar ing the mortgaged

property spe cially executable. A sale in execution at a public auction usually

follows in order to use the proceeds to set tle the debt. The basic operat ion of

this remedy is tr ite and it is invoked daily.7

A powerful element of foreclosure is the fact th at the creditor can cancel the

loan and reclaim the enti re outstanding debt, regardless of the size of the a ctual

6 S 129( 3)(a)

7 In general, s ee PJ Badenhorst, JM Pie naar & H Mostert S ilberberg and Scho eman’s the Law of Property

5 ed (2006) 364 n 61 and 367-368; CG van der Mer we Sakereg 2 ed (1989) 625; TJ Scott & S Scott Wil le’s

Law of Mortgage an d Pledge in South Africa 3 ed (1987) 203-251 Case law that conf irms these basic

principles i nclude FirstRand Bank Lt d v Soni 2008 4 SA 71 (N) para 2 2; The Master v IL Back & Co Lt d

1983 1 SA 986 (A) 1004; Western Bank Ltd v SJJ Van Vuuren Trans port (Pty) Ltd 1980 2 SA 348 (T) 351;

TG Bradfiel d Coastal Propertie s (Pty) Ltd v Toogood 1977 2 SA 724 (EC) 730; Moodley v C ommunity

Development Board 1968 4 SA 615 (D) 619; Thirl well v Johannesburg Build ing Society 1962 4 SA 581

(N) 583

166 STELL LR 2013 1

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