On Thursday in the Gauteng High Court, judgment was given in a matter dealing with reverse mortgage schemes. These schemes have proliferated over the last few years as people with poor credit records seek out companies that are willing to lend them money regardless of their blacklisted status. By Claire Martens for GROUNDUP.
In 2006, Brusson Finance (Pty) Ltd advertised as one of these companies. Their adverts indicated that if you owned property, you could approach them at one of their branches in Johannesburg or Pretoria. On approaching Brusson for a loan, clients would be presented with an agreement, which they signed under the impression that their property was being used as security for the loan. In reality, the documents they signed authorised the sale of their family home to a third party.
The clients continued to live on the property and pay monthly instalments to Brusson, unaware that their family homes essentially no longer belonged to them.
Brusson had approached a number of individuals who had good credit records and asked them to sign on as investors, for which they would receive a fee. Using the names of the investors, loans would be taken out with any of the major banks, using the property of the Brusson clients as security.
Clients of Brusson took the company to court where the scheme was declared illegal in 2010. Following the judgment, Brusson went into liquidation, which meant that the payments to the banks were disrupted and the banks foreclosed on the properties that were part of the scheme, obtaining judgment declaring the properties executable. It is estimated that over 900 people were clients of Brusson.
At this point, the clients discovered that their homes were about to be sold to pay back a loan they were unaware of, even if they had been consistent in paying back the money on the original loan that they had received from Brusson. In some instances, following Brusson’s liquidation, the clients continued to pay the investors. However, the investors were not always passing these payments onto the banks. When Brusson clients approached the National Credit Regulator for assistance, they were referred to the Legal Resources Centre, who started assisting clients in 2011. To date, the LRC have over 90 clients on their books, at various stages of litigation.
This scheme is not the only one of its kind or the only one that the LRC is involved in. For instance, in the Eastern Cape, a similar scheme was set up between two holding companies currently in liquidation, Dream World Investments 457 (Pty) Ltd and Asset Management Specialists.
In all of these matters, the LRC maintain that the banks, which include the “big four” (ABSA Bank, Standard Bank, Nedbank and First National Bank) acted recklessly when they extended a mortgage loan to Brusson through its investors.
The matter that received judgment on Thursday was a seminal case and will go a long way in assisting the LRC with its other Brusson clients.
The Radebes had obtained a loan from Brusson, who had approached Nedbank to obtain a mortgage. After payments were disrupted a default judgment against the Radebe property was served in favour of Nedbank in 2011. The LRC went to court and the sale of the property was interdicted (stopped). The next stage of the litigation was finalised on Thursday with a victorious outcome for the Radebe family.
The judgment cancelled the default judgment against the property and found the agreements between Brusson and the Brusson clients to be invalid and unlawful. The mortgage between Nedbank and Brusson was also declared invalid and unlawful. While it would seem to leave Nedbank with little recourse, the judgment does state that Nedbank are entitled to claim the outstanding amount of the mortgage from the investors.
In the judgment, Judge Nicholls stated that “…legal documents can often be confusing to a layperson. In my view it is inherently improbable that any person would have knowingly entered into the Brusson agreements.” The court found that the Radebes had no intention to sell their property and were deceived of the true nature of the scheme.
Importantly, the Radebes will now be able to transfer the property back into their names. This has been their family home for over 20 years. DM
Martens is the Communications Officer for the Legal Resources Centre. This feature was first published on www.groundup.org.za
Photo by Wikimedia Commons.