Last week’s 0.25% per annum interest rate reduction extinguished the arrears on tens of thousands of mortgage bonds. That, says a Moneyweb report, is the claim being made by several property owners in cases before the courts involving multiple banks.

‘The banks no longer have a legal basis for continuing with debt enforcement proceedings – there are no longer any arrears,’ says legal consultant Leonard Benjamin, who is advising in these cases.

‘Despite this, many consumers are still having to deal with the possibility of losing their homes. We will be arguing that the banks in question no longer have the right to pursue legal proceedings instituted against several of our clients.’

Benjamin concedes the argument is controversial but is the only logical conclusion to draw from the evidence. If the courts agree, thousands of people who lost their homes through foreclosure over the last decade could then have a claim against the banks.

‘The proposition is so startling that I appreciate that it may be difficult to understand. In fact, it seems that the banks themselves either don’t understand or choose to ignore that they are, in fact, extinguishing the arrears by changing the interest rate and our intention is to demonstrate this to them,’ says Benjamin.

Moneyweb points out this argument is new to SA, but not overseas.

A famous case in the UK in 2014, Rae versus Bank of Scotland, looked at exactly this practice and ruled against the bank, which was found to be consolidating the accounts of clients in arrears roughly every six months. That, said the court, had the effect of extinguishing any arrears.

All a customer has to do at that point is continue paying instalments.

To pay the arrears on top of this amounts to ‘double-dipping’ – or paying for the same thing twice.

Full Moneyweb report

Report on Bank of Scotland case