Ian Fife

heriffs are a distressed sale clearing house

Ineptitude and possible crime cost millions

“We achieved an average of 73% of market value at our auctions in Gauteng compared to 55% [achieved] by the sheriffs”

— RAEL LEVITT

The clamour is growing for changes to the sheriff’s office, a clearing house for thousands of failed property deals.

The 264 sheriffs’ offices are indirectly costing debtors as much as R375m/year — the 10%-15% average lower price that sheriffs raise in their R2,5bn annual sales in execution compared to private auctioneers.

The sheriffs are an anomaly. They used to be a part of the master of the high court’s office, but were privatised in the 1980s by former justice minister Kobie Coetzee. They run their own businesses but their fees are limited by law to a maximum of R8000.

Advertising of their property sales is limited to one local newspaper and the Government Gazette

The aim of sheriffs selling the properties of defaulting owners is to ensure a fair sale for both creditor and debtor to the public.

They have little incentive to push the price above the R240000 needed to get their maximum fee. And the advertising doesn’t give them wide enough coverage for strong public response. There are no photographs of the properties, nor is there information on costs and condition, either in the advertisements or available at the sheriff’s offices.

The board of sheriffs’ recently appointed chairman Judge Nathan Erasmus has undertaken to clean up their act. “Sheriffs are the gatekeepers of justice and they must act in the interests of justice,” he says. New training regulations were gazetted, and action is being taken against dishonest and incompetent sheriffs.

But a hard core of regular career bidders, sometimes working together in rings, frequents and often dominates sheriffs’ auctions. They pick up bargains and appear to sell them among each other, pocketing their profit in cash before the property is finally bought or dumped back on the sheriff to resell.

This process violates the sheriffs’ and creditors’ rules of sale and those of the SA Revenue Service. In many instances the career bidders don’t pay the deposit required by the rules.

Ordinary people who bid often find themselves aggressively challenged by the regulars demanding that the sheriff make them show their cash deposits. At some auctions, prospective buyers are visited by sidekicks of known gangsters and “invited” to withdraw from bidding.

These methods contribute to the consistently low prices achieved by sheriffs, with much of the difference ending up in the pockets of the regulars when they resell the properties at a profit.

It isn’t clear whether these violations happen because of ineffective control by the sheriffs or because they have become cosy with the regulars.

Critics say that some sheriffs’ offices set a high standard of probity — Sandton, for example — but sheriffs in other offices appear to have become rich. Some own storage, removal and property companies, useful adjuncts for people who spend much of their time attaching moveable goods.

Sheriffs are regulated by the board of sheriffs, who appeared until recently to be as ineffective as many of the people they oversee. “They had the teeth of a jellyfish,” remarks one lawyer.

Recently, banks started bypassing the sheriffs by persuading their defaulting borrowers to use private auctioneers to sell their properties voluntarily before they are forced to do so by court orders.

This was mostly done through property auction giant Auction Alliance. Its sales data gathered by deeds office analysts Lightstone shows the Alliance group raised much higher prices in every type and price of property in every part of SA.

“This shows that creditors and debtors would be better served by opening auctioning beyond the sheriffs,” says Alliance CEO Rael Levitt

Creditors — mainly the banks, whose biggest business is R1trillion in home loans — want to use conventional auctioneers and agents. They can do so for any sale in execution ordered by a magistrate’s court for debt below R250000. But most bonds are bigger than that and rule 46 of the Supreme Court Act limits auctions to the sheriff.

There is a groundswell of support from banks, lawyers, estate agents, academics, law societies, government attorneys and, of course, auctioneers who want this rule changed.

They are supporting a proposal to the rules board of the courts to change rule 46 to allow creditors to choose private auctioneers. The SA Institute of Sheriffs and the SA National Association of Progressive Sheriffs want sales to be limited to officers of the court (like themselves).

The sheriffs are demanding that magistrate’s court sales in execution should be their sole preserve as well. “Rule 43 (9) of the magistrate’s court is ultra vires and should be repealed,” say their advocates.

“In short, the position in the magistrate’s courts should be the same as the superior courts. The Magistrate’s Court Act does not empower any person other than the sheriff to execute a judgment or effect a sale in execution.”

The Institute of Sheriffs says private auctioneers are too expensive.

“But the higher cost of private auctions is far outweighed by the higher price we achieve,” Levitt responds.

“The data collected by Lightstone shows that we achieved an average of 73% of market value at our auctions in Gauteng compared to 55% by the sheriffs; 80% against 55% in KwaZulu Natal and 82% compared to 58% in the Western Cape.”

Change will take time for many reasons, including the need to ensure fairness to all. For now, a small but key part of the economic cycle is badly defective.

Source: Financial Mail