1. Equity and justice
There are various practices associated with sale in execution that are widely considered internationally to be unjust and which some countries have taken steps to control. These steps include, firstly, limiting the amount of interest and costs that are sometimes added on; secondly, a proportion of the home equity can be protected from bankruptcy proceedings; thirdly that separate arrangements may need to be made for low income households.
Firstly, in order for a sale in execution to be fair, the costs added to the mortgage for the execution must be reasonable and fair. We see these principles brought into law in various countries. The relatively recent Spanish law of 2013, for example, limits the interest and costs that are levied on default.[1] In the United States, the Real Estate Settlement Procedures Act[2] inter alia makes sure borrowers are provided with information about the cost of the mortgage settlement and that unnecessarily high settlement charges caused by certain abusive practices are disallowed.[3]
Secondly, some countries specifically protect the home from legal process as opposed to other assets.[4] One aspect of the US law that protects the home in the Federal Bankruptcy Law,[5] is that the first roughly R300,000 of a person’s home equity is exempt.[6] Thus if a person’s home is worth less than around R300,000 then he or she can go bankrupt and still keep his home. This applies everywhere in the United States. The laws of individual states also have various “homestead exemption” laws, usually with a fixed monetary value[7] which prevent forced sales of the property unless the house equity is above the limit. In most provinces of Canada, a residential property, up to a certain value[8] cannot be taken in execution[9] for debts other than that of the mortgage itself.[10] In Scotland, there are proposals to exempt up to two hundred thousand pounds[11] of debtor equity from creditors. In a more extreme case, it is possible in New Zealand for a married couple to “settle” a home which makes it exempt from claims by unsecured creditors in an attempt to reinforce the value of family life against claims of creditors.[12]
Thirdly, with respect to “Low Income Households”, a deficiency judgment is not allowed in New Mexico after the non-judicial foreclosure of a residential loan made to a household in which the current annual income (at time of loan) is at or below 80% of the area median income[13]
[1] Charles Enoch, Luc Everaert, Thierry Tressel, Jian-Ping Zhou “From Fragmentation to Financial Integration in Europe” (Washington: International Monetary Fund) p424. This law also cancels the deficiency amount for sale of property, where the debtor pays 65% in 5 years or 80% in 10 years
[2] Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§ 2601–2617,
[3] Nicholas Krebs British Cures for American Foreclosure Woes: A Comparative Analysis of Foreclosure Law in the United States and United Kingdom Chi.-Kent J. Int’l & Comp. L. Vol. XV.
[4] This could be seen as protecting the ‘home interest’ which we discussed in the theoretical chapter.
[5] States can opt out.
[6] Steyn, Lienne 2012, “Statutory regulation of forced sale of the home in South Africa” LLD thesis, University of Pretoria, Pretoria p423.
[7] Pennsylvania, Maryland, Delaware, and New Jersey have no exemption at all so the federal exemption applies. Montana has a level of $250,000. Washington’s exemption amount is almost$150,000 and there is an exemption of $350,000 in Nevada
[8] The value varies between $2,500 in Manitoba to $12,000 in BC, to $32,000 Satchachewan and $40,000 in Alberta At the time of writing there are around ten rands to the Canadian dollar.
[9] Steyn, Lienne 2012, “Statutory regulation of forced sale of the home in South Africa” LLD thesis, University of Pretoria, Pretoria p439.
[10] Steyn, Lienne 2012, “Statutory regulation of forced sale of the home in South Africa” LLD thesis, University of Pretoria, Pretoria p440.
[11] Around R 3 million , being the average house price.
[12] Steyn, Lienne 2012, “Statutory regulation of forced sale of the home in South Africa” LLD thesis, University of Pretoria, Pretoria p44.5. The property could not however be mortgaged
[13] New Mexico Stat. Ann. § 48-10-17(E) and (G)(1) and (H).
[13] Adjusted for family size as determined by the United States Department of Housing and Urban Development The analysis does however apply with the appropriate changes to the forced selling of repossessed cars, land, aircraft, etc at auctions as well.