Home Loan in Arrears: Challenging a Certificate of Balance

What is a Certificate of Balance?

Loan agreements and surety documents often contain a "certificate of balance" (COB) clause. This standard clause, while varying in length and specific wording among lenders, typically states: "A certificate signed by a bank manager shall serve as prima facie evidence of the amount owed under the loan agreement, unless proven otherwise." Many homeowners encounter this clause within the bank's COB, included in the extensive documentation signed during the mortgage agreement process, where the loan repayment, including interest, is secured by a mortgage on their property.

However, does this clause bind you to the bank's figures? Should this wording intimidate you into accepting any amount demanded by a bank or creditor?

Recent High Court rulings confirm that the answer is definitively no. A certificate of balance is not conclusive proof of the debt. Instead, it serves as a tool to assist the creditor in demonstrating the amount owed.

A recent example is a couple who successfully challenged a bank's calculation of R2.1 million.

A couple fell into arrears on their monthly repayments for a bank loan secured by mortgages on two of their properties.

The bank sent them the prescribed Section 129 Notice as mandated by the National Credit Act (NCA). This formal letter of demand, required before a creditor can initiate court action, notifies the debtor of their payment default. The notice must also outline alternative solutions, such as instalment plans, debt counselling, or alternative dispute resolution.

Subsequently, the bank applied to the High Court to enforce the loan agreement, placing both properties at risk of being sold in execution. The couple opposed the application, contesting the accuracy of the bank's claimed R2.1 million debt as presented in the certificate of balance. They argued that they had not received bank statements since 2019 and demanded a detailed breakdown of the total amount owed.

The bank refused to provide the requested statements, asserting that the couple needed to establish a "convincing foundation" before requesting such records. The bank maintained that the certificate of balance constituted conclusive evidence of the debt, and that the onus was on the debtors to disprove its accuracy.

The court rejected this argument. It clarified that a certificate of balance serves merely as prima facie evidence of the debt and does not shift the burden of proof to the borrowers.

The court found that the bank had neither stated the correct arrears amount in the Section 129 Notice nor provided an accurate breakdown of the debt. Consequently, the bank's application was dismissed.

Lessons for Lenders and Borrowers:

• Lenders: Ensure that all claimed amounts are accurate and supported by comprehensive documentation. Seek professional assistance to verify your calculations and ensure that loan agreements and related documents are correctly drafted and up-to-date.
• Borrowers: Respond promptly to Section 129 Notices or any other demand letters. Do not ignore them. If you are uncertain about the appropriate course of action, seek professional advice. If you dispute the claimed amount, immediately request a detailed explanation of the calculation and verify its accuracy.