Scorpions probe R1.6bn housing loan rip-off

Say it with a sting.....

South Africa
31 August 2008

National Credit Regulator hands over case after uncovering a ruthless scheme that preyed on cash-strapped homeowners, getting them to sign over their homes and reducing them to tenants, writes Buddy Naidu.


Liquidators are heading to court in a bid to block the repossession and enforced sale of at least 200 homes caught up in a R1.6-billion housing scandal.


Two Pretoria-based companies, which have since been liquidated, are at the centre of the scheme — deemed to be fraudulent by the National Credit Regulator (NCR) — that targeted cash-strapped and credit-listed South Africans.


More than 800 home loans, facilitated by Reverse Mortgage Company (RMC) and Asset Management Specialist (AMS), were obtained through various banks between 2003 and 2007.


Loan applicants obtained extra cash by unknowingly selling their properties to a buyer connected to the two companies.

However, the homes were then allegedly transferred to a shelf company or a trust, and the cash from the new home loan would then be split between the buyer and the companies.

The property owner was then effectively reduced to the status of a tenant, having to repay the monthly bond fee to one of the facilitating companies.

However, the repayments were not always transferred to the bank that had provided the home loan, and as the arrears mounted, these banks moved in to repossess the properties.

RMC’s major shareholder is Pretoria-based Johannes Petrus Harris, whose company was liquidated last year.

It was the collapse of his company, involving 600 homes and loans worth R1.2-billion, that triggered the regulator’s probe into AMS.


In June the NCR obtained an order from the Pretoria High Court blocking the eviction of 330 homeowners who had obtained cash from AMS, a company owned by businessman Bernard Barnard.

In court the regulator labelled the scheme as fraudulent and it was granted an order entitling it to seize files and documents belonging to Absa Bank — one of the four major banks largely responsible for providing the loans.


The two companies were then reported to the National Prosecuting Authority, or Scorpions, for possible further action.

To prevent a repeat of the RMC debacle, the High Court in June authorised lead liquidator Enver Motala to oversee a secret judicial inquiry into the collapse of AMS.

This week the liquidator confirmed that he would be filing at least 180 applications to try to overturn the “blatantly fraudulent” loan agreements and “place the homes back in the hands their rightful owners”.

If such restitution is successful, Motala said monies paid out to the homeowners by AMS may then have to be returned.

“The banks may object to this solution but this is a housing scandal of epic proportions. Unfortunately, it may be too late to help homeowners in the RMC case but in the AMS matter, with the help of the regulator, we have recourse,” Motala said.

AMS boss Barnard, 50, insists that while his home-loan scheme may have been deemed “undesirable” by some, it was not “fraudulent per se”.

“It was a sub-prime market and we merely offered a product that we thought could help people in danger of losing their homes and were unable to raise finance.”

However, he says AMS went belly up because at least 50% of customers did not make their monthly payments, which the company then had to subsidise.

“The second reason is that administration was a nightmare,” he added.

Barnard said it was unfair to label the scheme as fraudulent. “I cannot see anything fraudulent, but my understanding is that it’s possible, from a legal point of view, to be deemed as such.”

He said he “feels terrible” for those in danger of losing their homes but insists that, were it not for his help, “they would have lost it earlier”.


In both cases the companies targeted cash-strapped homeowners who were unable to obtain bank loans because of poor credit ratings or their age.


In some cases the company would “purchase” the house through a guarantor or a “jockey” — that is, someone with a good credit rating.

Most of the victims knew that their homes were being used as security for the loans, but were unaware that their properties had been sold.

Neither did they know that they were now not merely repaying small loans but, rather new, outstanding bonds on their homes.

Motala said that in some instances customers “simply found themselves as tenants in their own homes — now bonded to the hilt with the banks foreclosing on them”.

Jan Augustyn, the manager for investigations and prosecutions with the regulator, confirmed that they had referred both cases to the Scorpions.

“Criminal cases are now being investigated because, on the face of it, these schemes appear to be fraudulent,” Augustyn said.

“Our main focus now is on consumers who stand to lose their homes.”

Comments by Sonny

More reasons why the Scorpions should not be disbanded.