The Golden Rule

The Golden Rule (2000 - 21)

by Peter Carruthers

A story...
I had a 'mother of all accidents' last year on 1/8/99. A chap did a U turn in front of me on the highway and I pulled a classic 'T' bone into his side. (I forgot to mention that I was on a BMW RS1100 motorcycle - which has gone to the BIG garage in the sky.) My wife had a broken back and is still in a wheelchair. I had a broken pelvis, leg and wrist and these injuries left us in Hospital for just on 6 months. Anyway - seeing that I work for myself - this created a few major challenges. One being my house - FNB (First National Bank) were the bond holders. Whilst flat on my back with all sorts of metal pieces protruding from various places in my body I phoned the Bank manager to inform him of the problem I was now faced with. At the time he was 'sort of' sympathetic and said he would do what he can to assist BUT didn't do a thing. To cut a long story short - the bank repossessed the house and auctioned it off. Well I thought - at least I don't have to worry about the 'rent' whilst I was staying in the Hotel of Hotels - with my own personal waiters etc. After I got out of the Hospital and went 'home' I received a call from said bank asking how I intended to settle the account with them. I asked 'what account?' - just to be informed that I had an outstanding balance of R164000. Guess what! They auctioned off the house and bought it themselves for the amazing price of R100.00. (Including Vat) On consulting with various legal guys this is their modus operandi. The house has since been bought by an employee of the bank and they are now staying in the house. I have it that they bought the place for R155000 (or thereabouts). I just asked them when they moved in. Gary.

I thought that was a fine indication of morality as practised by some of our business partners – and it’s not confined to just this bank. I have heard this story from [ex] clients of most of the other banks. There are a few lessons here.

Firstly, the disability section of your insurance policy is both expensive and most probably useless! It only pays out after 6 months [by which time most of us in Gary’s position would have been forced to lapse the policy], and it only pays out after long and arduous investigation. I read once that 80% of insurance company litigation stems from our misunderstanding of disability aspects of life insurance policies.

This means that the policy most of us are forced into to secure our bonds is probably much better for the seller [your bank] than for you. All of this begs the question – what to do about it?

One answer is to put into place some kind of income replacement policy. Unlike regular life assurance policies, these pay out as soon as you have been unable to work for a while [1 month – 6 months]. And they stop paying when you get well again. They work out somewhat cheaper than tacking disability onto the back of a life assurance policy. And the policy cannot be attached by your creditors. Have a chat to your broker about one of these remarkably useful products. [Professionals have had access to these for ages via PPS.]

Your broker might not be as enthusiastic as I am about it – for 2 main reasons. The medical is pretty heavy, and the commission is pretty low. If you don’t have a broker – drop me an email and I will put you in touch with the folk I use.

Another answer would be to use your mortgage bond as a savings account. Not only will you be saving 13% [the average bond rate] after tax but by being ahead on your bond repayments you can afford to stop paying for a while without losing the house. Contrast this with the paltry 5 or 6 percent you get before tax on a regular savings account. And if your bond is an Access Bond, you can access your money in an emergency.

And finally, the golden rule – them that has the gold makes the rules. The borrower is the servant of the lender – despite what the lender says in the advertisements. You will experience this servanthood each time you walk into your bank!

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