GUIDE TO MORTGAGE BONDS

INTRODUCTION

A creditor who advances money to a debtor usually requires the debtor to provide some form of security for the repayment of the debt.  Two main forms of security can be distinguished, namely:

• Personal security:  An individual can bind himself/herself personally as surety for the repayment of another's debt in the event of non-payment by the debtor himself.  Should the debtor not pay, the surety will be called upon to pay on behalf of the debtor.

• Real security:  A borrower (Mortgagor) can offer his immovable property to a lender (Mortgagee) as security for the repayment of a debt.  The Mortgagee (normally a bank) will cause a mortgage bond to be registered over the immovable property as security for the fulfilment of the Mortgagor's obligations.

WHO IS THE MORTGAGOR AND WHO IS THE MORTGAGEE?

• The Mortgagor is the individual, company, close corporation, partnership or trust who has borrowed money to finance the purchase of an immovable property and mortgages his/her property as security for repayment of the loan.

• The Mortgagee is the Bank, Financial institution, employer or individual who lends the money to the Mortgagor and in whose favour the mortgage bond is registered.

WHAT IS A MORTGAGE BOND?

A mortgage bond is based on an agreement in terms of which the Mortgagor borrows money from the Mortgagee and aggresses to pass a mortgage bond over a specific immovable property in favour of the Mortgagee as security to the Mortgagee for the repayment of money.

WHAT PROPERTY IS CAPABLE OF BEING MORTGAGED?

All immovable property, improved or unimproved, which is registerable in a Deeds Office can be mortgaged.  This includes a flat as well, if it is held under sectional title and is owned by the Mortgagor.

WHAT ARE THE CONSEQUENCES OF FAILURE TO PAY INSTALMENTS?

Foreclosure is the term describing the procedure followed in this event, if the Mortgagor fails to fulfil his/her obligations towards the Mortgagee, the latter can enforce his/her rights against the Mortgagor by calling up the bond and obtaining a Court Order which authorizes a sale in execution after due notice has been given to the Mortgagor.  A Bank therefore cannot immediately cause a property to be sold in execution merely because a Mortgagor failed to pay an instalment.

WHAT IS THE "ADDITIONAL SUM" AS PRESCRIBED IN THE MORTGAGE BOND?

The mortgage bond secures not only the principal obligation of the debtor, but also ancillary expenses which the Mortgagor may incur in respect of the property such as insurance, maintenance expenses, the legal cost of pursuing the claim and arrear interest.  Thus in a bond document provision is made for an "additional sum" over and above the amount borrowed, being the amount intended to cover the aforementioned items in the event of the Mortgagee having to foreclose on the bond.

THE PROCESS

A QUICK GUIDE TO THE BOND REGISTRATION PROCESS

Step 1 - RECEIPT OF INSTRUCTIONS FROM BANK

Receipt of instructions from the Bank to register the bond.  Usually the instructions are received electronically.

Step 2 -  PREPARATION OF DOCUMENTS

If a transfer is involved request a flysheet from the transferring attorney, guarantee requirements and relevant FICA documents from the client.

Obtain a deeds office printout for the property and the client to check for any interdicts, insolvencies or other caveats that may be registered against the client or the property.

If a further advance is to be registered, obtain the title deed from the bank and prepare the bond documents for signature.

Step 3 - SIGNATURE OF DOCUMENTS

On receipt of the flysheet and other documents, prepare the bond documents for signature.

Contact the client and arrange for signature of the documents and payment of costs.

Step 4 - GUARANTEES AND FICA

After signature, the bond attorneys will advise the transferring attorneys that the bond documents have been signed.  Send guarantee, if requested or advice of the amount available under the bond.  Advise of position to lodge upon request or advise the transferring attorney of what is preventing lodgement.

Step 5 - LODGEMENT OF BOND DOCUMENTS

If a further bond is to be registered, proceed with lodgement.  If a transfer is involved, lodge on request of the transferring attorney.

The deeds take 7-10 days to be examined in the deeds office where after they come on preparation for registration. 

The conveyancer has 6 days in total to register the bond.

If a further bond is to be registered, the bond is handed in for registration and registered on the following day.

If a transfer is involved then the transfer and bond attorneys arrange the date of registration.

Step 6 - REGISTRATION

On the day of registration, the bond with the other linked transactions are registered at the Dees Office.   The bond attorney advises the bank and client of registration and arranges with the bank to pay the bond proceeds.  The transferring attorney presents the guarantee for payment after registration has taken place.

In the case of a further bond, the bond proceeds are paid in terms of client's payment instructions.

Step 7 - DELIVERY OF BOND DOCUMENTS

Once the bond has been numbered and micro-filmed, it is delivered to the bond attorney from the deeds office.  This can take up to 3 months.

The bond attorney then obtains the title deed from the transferring attorney, if applicable, and delivers the title deed, bond and other security documents to the bank.  If no bond is involved, the title deed is delivered to the purchaser.

NON RESIDENTS

There are certain restrictions on non-residents wanting to purchase property in South Africa.  The non-resident may borrow up to a maximum of 100% of his/her borrowing base.  The 'borrowing base of a non-resident individual is the sum introduced into South Africa to fund the purchase of a property, i.e. 50% of the purchase price E.g. "A non-resident wishes to purchase a property in South Africa for R600,000.00.  Provided R300 000.00 is introduced into South Africa to effect the purchase he/she would be able to apply to the South African Reserve bank for permission to avail himself of a bond of R300 000.00.

In other words banks will lend up to 50% of the purchase price, subject to their normal terms and conditions, which would include a valuation of the property.

Technically, if a non-resident has consistently brought funds into the country over a number of years, he/she may borrow up to a maximum of 100% of the total funds invested in South Africa  theoretically this could also be more than 50% of the purchase price of the property.

Such non-resident loans are however subject to foreign exchange approval from the South African Reserve bank.  Financial assistance is granted in the form of a loan secured by a mortgage bond to be registered in favour of the bank granting the loan.

Should you require any further assistance, we invite you to contact any of our conveyances, namely:

Adriaan Groenewald

adriaan@cwmalan.co.za

Lynelle Kok

lynelle@cwmalan.co.za

Eddie Albertyn

Eddie@cwmalan.co.za