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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:
Eddie
Albertyn
eddie@cwmalan.co.za
Marieke Ferreira
marieke@cwmalan.co.za
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