Legal Talk – What you should know about Mortgage Bonds in South Africa

To inform home owners and prospective home owners about the registration procedures of 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 fulfillment 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 agrees 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 CAPAPABLE OF BEING MORTGAGED?

All immovable property, improved or unimproved, which is registrable 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 RIGHTS AND OBLIGATIONS OF THE MORTGAGOR?

• Repayment of the loan. The Mortgagor must repay the capital debt and interest to the Mortgagee in terms of the loan agreement. The terms of repayment are contained in the agreement and the terms of repayment is normally 20 years.
• Use of the property. The Mortgagee does not obtain the use and enjoyment of the mortgaged property as this is retained by the Mortgagor subject to certain restrictions e.g. the Mortgagor may not, without the written consent of the Mortgagee, grant a servitude over the property in favour of a third party.
• Right to sell and transfer. The Mortgagor cannot transfer the property unless the mortgaged debt has been paid in full and the bond cancelled or the land is released from the operation of the bond with the written consent of the Mortgagee. The cancellation or release normally takes place simultaneously with the transfer.

WHAT DOES THE MORTGAGE BOND COVER?

The mortgage bond covers the land and the improvements effected after the bond was registered, e.g. a swimming pool built after registration of the bond.

WHAT HAPPENS IN THE EVENT OF THE MORTGAGORS INSOLVENCY?

A Mortgagee has a preferential claim to the proceeds of the property if it is sold pursuant to the Mortgagors insolvency e.g. the Bank will be entitled to claim from the proceeds of the sale what is due to it first. The concurrent creditors are paid from any residue of the proceeds.

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 fulfill 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 installment.

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.

WHO CAN GRANT A MORTGAGE BOND?

A mortgage bond can only be granted by the owner of the property.

• Property held in joint ownership can be mortgaged only if all the co-owners give their consent.
• A woman or man married out of community of property can mortgage her/his own immovable assets without her/his spouse’s consent.
• If the parties are married in community of property, no spouse may mortgage the joint immovable assets without the other spouse’s written consent.

REGISTRATION IN THE DEEDS OFFICE

The limited real right which is embodied in the mortgage bond is established only after the bond has been registered in the Deeds Office. To effect registration, a mortgage bond must be prepared by a Conveyancer. In practice an endorsement is made on the Title Deed of the property which is mortgaged, which records the details of the bond so registered.

CANCELLATION OF A MORTGAGE BOND

The following are the most common grounds on which a mortgage bond can be cancelled:

• On complete fulfillment by the debtor of his/her obligations to the Mortgagee.
• When the owner transfers the property and pays the outstanding amount from the proceeds of the sale.
• When the cancellation thereof is registered in the Deeds Office.

Courtesy: STBB Smith Tabata Buchanan Boyes

STBB Smith Tabata Buchanan Boyes is a firm of business-minded lawyers which was established in 1900. At present, the firm consists of over 100 professionals practising from 15 offices throughout South Africa.

Visit their website: www.stbb.co.za or contact them on: +27 (0) 31 583 8060

Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage which may arise from reliance on information contained in this article. © Copyright STBB Smith Tabata Buchanan Boyes 2007. All Rights reserved