12 Apr 2013
Getting into the property market is something most people aspire to.
Sometimes a property requires the ‘money power’ of two salaries, whether it is to get a home you both need or as an investment.
A joint bond may then be the only viable way of getting into the market.
While it is possible for two people to have a bond issued jointly in their names, problems can occur if relationships end or circumstances change.
If the time comes to change a joint bond arrangement, both parties naturally want solutions that are equitable.
People looking to end a joint ownership should remember that from a bank’s point of view, a joint bond means that all parties to the agreement are liable for the full debt jointly and severally.
This is regardless of who actually pays the loan or what portion of the monthly instalment each person is paying or not paying.
If the relationship that brought about the joint bond ends, or if circumstances mean only one person is paying the bond, the person paying can apply to their bank for a substitution on the bond.
What this means is that the paying person will have to enter into a new agreement with the bank and accept sole responsibility for the outstanding balance of the bond.
A consultation with an attorney will be required to sign new agreements and have the other person’s name removed from the title deed.
The other person will have to consent to this removal of their name from the bond documents.
While the steps are clear and easy to follow, problems can arise if one person is not willing to follow the process.
Things can become especially complex if one person refuses to contribute towards the payment or upkeep of the property, but doesn’t want their name removed from the bond documents.
If this situation arises there is no alternative but to seek the assistance of an attorney, who will provide guidance on your rights and can represent you in court to get an order to remove the other party from the bond.
It is also not unusual for a couple who have purchased a property together when they were first married, to want to change property ownership in the event of a divorce. In this case substitution is also required.
If a divorce court stipulates that one of the parties will retain the property, the following will take place:
Even if a court has ruled through a divorce that the property will be held by a single person, that person will still have to be able to prove to the bank that they are able to afford the payment.
If the payment cannot be met, the bank will not allow a substitution to take place.
The property will then have to be sold, or another person proposed to be added to the bond as a joint bond holder.
If no joint bond holder is nominated, a surety who will guarantee payment and support the affordability can also be co-signatory on the bond.
The same will apply if a joint owner of a bond should pass away, leaving one person registered as an owner on the bond.
All substitutions, regardless of their cause, will involve the payment of attorney’s fees, Deeds Office fees and some form of duty.
The costs of these elements will obviously depend on the value of the property.
It is advisable to ask an attorney for an estimate on the fees and costs, and once the bank appoints an attorney, to negotiate the fees with the appointed attorney. These fees can be as high as 8 percent of the property valuation – similar to those incurred when the property was first purchased.
The good news is that if a substitution is to take place, the party taking on the responsibility of the bond can also take the opportunity to change some aspects of the bond.
These include the term of the bond, interest rate and insurance rates. – Steven Barker
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