29 Jul 2008
Bond cancellations have taken many a seller unawares. An expert explains how it works.
Purchasing or selling a home and registering a bond can be a stressful and lengthy process, so it helps to know as much as possible about what is involved. Most banks and estate agents have extensive knowledge and are usually willing to assist buyers or sellers with advice and information.
"South African law has very clear and specific property laws and these stringent legal requirements ensure that the correct procedures are followed and completed when a property is purchased or sold," says Tony Ketcher, MD Seeff Properties Randburg. "This also ensures that the property is free of any encumbrance pertaining to a previous owner prior to transfer of the property being registered in the buyers name."
If the seller has a bond registered over the property, it must be cancelled on transfer and the seller is responsible for payment of the conveyancer's fees for cancellation. (Conveyancing describes the legal procedure whereby lawful ownership of immovable/fixed property is changed (i.e. ownership is "conveyed" from the existing owner to the purchaser). The cancellation of an existing bond has to comply with certain legislation as well as the relevant financial institutions' procedures and costs.
"The bank that holds the sellers bond must receive a written request to cancel the bond once the seller has accepted an offer from the buyer," says Ketcher. "Most banks require 90 days notice – failure to do this may result in penalty costs. The 90-day notice period is only waived in the case of a deceased estate, sequestrated estate or in the event that your new bond is with the same bank."
The bank will then will then advise the seller's attorney (the transferring attorney) to attend to the cancellation of the outstanding capital amount and interest, plus any other costs that are required to settle the account.
Ketcher says that generally speaking, there are usually several attorneys involved in the sale of a home: the transferring attorney (appointed by the seller to transfer the property to the buyer's name); the bond attorney (appointed by the bank granting the bond); and the bond cancellation attorney (appointed by the bank cancelling the bond of the seller upon receipt of a guarantee for the amount owing).
There are several costs related to cancelling a bond - the institution will calculate the exact cancellation figure including charges. Bond cancellation fees are governed by the Law Society, which has instituted a minimum fee.
According to the Standard Bank website (http://www.standardbank.co.za), amounts included in the cancellation figures are the month-end balance before cancellation figures; any homeowner's insurance premiums that would have been debited to the bond account in the next three months; any life assurance premiums that would have been debited to the bond account in the next three months; and legal costs, interest, retention amounts and early termination interest if applicable.
After all the documentation has been signed and the costs paid or guaranteed, the transfer, the new bond and cancellation bond documents are lodged in the Deeds Office and after due process, the registration of the property into the name of the new buyer can take place.
"It is also important to remember that if you cancel your bond within the first two years you will have to pay penalty interest," adds Ketcher. "The penalty interest is basically three months worth of interest. If after two years you cancel your bond then there is no penalty payable. This is because, with the cost of funds, a bank only starts making money on a home loan after about two years, depending on the concession rate they have given you. If your rate is high enough, then the bank will only start making a profit after three or four years. You should remember that the money the bank lends to you costs them money. The margin on a home loan is usually very narrow."
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