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Buying distressed property: is this legal?

18 May 2015

A Property24 reader asks:

I signed an offer to purchase but now the agent has come back saying it’s a distressed property and I must pay the outstanding rates. Is this legal?

I have signed an offer to purchase a property that has 2 erf numbers (only one offer to purchase was signed), but was subsequently asked by the agent to come back and sign an offer to purchase for each erf number. I was then told it was a distressed property and a deceased estate. I now need to pay for the outstanding rates and taxes, and all the certifications in KZN (electrical, ants and gas). I need to agree to this before they will fill in the new offer to purchase.

Can you tell me who is in breach, and are they allowed to do this?

 Jaco Rademeyer, from Jaco Rademeyer Estates, responds:

A distressed property can be defined as property that is under a foreclosure order or is advertised for sale by its mortgagee. A distressed property usually fetches a price that is below its market value and is sold by the owner in order to prevent foreclosure of the property, to try and cut the potential financial losses. The distressed seller and lender have to agree on the selling price, terms and conditions and there is still transfer duty payable on purchase prices above the R 750 000 transfer duty threshold.

Looking at the facts on face value, it would seem that you don’t have a claim as there was never a legal and binding contract. A property cannot have 2 erf numbers and I would presume that the property that you are referring to is in fact 2 erven next to each other, with 2 separate owners. (Bear in mind that you can buy more than one property in 1 Offer to Purchase if the parties are the same.)

Where the property forms part of a deceased estate, only the Executor can sign on behalf of the deceased after he/she has been formally appointed by the Master of the High Court. The contract will also be subject to the consent of the Master’s Office and as it will be a sale out of a deceased estate, all the heirs in the estate must also consent. Therefore, if the Master of the High Court does not agree to the sale, the sale cannot continue.

When a distressed property is sold, the bank (as the creditor) must also accept the contract due to the fact that there will in all probability be a shortfall due to the bank after registration.

The contract that the clients sign, regulates the finer details as to who is liable for the payment of the arrear rates, electrical wiring certificate etc. Many people assume that when buying a distressed property, the buyer is liable for all outstanding rates, levies, electricity and water. This is normally only the case when purchasing from the Sheriff. Buyers need to ensure that the seller is liable for outstanding costs and that these are settled out of the proceeds of the sale.

Readers may submit questions to Property24’s Guest Expert panel and/or comment below. We may not be able to answer all questions received, but all will be considered.

About the Author
Jaco Rademeyer

Jaco Rademeyer

Jaco Rademeyer is the owner and principal of Port Elizabeth-based Jaco Rademeyer Estates (JRE). He obtained an LLB from Stellenbosch University with a special focus on contract law, and is a multiple Institute of Estate Agents award winner in the Eastern Cape. In 2012, Jaco won the Eastern Cape Property Icon Award and also won the business and law category of the Mail & Guardian’s 200 Young South Africans competition. He was also named in the Nelson Mandela Bay Business Chamber’s Top 40 Under 40 business people in the region. Follow Jaco on Facebook at JRE - Jaco Rademeyer Estates, or on Twitter at @jacorademeyer, or visit www.jacorademeyer.co.za.

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