Understanding the process for changing partners on a joint home loan is essential to protect rights and ensure a smooth transition.
There are significant practical and legal consequences associated with joint ownership of immovable property in South Africa. In many cases parties do not take legal advice in advance and are sadly left with uncertainty and stress when circumstances change and one of the partners leaves by choice or necessity.
Property24 guest expert Tarryn Gravenor of Herold Gie Attorneys offers the following advice:
Changing partners on a joint home loan is a process that requires careful consideration and adherence to specific procedures under South African Law.
It is likely that the bank’s mortgage loan agreement would have clauses for joint and several liability and if one of the co-owners were to have an adverse credit score, incur debt and/or have judgement taken against them or be sequestrated the bank would proceed after whoever is the easiest target and if that is you, you would not have any effective recourse against the co-owner if the co-owner is sequestrated. In the circumstances it is advisable to minimise the risk and get the property and bond off your name as soon as possible.
Here is a brief overview of the considerations involved:
1. Review your Title Deed and Loan Agreement:
The first step is to know what your title deed states as to the identity of the registered owners, their marital status, what contractual terms apply regarding (changes in) the partnership and/or property ownership, and to understand the applicable law.
2. Consult with the Lender:
Once you have reviewed your title deed, the terms of the loan agreement and joint ownership agreement (if any), it is advisable to speak with your bank directly. They need to approve any new loan or restructure the existing loan agreement and may further require documentation. The process usually involves a credit assessment afresh in compliance with the applicable credit laws and requirements of the particular bank.
In terms of the Deeds Registries Act, the bank as bond holder will require that the existing bond either be cancelled or they would agree to a substitution of debtor under the existing bond, in effect releasing one borrower from their obligations under the bond
If a co-owner/s buys the share in the property from the other owner/s, then the remaining co-owner/s would have to apply for the bond to be put onto their name alone under section 57 of the Deeds Registries Act. If the property is to be sold to a third party, then the bond will need to be cancelled.
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3. Transfer
To minimise risk and liability as a co-owner, the share in the property would need to be transferred off the name of the exiting party, or the party could buy the property and become sole owner. A transfer of the share of the exiting owner must be registered at the Deeds Office by a conveyancer.
For the conveyancer to start the transfer process for you, advise you of the cost involved to transfer a share of the property to another, they would require certain information and documents, such as personal particulars of the parties, copies of identity documents, latest rates account, proof of residence for the owners and buyer (if applicable), title deed and reputable estate agent’s fair market valuation for the property to assess the current market value.
A suitable agreement or deed of alienation would then be drafted, usually by the conveyancer handling the transfer, with a view to attending to the required transfer and release of the exiting partner from their obligations under the loan, and co-ownership of the property.
4. Be aware of associated costs
Be aware that there are costs associated with a new or restructured home loan and its associated Deeds Office registration, including bond registration costs, bond cancellation costs, and transfer costs, including transfer duty payable to SARS.
The buyer usually pays for the transfer and bond registration costs to buy out the other party.
5. Rates and Taxes, Insurance, Capital Gains Tax and other considerations
All co-owners are jointly and severally liable for the payment of insurance premiums and municipal rates and taxes upon transfer of a property, despite any agreement entered into with each other. Furthermore, the issue of capital gains tax would need to be considered especially where the property has been acquired by the owners some years ago, and the property value would most likely have increased in that intervening period.
6. A note on joint ownership
While the co-ownership relationship exists, it is important to consider what happens if your co-owner/s go/es insolvent, or if your co-owner’s creditors attach his/her share in the property for sale in execution. Without an agreement to the contrary, a co-owner can sell his/her share without the other’s consent – a recipe for dispute. It would be prudent for all owners to co-operate with one another to come to an agreement in writing which will govern their respective rights in the property, and how the property is going to be dealt with going forward. The alternative is simply not worth the hassle, stress, delay and cost (of legal action).
Joint property ownership can work extremely well when relationships remain stable and financial circumstances align. However, when one co owner wants to exit the property before the bond term ends, disputes and financial complications can arise very quickly.
According to Antonie Goosen, principal and founder of Meridian Realty, co ownership disputes are becoming more common as rising living costs, relationship changes and financial pressure place strain on households.
“People often enter co ownership arrangements with good intentions but very little planning for what happens if circumstances change later,” says Goosen.
Co ownership arrangements frequently involve spouses, unmarried couples, siblings, friends or investment partners sharing ownership and bond obligations. “The challenge is that the bank does not simply release one party because they want to leave. As long as both names remain on the bond, both parties remain legally responsible.”
He says one of the most common misunderstandings is assuming that moving out of the property automatically removes financial liability. “That is not how joint bonds work. If repayments are missed, both parties can still face serious credit consequences.”
According to Goosen, the first step when one owner wants out is usually determining whether the remaining party can financially qualify to take over the bond independently. “In some cases, one person refinances the property into their sole name and compensates the other party for their share of the equity,” he says.
If that is not financially possible, the property may need to be sold. “Sometimes selling is the cleanest and least risky solution. Particularly if there is conflict or ongoing financial strain.”
He strongly recommends that co owners put written agreements in place at the beginning of ownership, especially outside of marriage. “People should discuss upfront what happens if somebody wants to exit, loses employment, stops contributing financially or wants to sell,” he says. He believes many disputes could be avoided through better planning and legal advice before purchase. “Buying property together is a major financial commitment. It should be approached with the same seriousness as any long term business partnership".
He also warns against allowing disputes to become emotional stalemates while bond arrears accumulate. “The longer parties delay difficult decisions, the greater the financial risk becomes,” he says. According to Goosen, estate agents often end up helping co owners navigate difficult negotiations during these situations. “In many cases, the goal is not just selling the property. It is helping both parties exit the situation with as little financial and emotional damage as possible".
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