As Covid-19 takes its toll on the South African economy and many find themselves either facing retrenchment or out of work, the ramifications on co-partnership or joint home loans have been brought to the fore.
Many co-apply with a partner or family member to up their chances of buying their dream home or investment property. But what happens if things turn sour?
One reader says she wants to buy a house of her own but needs to first get out of a joint bond – yet the other partner cannot afford to buy her out.
Another has had a bond for six years, with her sister who is about to get married. She wants to know how registering a new partner would affect the bond term.
And counter to this, another reader wants to know what happens when joint bond changes need to happen due to a divorce.
Denoon Sampson Ndlovu Inc answers:
Changing co-ownership or joint partners under a Mortgage bond is really common.
For instance, a breakup in a romantic relationship, a divorce or remarriage of one of the partners, often prompts the need to make changes and to terminate the original co-ownership arrangement.
So the most common question is always, how can I get my former partner’s name off the title deed and furthermore, how do I deal with the existing Mortgage bond that was originally passed by both the erstwhile co-owners?
To have a better understanding of co-ownership, one needs to take note of the following.
The bond follows the ownership
Firstly, the bond follows the ownership. So only those who are registered as owners of the property are, from a legal point of view, qualified to obtain a Mortgage loan. It is not possible for someone who is not a registered owner, (unless they will become an owner of the property simultaneously), to pass a Mortgage bond. The banks will always want to know if a proposed borrower, is or will become a registered owner or a joint owner.
Secondly, (besides qualifying as a registered joint owner), the banks will also assess the creditworthiness of the borrower or both borrowers, before they will agree to granting a Mortgage loan.
Thirdly, when two people sign Mortgage bond documents, the banks will require them to agree to and to sign to become ‘jointly and severally liable’. This means that the bank will be legally entitled to claim its bond instalments from which ever person can afford to pay. So it will not be possible to say to the bank you are not allowed to take more than my 50% share of the instalment.
If one co-owner can no longer afford the bond, the bank will claim the money from the other partner.
Wanting “out of the co-ownership and out” of the home loan
Unfortunately, replacing one bond account holder with another, is not a matter of simply deleting a name off the title deed.
Generally speaking, a full-blown property transfer is required; in the same way that the person first became a registered joint owner. In all cases the Deeds Office has to register the changes on the Title Deed as well as a Mortgage bond document. Rates and taxes, levy clearance certificates and transfer duty will have to be paid; unless exempted.
So the first question will always be a financial one. If one of the partners wishes to exit, the bondholder will want to know how the future debt will be repaid.
There are various financing options to repay the bank
The remaining partner may wish to buy the other half share from and pay the money to the outgoing partner. That purchase price, would then be used to repay the original Home Loan.
Secondly, a common mechanism from the bank side is the ‘Section 57 Substitution of Debtors’. This is where the outgoing partner is released from the operation of the bond as far as the bank is concerned. The remaining person is then substituted for the outgoing co-owner’s share of the future debt and inherits the existing debt in the bond and agrees to carry on paying off the bond after the exiting partner has been formally released from any payment obligations by the bank.
A substitution of debtors is about taking over the residue of the outstanding debt and paying it off in the future; whereas an entirely new bond will commence the 20-year term, right from day one.
Not all banks though, will agree to a Substitution of Debtors.
Most banks would want a whole new application for a new loan and a new Mortgage bond to be submitted by the remaining partner (or the future sole borrower – to be), or by a new incoming co-owner, to check to see if he/she can manage to pay off the loan on their own.
If the bank will not allow a Section 57 Substitution, the existing Mortgage bond still has to be repaid and cancelled simultaneously with the registration of a new bond Mortgage Bond, which might have been granted to repay the original loan.
Thirdly, if the two co-owners cannot agree on the finances, or cannot afford the bond instalments, they normally agree together, to sell the entire property in the open market, so that the selling price will be used to repay the entire home loan. Thereafter they split the nett proceeds in proportion to what amounts, they each paid in towards the general co-ownership relationship, since the very beginning.
It is generally unlikely that the parties can use the original bond as equity for a new loan; because the banks, generally speaking will not allow a second bond to be registered on top of the first bond. However, if one takes an advance of the Access Bond facility from the original bond and draws down what funds are available, this would provide some equity.
The required paperwork to terminate a co-ownership relationship
In the majority of cases, a full-blown property transfer must be registered in the Deeds Office. Even a half share can only be transferred to the remaining owner, by registration in the Deeds Office.
There must be a signed contract or Deed of Alienation; whether it be a Decree of Divorce, a will, or a sale agreement.
An exception is a Section 45bis Application to the Deeds Office which applies to divorce, division of joint estate, or change of matrimonial property system, when one is married in community of property. Also when one spouse dies and the immovable property is to be transferred to the surviving spouse, an application can be made to the Registrar of Deeds to endorse the current Title Deed to that effect. Section 45bis is complicated and much debated; so a normal property transfer is always the preferred route.
All these options require the payment of conveyancing costs as well as the payment of Transfer Duty; apart from transfer in terms of a Will or a High Court Divorce Order, which is exempt from Transfer Duty.
Most of the tractions to terminate co-ownership and joint ownership are more complicated than a normal property transfer and so, in all cases, a conveyancer should be contacted to quote on what it will cost to complete the changes; because all these changes have to be registered and recorded in the Deeds Office.
Denoon Sampson is the Director at Denoon Sampson Ndlovu Inc, currently ranked the ‘number 1’ top performing conveyancer by First National Bank Limited. He has 30 years of experience as a conveyancer, specialising in the full spectrum of property-related law and is often called upon to give talks or contribute content on related matters.