Section 57 Substitution of Debtors under a Bond – What Are They And How Do They Work?

What is a Section 57 substitution?

An application in terms of Section 57 of the Deeds Registries Act is an application to substitute the debtor on a bond i.e. an application to “remove someone from the bond”. The application is brought by the new owner of the land who will become the new debtor under the bond once the substitution is registered.

Once the substitution is registered, an endorsement in the form of a stamp is placed on the bond by the Deeds Office stating that the debtor has been substituted either for someone entirely different or if it is a joint bond, for his co-debtor. This effectively releases the debtor from all his obligations under the bond.

What does Section 57 say?
Section 57 states:

“If the owner (in this section referred to as the transferor) of land which is hypothecated under a registered mortgage bond other than a mortgage bond to secure the obligations of a surety (not being a person referred to in paragraph (b) of sub‑section (1) of section fifty six) transfers to another person the whole of the land hypothecated there under, and has not reserved any real right in such land, the registrar may, notwithstanding the provisions of sub‑section (1) of the said section, register the transfer and substitute the transferee for the transferor as debtor in respect of the bond: Provided that there is produced to him, in duplicate, the written consent in the prescribed form of the holder of the bond and the transferee to the substitution of the transferee for the transferor as the debtor in respect of the bond for the amount of the debt disclosed therein or for a lesser amount.”

 

What does all of that mean?

  • The bond can’t be a surety bond.
  • The debtor must transfer the whole land or
  • The debtor must transfer the whole of his share in the land.
  • The debtor must transfer all the land bonded under the bond.
  • The Bank must consent to the substitution.
  • The new owner / debtor must consent to the substitution.
  • The debtor cannot have reserved a real right over the land.
  • The new owner / debtor must be someone capable of bonding land.

Below are some of the common scenarios that you will encounter which will illustrate how and when Section 57 will or will not apply.

When does Section 57 apply?

Section 57 substitutions will apply to the following situations:

Example 1

A owns the land.

A sells the land to B. B can be substituted as the debtor under the bond.

Why? A is selling the whole of his land.

Example 2

2.1          C & D own the land jointly.

C sells his share to D. D can be substituted as the debtor under the bond.

Why? C is selling the whole of his share in the land.

2.2          C & D own the land jointly.

C sells his share to E. E can be substituted as the debtor under the bond, provided that D consents to E becoming a co-owner and co-debtor with D.

Why? C is selling the whole of his share in the land with D’s consent to the substitution.

2.3          C & D own the land jointly and are married to each other out of community of property.

C & D divorce and D is awarded the property in terms of the divorce order. D can be substituted as the debtor under the bond.

Why? C is transferring the whole of his share in the land.

2.4          C & D own the land jointly and are married to each other out of community of property.

C is deceased and D is his heir in terms of his Will. D can be substituted as the debtor under the bond.

Why? C’s estate is transferring the whole of his share in the land.

Example 3

F owns land X and land Y and both properties are bonded under the same bond.

F sells land X and land Y to G. G can be substituted as the debtor under the bond.

Why? F is selling all of the land that is bonded.

When does Section 57 not apply?

Section 57 will not apply to the following situations:

Example 1

A owns the land.

A sells a half share in the land to B. B cannot be substituted as the debtor under the bond.

Why? A must sell the whole of the land. In this example he is not selling the whole of the land, only a part of it.

Example 2

C & D own the land jointly.

C sells a quarter share to E. E cannot be substituted as the debtor under the bond.

Why? C must sell the whole of his share in the land. In this example he is not selling the whole of his share, only a part of it.

Example 3

F owns land X and land Y and both properties are bonded under the same bond.

F sells land X to G. G cannot be substituted as the debtor under the bond.

Why? F must sell all the land bonded. In this example he is not selling both properties, only 1 of them.

Example 4

A owns the land.

A sells the land to B but reserves a usufruct in the land for himself. B cannot be substituted as the debtor under the bond.

Why? A usufruct is a real right and Section 57 does not apply if the owner reserves a real right as part of the sale.

Example 5

Section 57 will not apply to certain persons who are not capable in law of bonding land e.g.

  • Trustees of insolvent estates
  • Liquidators of companies that are being wound up
  • Minor children without the necessary consent

Once you have established the type of transfer scenario you are faced with and have determined whether or not Section 57 applies to it, the next step is to obtain the bank’s consent.

If Section 57 does apply, the new debtor must apply to the bank for a Section 57 substitution consent. Different banks will deal with this application in different ways. Some merely update their system while others will allocate a new home loan account number and require formal bond documents to be signed. All the banks will do a full credit assessment to ensure that the new debtor qualifies for the bond.

Once this is completed and the bank is satisfied that the new debtor qualifies for the bond, they will instruct an attorney to register the Section 57 substitution at the Deeds Office.

If Section 57 does not apply, the existing bond will have to be cancelled and depending on the type of transfer scenario, the new debtor will have to register a new bond in his own name.

Please bear in mind that not all banks will allow a Section 57 substitution of debtor. Depending on the bank’s own internal rules, they may not allow you to substitute a debtor, even though it is allowed in terms of the provisions of the Act. In such cases the existing bond will have to be cancelled and depending on the type of transfer scenario, the new debtor will have to register a new bond in his own name.

Simultaneous transfer

As has become obvious from the discussion above, the Section 57 substitution is linked to a transfer of land. It cannot exist in isolation. To “remove someone from the bond” also means that they must be removed from the title deed to the land and this can only be done by way of a transfer.

The transfer will take place simultaneously with the registration of the Section 57 substitution at the Deeds Office.

Unless the transfer is taking place as a result of a divorce or from a deceased estate, there must be a sale agreement drawn up to give effect to the transfer.

The value of the property will need to be determined for purposes of calculating possible transfer duty payable to SARS and the transfer costs payable. In divorce transfers and transfers from a deceased estate, the municipal value of the land can be used. In all other transfers the value of the land must be determined with reference to 2 estate agent’s valuations or the valuation of a sworn valuator.

How much will this process cost?

Section 57 substitution

The costs are based on 75% of the amount of the bond, as it was originally registered in the Deeds Office. The same tariff is used as for new bond registrations.

Deeds Office fees and other disbursements will also apply.

Transfer

Depending on the type of transfer and the value of the property, transfer duty may apply. However, there is a significant saving in certain circumstances, where transfer duty is exempted.

Transfer costs will be based on the value of the property.

Deeds Office fees and other disbursements will also apply.

A rates clearance must be obtained and if the property is situated in a body corporate or Home Owners Association, levy clearance will have to be obtained.

Our office is always open to assist you in determining if Section 57 is applicable to your transfer scenario and to provide quotes for all costs involved as well as draft any sale agreements that may be necessary.

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30 thoughts on “Section 57 Substitution of Debtors under a Bond – What Are They And How Do They Work?”

  1. I want to ask, if I’m in a joint bond with someone and that person willingly sign the consent of being removed from the bond. What will happen

    1. Natalie Shephard

      You will need to apply to the Bank to allow you to register a substitution of debtor on any bonds registered over the property.

      Once the Bank grants the application, you will then need to appoint a transfer attorney to register the transfer.

  2. When the bank had granted a substitution of debtor,do I have a choice or a right to choose my own attorney (conveyenser)to deal with the transfer or the bank must choose their own attorney for me?

    1. The Bank will choose the conveyancer to register the Section 57 substitution but you can choose your own conveyancer to register the transfer.

  3. Im a widow and have to apply for a substitution. The thing is my spouse was paying the bond, what is going to happen to the house if the bank does not approve? Can I continue paying the bond since it’s not a big deal? I can pay it without substitute.

    1. Natalie Shephard

      Dealing with the property and the bond is part of the process that needs to take place to wind up your late spouse’s deceased estate. You can’t avoid it. You will be unable to finalise the winding-up until such time as the property and bond have been dealt with.

  4. Good day,
    If you get divorced and were married in community of property but your spouses name was not in the title deed, how do you then obtain the Section 57 releasing the other spouse off the bond when their names do not appear on the title deed?

    1. Natalie Shephard

      If you were married in community of property after you first bought the property, your spouse will automatically own a half share in the property by virtue of the joint estate that came into existence when you got married. Even though their name is not on the title deed, you still need to follow the substitution process, as they are still joint owners by operation of law. The process will be done by way of a Section 45 endorsement process (which is the same as Section 57 but for spouses that were married in community of property).

    1. Natalie Shephard

      You apply for the Section 57 substitution at the Bank that holds the current bond over the property. Once the Bank grants the application, they will appoint an attorney on their panel to register the substitution at the Deeds Office. You will also need to appoint an attorney to attend to the transfer of the half share in the property to yourself.

  5. Is it true that they are no transfer duties to be paid when the substitution of the debtor is because of the divorce? Secondly, the bank has indicated that I need to get my own attorney to deal with the transfer. How much can you guys charge?

    1. Natalie Shephard

      Yes, a substitution which results for a divorce is exempt from Transfer Duty. The cost of the transfer will depend on the value of the property. Please contact our offices to get a quote.

  6. I’m divorced and got the property but it’s still in both names I’ve being reading the substitution of debtor section 57 as she wants it off her name .What is the process and how are banks regarding to this application .thxs

    1. Natalie Shephard

      You need to apply to the Bank for the substitution. The Bank will regard the application like a new bond application. Once it has been granted, the Bank will instruct its attorney to register the substitution. You also need to appoint a transfer attorney to register the transfer of your ex-wife’s share from her name into your name.

    1. Natalie Shephard

      How you do this will depend on whether you are married in community or out of community of property. Please contact our office to discuss the process.

  7. I need to know if is possible to apply for a section 57 subtitution in a joint bond in order to release a partner whom we are no longer together, we are not married and i have been paying the bond alone.

    1. Yes, you can apply to the Bank for a section 57 substitution of your partner’s share in the bond. You will then have to take transfer of their share in the property as well.

  8. I applied for substitute and it was granted and they appointed an attorney for me, however what confuses me is that they required a valuation report, purchase order which I’m confused because I was the main applicant just moving my sister. My question is when they ammend the title deeds why do they need a purchase order and also the fees as my 50% was already under me how do they charge for the fees lastly doesn’t they use the bond amount when I bought the house. And is it a must to change your title deed asap and how it affect

    1. There are 2 transactions that need to take place:
      1 – the substitution on the bond; and
      2 – the transfer of your sister’s half share on the Title Deed into your name.
      The transfer requires a sale agreement whereby your sister sells her half share to you. They will require valuations to determine whether or not Transfer Duty is payable. The fees for the substitution are based on the bond amount that was registered. The fees for the transfer are based on the value of the half share that is being transferred.

  9. I did a switch bond so I can remove my ex husband’s name from the title deed. I’ve signed with conveyance attorneys and all sent to the deeds office. Is there any paper work that my ex will need to sign? Will registration process take place? I need clarity of this process.

    1. Please contact the conveyancing attorneys who are assisting you for further information. If the matter is in the Deeds Office, then all paperwork should already have been signed.

  10. i am divorced and we agreed on a substitution..the question is how does she get her half share and how is it calculated.

    1. Natalie Shephard

      A transfer of your half share in the property is registered simultaneously with the substitution on the bond. To calculate the value of the half share you will need an estate agent’s valuation.

  11. megan Alexander

    good day
    i,m not sure if im allowed to ask for some advise in regards to a joint bond held between to brothers where as the one walked out 4 years back forcing the girlfriend of the one brother to pay the one that walked outs share. now this brother that walked out is threatening on a daily basis to remove his name. we as we can not as we do not qaulify as co owners, and due to the brother that left where unable to comlete a flat which once done will bring in enough cash to cover the bond together. please do assist, we do not know what to do

    kind regards miss m alexander

    1. Natalie Shephard

      If you are unable to afford to pay for the property and the bond on your own and the other owner no longer wants it, then the only alternative is to sell it and settle the bond and then split the proceeds between yourselves.

  12. I was married in COP. In the settlement agreement my ex husband relinquished his rights to our joint property. What fees do I pay to the conveyancers for the substitution…do I pay transfer duties and for a rates clearance certificate. What would a standard account look like. Thank you…

    1. Natalie Shephard

      Please contact our offices so that we can provide you with a quote on the fees.
      The transfer is exempt from Transfer Duty but you will still have to pay rates clearance.

  13. My ex husband and I jointly own a property. Both our names are on the title deed yet he is the only one who pays the bond and is responsible for the bond payments as per our divorce settlement. I want to purchase another property yet my affordability is affected by the bond still owing on the property jointly owned. My ex husband is happy to apply for substitution so the bond is registered in his name alone yet I am still a 50% shareholder/owner of the property so my name needs to remain on the title deed. I have been told by two attorneys that this is possible, please can you confirm this and how do I go about it. Thank you !

    1. Natalie Shephard

      Your ex-husband can apply for the substitution but you will have to be removed as 50% owner of the property.
      The substitution will result in the bond being registered solely in the name of your ex-husband, which means the property must also be registered solely in his name. The bond cannot be registered differently from the Title Deed.

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