Understanding Debtor Substitution

The outstanding bond you have on a piece of land may need to be transferred to a different individual. This can be for several reasons from owning the property jointly and selling your shares to an individual that passed away and a family member inherits the full estate. In these circumstances, the bond might not need to be cancelled but rather transferred from one owner to another in terms of Section 57 of the Deeds Registries Act.

What does Section 57 stipulate?

Section 57 of the Deeds Registries Act determines the circumstances under which a bond can be transferred – the current owner removed and substituted with the new owner. The request for Substitution is usually brought by the new owner. Section 57 can be summarised as follows:

• The bond in question cannot be a surety bond.

• The land transferred to the new debtor must be the land in its entirety or all the shares of the land owned by the previous debtor.

• All the land under the bond needs to be transferred.

• The Bank has to allow the substitution.

• The new debtor must consent to the substitution.

• The previous debtor cannot have any remaining rights over the land.

• The new debtor must be legally capable of taking on a bond.
‍

Certain people that are not legally capable of bonding land and to whom Section 57 will not be applicable includes:

• A trustee in an insolvent estate

• The executor administering an estate

• The liquidator of a company being wound up

‍

How does the substitution happen?

The process of substituting the debtor can look slightly different depending on the specific parties involved. The substitution can be requested because the entire land is being sold, or because half of the land is being transferred due to a divorce, or from a deceased estate, the entire land is being transferred to a beneficiary.

The bank must approve the transaction and they will do a full credit check on the new debtor as they need to ensure that he/she qualifies to bond land. The rest of the paperwork is dependent on the bank and can range from simply updating the system to requiring new bond documents to be signed and submitted. Once the bank approves the new debtor, attorneys will get involved to register the Section 57 at the Deeds Office.

This has to take place at the Deeds Office because the previous debtor is not only completely removed from the bond, he/she must also be removed from the title deed to the land by transferring the land to ensure that the previous debtor has no rights to the land after Section 57’s substitution takes effect. The substitution and the transfer happen at the same time. In the case of the land being sold, a sales agreement needs to accompany the transfer and two independent valuations of the land also has to be determined as possible transfer duties may apply and will need to be calculated.

The Registrars have made several rulings over the years to clarify the section and its application to different situations. If Section 57 does not apply to your specific case, the bond needs to be cancelled and a new bond registered in the new debtor’s name.

Snymans Inc deal with Section 57 Substitutions as well as the cancellation and registration of bonds. We are well versed in dealing with deceased estates and we can personally assist in various situations where Section 57 is relevant.

‍

Written and approved by: Glenda  Nell

‍

The views in this article are personal and not necessarily endorsed by the firm. The content is for informational purposes only and should not be relied upon for any actions without confirmation from a legal practitioner. The firm and author(s) are not liable for any consequences resulting from actions taken without further consultation.