When a home owner is declared insolvent by a court of law, a fixed property registered in the owner’s name will devolve upon the liquidator of the insolvents estate. This property will then most likely be sold on auction, although it can be sold on the open market as normal.
In the case of insolvencies, the liquidator or the bank being the preferred creditor will pay rates and taxes. The liquidator will sign the transfer documents and the sequestration order must be noted at the Deeds Office prior to the lodgment of the transfer.
When a home owner fails to pay monthly bond installments to a bank, last mentioned being the mortgagee will “foreclose” on the property in terms of their security (the bond registered in their favor). The bank will repossess the property through intervention of the courts and this will then be a PIP (“properties in possession”). This property, once repossessed, will then most likely be sold on auction by the sheriff. Should the reserve price not be met on such an auction, the bank will buy in and the property will be held on their books and may later be sold on the open market. The purchaser of the PIP is liable to pay rates and taxes as well as transfer duties on arrear rates and taxes. The transfer documents will also be signed by the sheriff.
Any home owner may decide to sell his or her property on auction in any other circumstances, although this is not a common method of selling property in South Africa.
The auction process
Normally a 10% deposit is payable on fall of the hammer. The sheriff will insist on this, although in the case of insolvencies, the liquidator might be more lenient with deposits.
While not essential, a pre-approval from a bank would be advantageous. Access to sufficient cash to pay the deposit is, however, essential.
Costs such as rates arrears and taxes, as well as transfer duty will be payable by the purchaser, except in situations involving insolvency. In such cases, the liquidator or the bank as the preferred creditor will pay rates and taxes.
The rest of the transfer process is exactly the same as a conventional transfer.
Tips for buying on auction
Access to sufficient funds is essential, as buying on auction requires quick action. As such, a buyer will need to make sure that he or she has funds available immediately to cover the required deposit.
As the arrear rates are payable by the purchaser (except in the case of insolvencies), it’s important to investigate the outstanding amounts as these can add significant costs to the property purchase.
In addition, finding out as much as possible about the property can help ensure an informed decision is made regarding the value of the investment. Since properties are generally transferred through auction as a result of payment defaults, it should be expected that these properties have not been properly maintained. Therefore, a thorough property inspection will assist in determining any additional costs that may be incurred in fixing or renovating the property after purchase.