Ownership seems like a simple concept; you buy something and you become the sole owner of that object. Unfortunately, the reality is not always quite as straightforward as it seems.
There are a number of scenarios that can quickly become more complicated, particularly when there is immovable property involved. The complication often lies in the method of payment used.
For example, hire purchase agreements with retailers allow the purchaser to enjoy possession and use of an item, but full ownership of the object only passes once the final payment installment has been made. This protects the retailer by being able to reclaim the object should the purchaser default on the required payments.
In a similar way, the purchase of immovable property is often accompanied by a substantial loan from a financial institution such as a bank, who will take security for the loan in the form of a bond. In order for a purchaser to be granted such a loan, there are many criteria that need to be met to satisfy the relevant financial institution that the potential bond holder (mortgagor) will be able to repay the loan in full within the agreed upon term. While this approval process is comprehensive, there remains a risk that the purchaser’s ability to meet the monthly repayments may change as a result of a number of factors such as loss of a job or death.
As protection against this risk, any home loan agreement entered into with a financial institution will include a stipulation that the title deed(s) to the bonded property will be retained for safekeeping by the institution, together with the bond registered in their favor, until such time as the loan has been repaid in full. The banks will normally also insist on insurance being taken up in respect of the structure of all buildings also known as comprehensive home owners insurance. By so doing, should the purchaser default on the loan agreement for any reason, the bank will have a claim against the borrower/mortgagor for the value outstanding on the loan and will be legally entitled to repossess the property by calling on the bond in order to recoup this financial loss due to non-payment by the bond holder.
Once the final installment of the bond has been paid, the bank will consent to the cancellation of their bond and release the title deeds of the property to the purchaser once this has been done. This will include adding an endorsement to the title deed confirming that the bond has been cancelled which means that there is no money owing for the purchase of the property. This will all take place by way of registration at the Deeds Office. At this point, the relevant financial institution no longer has any claim to the property.
As an alternative to the above the mortgagor can also decide to keep the account open and the bond in place even though it has been paid up in full. There will be costs involved with maintaining this account, such as bank service fees, however, there are advantages associated with keeping this account open too. An active bond account offers the bond account holder quick access to considerable funds should there be a good investment that presents itself in the future.
While there is no correct decision to make, it is simply worth noting that the pros and cons should be carefully weighed up to make the right decision for the individual concerned.