Selling your property while in mortgage is a fairly common thing. Being in mortgage simply means you still owe money to your lender and have not yet satisfied your home loan or paid it in full at the time of sale.
Many home owners have been caught off guard with extra charges and additional processes when it comes to selling a home. Extra charges such as additional legal fees, notices of bond cancellation and penalty charges for non-compliance of the time period required by the financial institution, have all been a surprise but not in a good sense for sellers due to not being properly informed. Section 125 of the National Credit Act allows bond holders to process these fees if a seller gives notice of the intent to cancel their bond before the end of the conventional 20-year loan period.
It is therefore stated by law that any person wishing to sell their home needs to give their bank or bond originator written notice of their intent to cancel a bond. The notice period may differ at different financial institutions, but as a general rule a 90 days’ written notice is required. Don’t think that the 90 days’ written notice means automatic cancellation of the bond at the end of that period. It merely represents your intention to sell your property and cancel the home loan, and it’s best to do this before you put your home on the market. A new letter must be written to start the process again if the property does not sell within that notice time period.
The transferring attorney will request cancellation figures where after the bank will instruct an attorney or their panel to attend to the cancellation of the bond. The bank will advise the instructed attorney to attend to the cancellation of the outstanding capital amount and interest, plus any other costs that are required to settle the account. The attorney from his side will request a guarantee for payment regarding these amounts which will pay out on date of transfer registration and cancellation in the Deeds office.
Cancelling a bond itself will incur a number of fees including homeowner's and life insurance, interest in advance, retention amounts, legal and other fees. Failing to give notice will result in penalties being added to the cancellation fees. You will also be held liable to pay penalty interest of approximately 1% of the amount owing if you cancel a bond that is less than two years old.
There are some exceptions to the rule if the bond forms part of a deceased or sequestrated estate.
Very important is to discuss with the transferring attorney or to make sure they assist in giving notice to the bondholder to avoid or limit penalties. If the service of an estate agent is used to sell your property they should also be able to assist. In the instance that the seller does not provide the required notice, the date the transferring attorney request the final figures will be the one that marks the beginning of the notice period. The cancellation fee and or penalties will then depend on the time taken to register transfer of the property. The time periods that this notice is valid depends on the financial institution. Refer to the website of the specific financial institution to review the time periods.
Here is a simplified look at the process:
- You notify the bondholder of your intention to cancel, giving 90 days written notice
- The bondholder advises an attorney to attend to the cancellation of the outstanding capital amount and interest, plus any other costs that are required to settle the account.
- The title deed and bond documents will be sent to the bondholder’s instructed attorney.
- The attorney requests guarantees to settle the amounts. Guarantees are issued to ensure that there are funds available to cover the bond on the date of cancellation of the bond in the Deeds office.
- The bondholder will sign and give consent for the bond to be cancelled after reviewing the guarantees.
- Refunds, if any, will be paid after cancellation is finalised.
References : Section 125 of National Credit Act 34 of 2005