What happens if you find yourself in the situation where you have enough money to pay for the deposit of the purchase of property, but not the balance of the purchase price. On top of that, you are struggling to get bond approval. But you happen to have a wealthy Seller who is willing to loan you the balance?

A Kustingsbrief is a mortgage in favour of the seller of land as security for the unpaid balance of the purchase price. The word Kustingsbrief comes from the Dutch term Kustingsbrieven that, literally translated means kissing letter. What this has to do with purchasing property is unknown. The most common sphere of property transfers where this is found is in the purchase of agricultural land.

By way of example: Mr A wishes to buy Mrs B’s property. The purchase price is R1 200 000-00. Mr A has R500 000-00 to pay as a deposit, but he cannot obtain a loan from a bank for the balance on the purchase price; he is however in good financial standing. Mrs B requires Mr A to register a mortgaged bond in favour of Mrs B wherein the instalments on the repayment of the bond are representative of the balance of the purchase price paid in instalments. As security for repayment of the bond, the property is mortgaged in favour of Mrs B.

The pros of this method of financing:

A person who does not receive bond approval from a financial institution can still purchase property.

The interest rate can be negotiated. It is however important to remember that if there is interest payable, the Seller (Mrs B) must register as a credit provider – which could delay the process.

The Seller has a preferent claim in the event that the Purchaser’s estate is sequestrated. Section 88 of the Insolvency Act states that a mortgage bond intended to secure a debt which was incurred more than two months before lodgement at the Deeds Registry, does not give the mortgagee a preferential claim if the estate of the mortgagor is sequestrated within six months after the date of lodgement: provided that a bond is not deemed to have been lodged if it is withdrawn from registration. A Kustingsbrief is however exempt from the operation of Section 88.

A Kustingsbrief always has preference over subsequently registered mortgages, because it is always registered along with the deed of sale and, therefore, prior to any other mortgages.

The cons:

Very few Sellers are in the financial position to accommodate this method of financing.

The process of obtaining the full purchase price might be one too lengthy for the Seller to endure.

A Kustingsbrief is a viable option for purchasing property if you are lucky enough to find a Seller who is willing to assist you in this manner.