Scoring property bargains when the bank steps in

Robyn Downs

*Buying from desperate sellers: Avoid these traps

Now is the time to scoop a bargain as banks are calling for sales in execution where property owners are in arrears with home loan installments.  But be sure to find out exactly what you are buying and what you need to pay for.

To avoid overpaying for the property you should do your homework and determine its market value, also familiarise yourself with its location , the conditions of sale and the title deeds to the property.

Where the Sheriff of the High Court has been instructed to sell the property you should approach him in good time before you attend the sale in execution and ask to see the sale contract and for the terms and conditions of sale to be explained to you - or consult your attorney for advice.

The conditions of sale, which are signed by the Sheriff and the buyer, set out the costs that have to be paid over and above the bid amount, for example Sheriff's commission which is based on the purchase price, auctioneer's commission (which is normally for the seller's account in a private auction), arrear rates and taxes, electricity and water charges, levies and legal costs, electrical compliance certificate, entomologist certificate, costs of transfer and any other charges necessary to effect transfer on request by the conveyancers. 

A deposit of 10 % of the purchase price and Sheriff's commission is usually payable immediately after the sale of the property and there is a time limit within which the balance of the purchase price must be secured.  The deposit may be forfeited if, for example you are unable to secure the balance of the purchase price and the deal falls through.  So it is important to pre-arrange your finance and be ready to make the relevant payments within the time limits set.

Sometimes the  Sheriff sets the terms as cash, payable immediately after the sale, and in event of a buyer not being in a position to pay by cash or cheque acceptable to the Sheriff, the property will  again be put up for sale and the original bidder may be held responsible for any deficit in the price.   Again, buyers need to discuss payment terms with the Sheriff before the sale commences.

It is also necessary to find out whether the property is occupied.  The buyer is not guaranteed of vacant occupation of the property and may have to, at his own cost, obtain vacant occupation.  This means that he will be responsible for giving the occupant notice to vacate or applying for their eviction and paying the related costs.

It is the buyer's duty to check the conditions contained in the title deed  and also with the local authority regarding any restrictions which may attach to the usage of the property under any town planning scheme, by-law and other regulations. It is also important to note that should the property be subject to any pre-emptive right, the property is sold subject to that pre-emptive right.

The property is usually sold voetstoots and you would need to ascertain any boundaries, pegs or beacons and maintenance requirements in respect of the property.  So it is also a good idea to go and view the property before the sale.

If the bidding is too low to cover the outstanding debt and could pose a significant loss to the bank, the bank may buy it.  The property is then commonly known as "Property in Possession (PIP)"  The bank as the legal holder will likely try to sell the property as soon as possible to minimize its maintenance costs (such as the hiring of security guards, garden services etc. to protect and maintain the property) and recover the monies which are owing.  An advantage of buying a PIP is that, if you buy as a non-VAT vendor, you will not pay transfer duty (the fee due to the South African Revenue Services), since the Bank, as the seller, will pay Value Added Tax.  Conveyancing fees in respect of transfer and bond registration costs will be called for by the conveyancers to enable registration of transfer and any bonds in the Deeds Registry.  If you are interested in buying a PIP why not approach the banks or estate agents and request their list of PIPs?

  • Robyn Downs is a lawyer with Shepstone & Wylie.

Sifiso Msomi, Shepstone & Wylie, property in possession, PIP, sales in execution, voetstoots, title deed, vacant occupation, debt, bank, SARS, Sheriff of the High Court, purchase price, deposit, by-law, usage, view, VAT, Deeds Registry, 06 August 2009 06 August 2009


Article from: Real Estate web