Cancelling a bond can cost

Private Property South Africa

Fairly regularly in the process of awarding mortgage bonds for home purchases, the banks will be faced with a situation in which, for whatever reason (usually a serious change in the applicant’s economic circumstances), the client will want to cancel the bond granted to him by the bank.

In these circumstances, says Mike van Alphen, the National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, the bond applicant may well find that he has to forfeit the deposit paid on the property and, in addition, may be held liable for the estate agent’s commission and/or the conveyancer’s wasted costs.

However …

The bond applicant may then often approach the bank with a request to review his application and decline the loan so that none of these costs will have to be paid (many property sale contracts make the sale dependent on the buyer receiving a bond).

“The hard fact, however,” says van Alphen, “is that the bank is required to assess the applicant’s financial position only when he applies for a loan. If his financial circumstances change, the bank is not obliged to review the loan again. The bank may well do this of its own accord and then withdraw the loan, which it is entitled by law to do at any time.”

Costs incurred

Even if the bank does decide to take a sympathetic line and withdraw the bond, if the original sale contract has been signed and sealed and the previous suspensive conditions were all met, the agent, the conveyance and possibly even the seller will be in a position to claim for their time, their costs and their lost income.

The banks, says van Alphen, are likely of their own accord to review granted loan applications, if considerable time has lapsed between the loan approval and the registration of the bond.

Obviously, adds van Alphen, no bank wants to impose on a buyer a bond on which he is likely to default and in general they will, therefore, adopt a sympathetic attitude. However, the public have to realise that between the time they sign the application and the bond is awarded, it is absolutely essential not to enter into any other credit or pay-out arrangements which will adversely affect their financial situation. All banks reserve the right to withdraw from the bond prior to registration. They may be able to do this, but they will never formally “decline” a bond once it has been granted.

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