A reader who is looking to buy an encumbered fixed property wants to know how he can ensure that it won’t be attached by the bank due to possible outstanding mortgage payments.
He is ready to negotiate the purchase but, after doing research, has become aware of a similar situation and would like to understand the solution.
Fixed properties are often sold while they are encumbered in some way. An encumbrance is typically reflective of an obligation of some type.
See the reader’s question here.
It is usually in the form of a mortgage bond in favour of a bank, which means that the registered owner is indebted to the bank for an amount of money (value of the bond or what remains thereof) for which the property serves as security.
This debt often relates to the purchase of the property, although a bond may also serve as security for money borrowed for a different purpose.
Should the owner of the fixed property default on his contractual obligation by not making regular payments, the institution may take steps to recover the outstanding debt.
Such steps may include the attachment of the fixed property by way of a court order.
The owner could discuss the possibility of restructuring the debt with the bank, but must keep in mind that doing so may constitute an act of insolvency.
Committing an act of insolvency may lead to a creditor taking steps for the sequestration or liquidation of the party that committed the act of insolvency – the consequences of which are not trifling.
Assuming that no agreement is reached with the bank and that the debtor does not make use of a debt review procedure to restructure all indebtedness to various creditors, the bank may proceed with steps to secure its exposure.
Unfortunately for the debtor, many contracts of this nature provide for the full outstanding amount to become due and payable, together with interest, and the debtor may also be liable for costs.
Missed monthly instalments will therefore result in a far greater and pressing obligation.
The point to take from this is to not ignore the first warning letters as the liability will not disappear and the process may result in the fixed property being attached.
Attachment is a court-sanctioned result whereby the property is placed under the authority of the sheriff pending the full settlement of the liability, reaching of an agreement on a payment plan or sale of the property. The latter is usually done by way of auction.
A purchaser interested in such a property should therefore ensure that the offer is made subject to upliftment of the attachment to avoid delays in transfer.
This is usually not an issue when a property is bought on auction, although it is possible for the owner to sell a property which is subject to attachment prior to the auction.
This should be conveyed to the prospective purchaser, who should then look after his interests by ensuring that the attachment order is uplifted or released as a condition for the sale to proceed.
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