Joint bond ownership - beware of pitfalls

Those who lack savings but want very much to buy a home for themselves (“as everyone should”), says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, should seriously consider the advantages of bringing in a partner or partners to be joint bondholders. 

This ‘alternative’ means of securing a bond is not, says van Alphen, frowned on or discouraged by the banks and these days is increasingly used because people are cash-strapped.

“The banks actually quite like having joint bond debtors as this, it has been found, reduces their chances of being let down on the bond payments. They will in these arrangements take into account the joint incomes of all who apply for the bond and this will in many cases help those who are actually going to live in the home to upgrade and move into a property better than they would normally have been able to afford.”

This arrangement, says van Alphen, is increasingly used by couples or friends who agree to live together, either because this is convenient and inexpensive or because they are now in a relationship but not yet married.

When joint applications for bonds of this kind are approved by the banks, those who are signatories to the arrangement are always assumed to be equal shareholders in the property. If this is not the case (e.g. if one partner has 50% of the property and the other two 25%), the exact shareholding of each has by law to be stated in the Deed of Sale and will be registered as such at the Deeds Office.

Furthermore, it should be realised by those entering into such agreement that joint bondholders by law have to accept that they are responsible for the total monthly bond payments. If one of their partners defaults on his monthly payments the others can and will be held responsible for covering the amount owing in addition to the sum that they themselves have to pay in.

Quite often, adds van Alphen, one of the partners/joint bondholders will at some stage want to sell his share, possibly because he or she is getting married or going overseas. In many partnership deeds there are stipulations that this will be done after a specified period of years, but often, too, an option is left for the joint owner to continue as a partner.

If the property as a whole is not being sold, a valuer or a professional estate agent will have to be brought in to estimate its value at the time the share is being sold. The partners now taking over that share will be responsible for paying the transfer duty on it as well as any outstanding rates and taxes accrued by the property.

“For example,” says van Alphen, “if a share in a property worth R1,8 million with three partners is sold right now, the transfer duty would be R61,000. A third of this is R20,333. The remaining shareholders would have to pay this to legalise their taking over of the sold share.”

Many joint purchase agreements of this kind, adds van Alphen, are now operating in the buy-to-let market and have played a significant role in bringing more properties onto the market for renting purposes.

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