RSS

Tag Archives: Bank

WINDS OF CHANGE

 

The global economic crisis has changed the way we    do business. Like many businesses the banks have  also had to look at their appetite for risk, how to allocate their limited financial resources while retaining their existing client base and keeping their shareholders happy. As Arnold Bennett so rightfully put it: “Any change, even a change for the better, is always accompanied by drawbacks and discomforts.”  And have we had our fair share of “discomforts and drawbacks” …The property finance specialists, Property Factor, take a closer look at the areas in which banks are changing their behavior in the current economic environment.

Interest rates

Interest rates at prime less 2% are for now a thing of the past. You are more likely to be offered an interest rate above prime. If your current bond is costing you prime less 2%, we strongly urge you not to touch it, because if you do, the new pricing structure of the banks will apply.

Fixed rates are no longer quoted prior to registration of the bond. You can only apply for a fixed rate once your bond has registered. Don’t be surprised if this is substantially higher than the current prime rate.

100% bonds

Gone are the days where the banks would not only offer you a 100% bond, but they were willing to add in the costs if you were a first time home buyer. Nowadays you better have some funds saved to cover costs and at least a 10% deposit.

While the banks advertise that they offer 100% bonds and even cover costs in the “affordable housing” category, very few clients qualify for this and the privilege comes at a hefty penalty in interest rates.

The self-employed

Self-employed individuals better have their “ducks in a row”, as they will have to provide financial statements for two full yearend periods. The banks have become experts in analysing what your financials say about you and the manner in which you run your financial affairs.

Nedbank will not consider you for home loan finance if your primary business account is not with them.

Bond registering attorneys

Previously the bond applicant could nominate the attorney responsible for registering the bond, provided that the attorney was listed on the banks panel. Now, however, with the exception of First National Bank, all other banks reserve the sole right of nominating the bond registering attorney.

Financing vacant land

Banks will only consider financing up to 60% of the value or purchase price of the land. In other words, when purchasing vacant land be prepared to put down a 40% deposit. Furthermore, the repayment term will be less than that of normal home loans. Nedbank will only consider financing vacant land under exceptional circumstances and once finance has been approved by their regional sales manager.

Purchasing properties in CC, (Pty) Ltd or Trust

All banks have taken a very strict stance when it comes to financing properties in juristic entities. ABSA and Nedbank will not finance properties purchased in an entity. FNB will consider financing properties purchased in an entity, provided it’s strictly a property holding and not a trading entity. Standard Bank will only consider financing property in an entity provided the individual e.g. the trustee, member or director of the entity has an existing relationship with the bank.

Access / Flexi-bond facilities

While most banks’ position on flexi-facilities has not changed in the past year, the biggest shocker was Standard Bank’s (the founders of the access facility) new policy on this hugely beneficial product. Unlike in the past, you are not automatically guaranteed of being granted an access facility when your home loan has been approved. You must apply for it after the bond has registered. One of the pertinent criteria in approving such a facility is that your main transaction account i.e. the account into which your salary is deposited, must be held with Standard Bank.

SA Citizens working abroad

In the past, you were treated in the same manner as locals living in South Africa. However now, with the exception of ABSA, the same criteria that apply to foreigners also apply to you. In other words, you will need a minimum of 50% deposit. Nedbank will not finance you at all if you don’t have an existing non-resident relationship with them. Fortunately, ABSA still considers you a SA citizen.

Non-residents on a work permit

Previously, provided we could supply the banks with a permanent employment contract and a current work permit, the banks would finance such individuals as they do normal South African citizens. Unfortunately, non-residents on a work permit now will require a minimum of 50% deposit.

These are just a few examples of the changes that we’ve had to contend with in the past year. The sad tale of woe is that this is applicable here and now, but tomorrow, best you give Property Factor a call to confirm if this still applies. After all we are living in a dynamic ever-changing world!

http://www.propertyfactor.co.za

 

 

 
1 Comment

Posted by on 28/08/2012 in Content

 

Tags: , , , , , , ,

MORTGAGE BONDS: IS THE TIFFSKI JUDGMENT A BANK’S WORST NIGHTMARE?

MORTGAGE BONDS: IS THE TIFFSKI JUDGMENT A BANK’S WORST NIGHTMARE?

A recent judgment handed down by the Supreme Court of Appeal on 30 September 2011 has laid bare the effects of non-compliance with the requirements of Section 34 of the Insolvency Act and should arguably sent shivers down every buyer, banker’s and conveyancing attorney’s spine.

Not only was the sale and transfer of the assets of a business, which was subsequently liquidated, declared void ab initio, but so too the mortgage bonds registered in favour of the bank financing the transaction.

A proper due diligence investigation into all relevant issues is thus of utmost importance when assisting a buyer or a bank evaluating it’s security. It proves that “possession cannot be regarded as “10 points of the law” and possession and even ownership and the security of a mortgage bond can be set aside by a ruling of a court. A bona fide buyer or bank are most likely to be un-aware of a pending liquidation or insolvency of a seller, which liquidation or sequestration can take up to six months to come to conclusion after the sale and full payment of a purchase price has taken place.

The facts of the case can be summarised as follows:

FACTS

• Tiffindell Ski Limited (the company) concluded an agreement of sale with Tiffski Property Investment (Pty) Ltd (Tiffski) on 12 July 2007 in which it sold to Tiffski the immovable property on which it conducted a hotel and resort enterprise along with the said business enterprise (the subject matter).

• The written agreement of sale contained terms quite common in many such agreements and to the effect that possession, occupation and control would be given to Tiffski on the date of transfer, that the agreement would not be published in term of Section 34 of the Insolvency Act, that the company would continue to conduct its business pending transfer and that the agreement represented the entire agreement between the parties.

• Registration of transfer subsequently took place on 16 September 2008 simultaneous with the registration of two mortgage bonds in favour of the State Bank of India Limited (the Bank).

• The company went into liquidation on 23 October 2008 and its liquidators challenged the validity of the transfer of the subject matter and the registration of the mortgage bonds against themselves, arguing that it was void as against them on the grounds that (1) the company went into liquidation within 6[six] months from the transaction (2) the transfer was not in the ordinary course of business (3) the transfer of the business was not for the purpose of securing the payment by the company of its debts and (4) the required notice was not published as set out in Section 34 of the Act.

COURT’S FINDINGS

Upon accepting the liquidator’s arguments, the court rejected Tiffski’s contentions that it was not a “trader” as defined in the Act, that the transaction was in the ordinary course of business, that the transfer fell outside of the 6 month window contemplated in the Act and that due to the transaction being common knowledge it was not necessary to advertise.

It placed specific emphasis on the Bank’s role when considering the validity of the mortgage bonds and rejected the claim by the Bank that it was unaware of the company’s financial difficulties at the time it approved the disputed mortgage bonds. The Bank further contended that the bonds passed by Tiffski over the immovable property transferred from the company constituted real rights in the said property that served as its only “real security” for the monies lent. Thus any order voiding the mortgage bonds would cause it irreparable financial harm.

The Bank sought to rely on a number of court decisions for the proposition that the validity of a mortgage bond duly registered in the Deeds Office is not dependent on the validity of the antecedent contract, a contention that the court also rejected. According to the court in this instance, it is trite that no legal consequence flow from a void jural act. The court stated that “As Tiffski did not acquire ownership of the company’s immovable property – on account of the voidness of the transfer – it must logically flow that Tiffski could not in turn grant any rights, let alone real rights, in the immovable property to the Bank”.

The court then further slammed the Bank saying that it should have insisted on publication of a notice in terms of Section 34 and this being expressly excluded in the agreement of sale must have been done with the Bank’s approval or acquiescence. It was the opinion of the court that to uphold any argument advanced by the Bank in its defense would “defeat the very purpose which the Legislature wished to achieve in enacting Section 34 (1) and benefit the Bank at the expense of the company’s creditors. The Bank must accordingly be taken to have consciously assumed the risk of the transfer of the company’s business to Tiffski falling foul of the legislative requirements and nevertheless agreed to advance moneys to Tiffski fully aware of the risk in doing so.

CONCLUSION

In future, any bank or money lending institution should do well to take head of the court’s hardline approach applied in this case and as the usual remedies relied on in cases of this nature fell on deaf ears in favour of the rights of the company’s numerous creditors. It could in fact signal the start of a growing trend to protect creditors and restrict lending even further, warning any bank to tighten its mechanisms for due diligence, information control and mortgage bond approval criteria even further.

Conveyancing attorneys who attend to the registration of mortgage bonds must also be aware of the risks associated with the registration of a mortgage bond when a court rules the security void, due to non compliance of legal requirements.

With special thanks to Daan Steenkamp.

For the full judgment visit http://www.saflii.org/za/cases/ZASCA/2011/187

 
Leave a comment

Posted by on 03/11/2011 in Content

 

Tags: , , ,