Substitution of debtor

What to do with the marital home on divorce – Section 57 of the Deeds Registries Act

When a couple divorces, there may be debates about who keeps or continues to live in the matrimonial home. Once the emotional and practical issues are resolved, there is still a legal matter to attend to. Ultimate ownership of the home will either depend on to whom the property is registered, or how the couple is married. If they are married in community of property, the home will be in both names, even if it was acquired by one partner before the marriage. However, if the couple is married out of community of property, the property may be registered in one or both names. Where both names are on the bond, and one spouse intends to take over ownership, either by buying out the other spouse’s share or by some other agreement, a substitution of debtor must be concluded.

Section 57 of the Deeds Registries Act

Section 57 of the Deeds Registries Act deals with substitutions of debtor (SODs). This refers to the substitution of the existing debtor under a mortgage bond with another person, who will assume the original debtor’s obligations. The principle is quite simple, but the legal wording of the Act is convoluted:

“If the owner (in this section referred to as the transferor) of land which is hypothecated under a registered mortgage bond other than a mortgage bond to secure the obligations of a surety (not being a person referred to in paragraph (b) of sub-section (1) of section fifty six) transfers to another person the whole of the land hypothecated there under, and has not reserved any real right in such land, the registrar may, notwithstanding the provisions of sub-section (1) of the said section, register the transfer and substitute the transferee for the transferor as debtor in respect of the bond: Provided that there is produced to him, in duplicate, the written consent in the prescribed form of the holder of the bond and the transferee to the substitution of the transferee for the transferor as the debtor in respect of the bond for the amount of the debt disclosed therein or for a lesser amount.” 

Applications of Section 57

The provisions of Section 57 apply where the whole of the property is being transferred or where the whole share of a joint owner is being transferred to the other joint owner. However, Section does not apply:

• Where only a portion of the land bonded is being transferred
• Where the mortgage bond is a surety bond
• Where the new owner/existing co-owner does not qualify in terms of the bank’s criteria on earnings (or other criteria) to act as the sole and/or co-mortgagor 
• Where the seller of the land has reserved for himself any real right (such as a right of usus or usufruct) 
• Where the seller is a trustee of an insolvent estate or an executor administering an estate under section 34 of the Administration of Estates Act or the liquidator of a company or a close corporation which is being wound up

The bank’s written consent to an SOD is required. Written consent must also be obtained from the new owner/debtor for the amount of the substitution bond. 

Costs

Conveyancing costs for bond registration are cheaper with an SOD than with a standard transfer of registration (costs are usually based on 75% of the ordinary tariff) and the internal administrative systems of the banks (where the new sole owner is an existing owner buying out his ex-spouse or ex-partner) may be slightly less onerous. Once again, the matrimonial regime will have an influence. Couples married out of community of property must pay full transfer fees, whereas couples married in community of property pay no transfer fees. They are only required to pay a conveyancing tariff fee for a bond endorsement on the SOD. It is an administrative and relatively inexpensive solution.

Practicalities

Once it is clear that an SOD is appropriate, and the bank is satisfied that its criteria for granting a mortgage bond has been met, it will ordinarily instruct an attorney on its panel to proceed with the registration of the SOD. However, not all banks consent to substitute debtors and some will insist that the existing bond be cancelled and a new bond registered. 

Section 57 substitutions are always linked to a transfer of land or a share of the land. Transfer of the land or portion thereof will be registered simultaneously with the bond substitution at the deeds office. Depending on the nature of the transfer, and/or the value of land being transferred, transfer duty may be payable. A rates clearance certificate and transfer duty certificate will also have to be obtained. 

On transfer, the existing mortgage bond is endorsed by the registrar, effectively removing the existing debtor from their obligations under the bond and substituting the old debtor with the new debtor.

Cape Town family lawyer can help with your matrimonial home questions

Cape Town family lawyer can help If you want more information on your matrimonial home ownership, or if you are considering divorce and want to have a confidential chat about your options. Simon Dippenaar and Associates Inc. is a firm of family attorneys in Cape Town, Johannesburg and Durban with extensive experience of helping couples resolve differences respectfully. Call Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za.

Further reading:

• How to make sure you keep the home after divorce
• Transfer of home loan on divorce
• Division of assets on divorce

SD Law

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