Chapter 14 MORTGAGE BONDS 34 3.2 3.3 34 35 3.6 37 3.8 3.9 3.10 3.11 44 42 43 44 45 48 47 Part 1 - Analysis of a mortgage bond Background Structure of a bond Analysis of a mortgage bond Preparation certificate Heading Preamble Acknowledgement clause Cause of debt (A) Amount of the bond (B) Cause of debt 3.5.9 Covering bond 3.5.10 Kustingsbrief Terms and conditions 3.6.1 Continuing covering security 3.6.2 Renunciation of exceptions clause 3.6.3 Interest and repayment clause 3.6.4 Costs clause 3.6.5 Non-projudics clause Ranking clause Property or security clause Dealing with title conditions Renunciation clause Execution clause Part 2 - Other kinds of mortgage bonds Other kinds of mortgage bonds Collateral bond Surety bond Indemnity bond Substituted bond Covering bond Kustingsbrief Participation bonds 38 38 39 4 42 42 42 42 Tuy 2078) Tissue 34]Chapter Self-Study Deeds Cot TA 7.2 73 TA 75 76 8.1 8.2 8.3 94 9.2 Part 3 - Various dealings with mortgage bonds Variation of conditions Cession of a mortgage bond Consents Introduction Consent to cancellation Consent to release Consent to part payment or reduction of cover ‘Waiver of preference of bonds Consent to various acts of registration Substitution of debtor Background General rule Exceptions to the general rule Part 4 - Miscellaneous Miscellaneous matters Notarial bonds Specific bond codes 45 47 54 54 55 59 62 63 64 66 66 66 67 70 70 70 Tissue 34] Taly 2078},Mortgage bonds Chapter 14-3 14 1.2 13 1.4 Part 1 - Analysis of a mortgage bond BACKGROUND Deeds of transfer are concerned with the transfer of immovable property from one person to another. Mortgage bonds are concerned with the registration of bonds over immovable property. They are registered fo secure an obligation on the part of a mortgagor (the debtor) towards a mortgagee (the creditor), for example fo ensure the repayment of money lent to the mortgagor by the mortgagee. The bond enables the mortgagee, in the event of the non-uifilment of the obligation, to have the mortgaged property sold and to utilise the proceeds thereof to satisfy his claim against the mortgagor (the ‘owner of the property). A bond thus vests the mortgagee with a real right of ‘security against the immovable property of the mortaagor.' A mortgage bond serves a threefold purpose. On registration of a bond the mortgagee is vested with a real right against the immovable property of the mortgagor which lends him three competencies: a) _ it entitles the mortgagee to sell the land burdened by the bond and, from the proceeds, satisfy his claim against the mortgagor where the latter fails to fulfil his obligation towards the mortgagee; b) in the case of insolvency of the mortgagor it provides the mortgagee with a secured claim on the property over which the bond is registered; c) _ it restricts the mortgagor's (owner's) competence to dispose of the land. In other words, he is restricted in selling the land. Where a bond is concerned, a dual relationship is implied - a) Firstly, there is a contractual relationship between the mortgagor and the mortgagee. This contractual relationship of mortgage comes into existence by means of a foan agreement in which rights and duties between the two parties are stipulated. The loan agreement establishes personal rights between the parties. The loan agreement can be compared with the position of a deed of sale in relation to a deed of transfer in the sense that it also creates personal rights between the parties. b) Secondly, a real right has to be established which can be enforced against third parties. This real right is vested by registration of the mortgage bond at the deeds registry according to the stipulations of the Deeds Registries Act? Laurens RC, inleiding tot die studie van aktebesorging, tweede ultgawe, Butterworths, Durban, p. 79. This binding agreement between the creditor and the debtor is reached without any formalities. One of the consequences of such an agreement is that the creditor can Insist on the registration of a bond = Pietersburg Cold Storage v Cacaburas 1925 TPA 295. Before registration ts lodged the creditor (mortgagee) has no real right which is enforceable against third parties - Estate Chin v National Bank 1915 AD 353. In order to vest a real right which can be enforced against third parties in terms of a bond, registration is thus essential - Zandberg v Van Zy/ 1920 AD 302. Daly 2076) Tissue 34)japter 4 Self-S1 Is Cour 1.5 16 17 18 | The The loan agreement mortgage bond establishes a personal right between establishes a real right whichis also the parties which can only be enforced enforceable against third partios between them [eeeeeee eee ‘The personal right established by the loan agreement is converted to a real right by registration of a mortgage bond. Notarial bonds are registered against movable property and mortgage bonds are registered against immovable property - (section 102). Notarial bonds are prepared and attested by a notary public. Mortgage bonds are prepared by a conveyancer and attested by the registrar - (section 102). The real right held under a bond is vested upon the registration of the bond at the deeds registry; in other words, at the time when the registrar affixes his signature to the bond - (section 13). The mortgage bond must be executed in the presence of the registrar of deeds by the owner of the immovable property or a conveyancer duly authorised thereto by such owner - (section 60). However, it often happens that the person granting the power of attorney is not yet the registered owner of the land concerned, since he is taking transfer simultaneously with the registration of the mortgage bond - usually upon purchasing a new property. For this reason the transfer of the property Is always registered first, and the registration of the mortgage bond takes place subsequently. However, if there is an existing bond which must first be cancelled, transfer of land should be registered first, after which the existing bond should be cancelled and the new bond finally registered against the land. The linking of a set that includes the registration of a mortgage bond over a new property that is being purchased would therefore take the following form: Linking | Code _ | Type of deed 1 T Deed of Transfer (links first) 2 Bc | Cancellation of existing bond (links second) 3 B New bond (links third) [issue 347 Tuy 2078}Mortgage bonds. Chapter 14-5 1.9 Power of attorney to register a mortgage bond The first document to be prepared by a "bond attorney" is the power of attorney to register the bond, The same rules as for the power of attorney to pass transfer apply to the power of attorney to register a bond.® The power of attorney must authorise the conveyancer to register the bond containing specific terms and conditions. It is common practice to annex a copy of the bond fo the power of attorney, signed by the person granting the power of attorney for identification purposes. 1.10 The same drafting rules as for the preparation of a deed of transfer apply to the preparation of a mortgage bond. These are the rules concerning paper size, print, binding margin, one side of paper only, black ink, crossing out open spaces and page numbering.® 1.11 See Example “5 I” for a power of attorney to pass a mortgage bond. 1.12 Mortgage bonds and the Deeds Registries Act Chapter V, sections 50 - 62, deals with mortgage bonds 2 STRUCTURE OF A BOND Structure of a mortgage bond Preparation certificate Heading Preamble - (description of the mortgagor) Acknowledgement clause - (acknowledgement of debt and description of the mortgagee) Cause of debt - (amount and cause of debt of the bond) Miscellaneous clauses 6.1 Continuing covering security 6.2 Renunciation of exceptions 6.3 _ Interest and repayment 6.4 Additional amount 6.5 _ Non-prejudice clause Ranking clause Property clause Dealing with title conditions Renunciation clause Execution clause See the discussion of the "power of attorney to pass transfer" in chapter 5. The language in the draft bond which is annexed to the power of attorney, must be the same as in the bond itself - RCR38/2012. See chapter 4 for a detailed discussion of these rules. Duly 2076) Tesue 34)