A Property24 Reader has a number of questions related to the fees and cancellation process of an existing bond.
If you are selling you should give your bank at least three-months notice that you intend to cancel your bond. We asked two major banks in South Africa to explain the process and why the early settlement or bond cancellation fees are charged.
Property24 Reader Vusumuzi Madi says upon paying off his bond, he was told about a bond cancelation fee that he "did not know of".
"Why do lawyers charge different amounts? The fee charged by the conveyancer appointed by the bank was high, says Madi.
When he requested to compare quotations, he says he was given "other conveyancers on the bank's panel", which means he "could not choose any conveyancer of my choice".
"Two of the other conveyancer charged three thousand rand cheaper than the first. One other thing I'm battling to understand is that I'm not selling my property and have no intentions of doing so.
'Looks like a penalty for paying off my bond before the original 20 years'
"Is there a way I could avoid paying this cancelation fee, which looks more like a penalty for paying off my bond before the original 20 years of the contract?"
Bonga Mdlungu, COO, FNB Home Finance and Private Bank Lending says, "The cancellation fee is not a fee that is due to the Bank, but a fee that is paid to the Conveyancing Attorney who attends to the cancellation of the bond at the Deeds Office. Conveyancers fees are charged in terms of the guidelines published by the Law Society of South Africa. The fee is comprised of remuneration earned by the attorney for attending to the cancellation as well as a fee payable to the Deeds Office for processing the cancellation.
Geoffrey Lee, Managing Executive Home Loans, Absa Retail and Business Bank says, "When applying for a home loan a number of factors are considered by the Bank. Due to the long term nature of home loans, factors such as the duration of the loan, deposit, affordability and credit history of the customer are factored in by Banks.
"Against this background, early settlement does have an impact on both the customer and the Bank. To this end The National Credit Act (Section 125) sets up parameters for the early cancellation and cancellation fees for home loans. This early settlement fee may be equal to a maximum of 90 days’ interest, which will be reduced proportionately based on the notice period given.
Why do banks only use a specific panel list of bank appointed conveyancers and why are attorneys not on this list not allowed to be used?
Lee says, "Banks make use of approved panel conveyancers, that are contracted to act on behalf of the Bank at the Deeds Offices.
"These conveyancers meet the Banks requirements/standards and, are professional, qualified and experienced in registering and cancelling mortgage bonds for the Bank.
"The conveyancers know the Bank’s processes well and we can trust that these conveyancers will ensure the proper handling of the transaction, making it easier for the customer and the Banks.
Mdlungu adds, "Banks would curate attorney firms and conclude a Service Level Agreement (SLA) with them before onboarding them onto their panel. Ultimately, the idea is to ensure that we protect the interests of our customers and that of the bank.
"The SLA will set out all the various requirements that the attorney is required to meet, as well as obligations which will extend past the termination of the SLA. Therefore, Banks will only engage with Attorneys that they have an SLA with, as they would have been trained on the relevant processes of the Bank. The Bank also utilises specific systems with which they facilitate instructions to attorneys.
"The costs of the systems, and training, would be prohibitive for the Bank, and the Attorney for an adhoc instruction. Furthermore not having a formal SLA between Bank and Attorney will result in the terms of engagement not being clear or adhered to, which could jeopardise the registration or cancellation process of the bond.
Therefore, the Bank would only instruct an Attorney that it has an agreed SLA to ensure that all the requirements for fulfilling the transaction are met
Lee says, "Registering a mortgage bond and hence cancelling a mortgage bond is a legal process and requires a conveyancer (attorney) to attend to both these events.
"It is important to note that when the mortgage bond is cancelled at the Deeds Office a cancellation fee is applicable, even if you are not selling your home.
"When a mortgage bond is registered, Banks retain the original mortgage bond and title deed until the home loan account is settled in full and the mortgage bond is cancelled.
"Upon cancellation of the mortgage bond, the Title Deed is handed over to the customer by the cancellation Attorney. Conveyancers charge for professional services rendered. Fees are charged in accordance with the fee guidelines issued by the Legal Practice Council. These fees are not prescribed and therefore are negotiable between the conveyancer and customer.
Mdlungu adds, "If the bond is not formally cancelled in the Deeds Office it will remain in force and effect. By cancelling the bond the owner of the property officially unencumbers the property and the Title Deed (proof of ownership) will be returned to the client for safe keeping.
READ: Mortgage Bond vs Home Loan | Two parts of your land asset whole
What other important details should sellers note when cancelling their bond?
Lee says it is important to give your bank three-month notice of intention to settle the home loan.
"When cancellation figures are issued, the three-month interest is included in the cancellation figures and the Bank will instruct a Bond Cancellation Attorney to deal with the bond cancellation process."
"The Seller must give the Bank three-month notice of intention to settle the home loan and cancel the bond. When cancellation figures are issued, the three-month interest is included in the cancellation figures and the Bank will instruct a Bond Cancellation Attorney to deal with the bond cancellation process."
Mdlungu also advises all sellers to keep in mind the period notice to cancel the bond and to most importantly "to remember to maintain bond instalments through the cancellation period to ensure that there is not a shortfall when the transaction comes up for registration at the Deeds Office."