Buying a repossessed or distressed property

What a repossessed property actually is

A South African bank cannot simply take back a house when the bond falls into arrears. It has to sue, get judgment and have the property sold in execution by the sheriff at a public auction. For a home, no writ may issue until a court has ordered execution, and if it is the debtor’s primary residence the court must first consider other ways the debt could be paid (rule 46A of the Uniform Rules of Court).

So a “repossessed” property is usually one of three things:

• A sheriff’s sale in execution. The owner still owns it; the sheriff sells it on the court’s authority.
• Bank in possession. The bank now owns it, often after buying it in at the sale in execution, and is reselling it.
• An estate or insolvency sale. Not strictly a repossession, but distressed in the same sense: an executor, trustee, liquidator or business rescue practitioner has to turn it into money.

Work out which sale you are in before you work out what to bid. Dynamic Auctioneers does not hold bank repossession contracts; see property auctions for what we sell.

Three routes, side by side

The same house can be sold through any route, on very different terms:

A Magistrates’ Court sale can differ, so read its conditions.

How a home reaches a sheriff’s sale

In the High Court, the sequence runs:

1. Notice. Before suing, the bank generally has to send a written notice under section 129 of the National Credit Act proposing debt counselling or another way to catch up.
2. Execution order. For a home, the court decides whether execution is warranted and may set a reserve price, weighing its value, the debts against it and who lives there.
3. Attachment. The sheriff serves notice on the owner, any occupier and the registrar of deeds.
4. Reserve requests. Where there are preferent claims, the bank must ask preferent creditors, the municipality (if the property is rated) and any body corporate to stipulate a reasonable reserve price within 10 days, or agree in writing to a sale without reserve (Uniform Rules, rule 46).
5. Conditions and advertising. The sheriff settles the conditions at least 20 court days before the sale, they lie for inspection at the sheriff’s office for 15 days, and the sale is advertised in a local newspaper and the Government Gazette (Uniform Rules, rule 46).
6. Auction. A public auction, which may also run online, under section 45 of the Consumer Protection Act and its regulations.

If a court-set reserve is not reached, the court decides what happens next, which can include a sale to the highest bidder. Until the sale, the owner can often still stop it by paying the overdue amounts, the bank’s prescribed default administration charges and its reasonable costs of enforcing the agreement (section 129(3) of the National Credit Act, as amended in 2014), so treat the date as provisional until the hammer falls. Magistrates’ Court matters follow a parallel procedure under that court’s own rules.

What the sheriff’s conditions of sale bind you to

In the High Court, conditions of sale in execution must correspond substantially with a prescribed form, Form 21 of the Uniform Rules. In a Magistrates’ Court sale the bank prepares the conditions under that court’s rule 43, with no prescribed form in the version we checked. Either way, read the actual set at the sheriff’s office.

To bid at all, register before the auction starts with FICA-style proof of identity: a bid from an unregistered person is invalid. Bidding for someone else needs a letter of authority, and for a company a certified resolution too (Consumer Protection Act auction regulations).

The commission comes from the sheriffs’ tariff. In the High Court tariff we checked (rule 68, Uniform Rules) it is 6% on the first R100,000, 3.5% from R100,001 to R400,000 and 1.5% on the balance, with a minimum of R3,000 and a maximum of R40,000: R25,500 on a R1,000,000 price, before any VAT. Magistrates’ Court sales use that court’s own tariff. Either way, your sale’s conditions give the exact formula.

If you default, a judge can cancel the sale on the sheriff’s report, the property goes back to auction, and you can be held liable for any loss on the resale.

Bank-in-possession property

Once the bank owns the property it sells like any other owner, through agents, its own listings or an auction house holding its mandate. The sale agreement or auction conditions are the bank’s document, not a court form, and it allocates every risk. One sale may promise vacant occupation and a settled municipal account; another may sell strictly as is, occupier and all. Get written answers to four questions before you bid:

• Is the property occupied, and who is responsible for removing an occupier?
• Who pays the amounts needed for the rates clearance certificate, and any levy or HOA arrears?
• Is the sale subject to bond approval, and if so for how long?
• What are the deposit and any commission, and who appoints the conveyancer?

Estate, insolvency and business rescue sales

This is the distressed property we auction (see estate auctions). The seller has been appointed to wind something up, and the law that appointed them shapes the sale:

• Deceased estates. The executor sells on terms the heirs approve in writing, or the Master approves where, for example, an heir is a minor or the heirs cannot agree (section 47, Administration of Estates Act). Transfer needs the Master’s certificate of no objection (section 42(2)).
• Insolvent estates. The trustee sells as the creditors direct or, failing directions, by public auction or tender after notice in the Gazette (section 82, Insolvency Act).
• Company liquidations. A company being wound up is still liquidated under Chapter 14 of the Companies Act of 1973, which continues to apply under the 2008 Act’s transitional provisions (Schedule 5, item 9). The liquidator sells the property.
• Business rescue. Outside the ordinary course, the company may sell only at arm’s length for fair value with the practitioner’s written approval, or under an adopted rescue plan (section 134, Companies Act).

Our process is on the buying on auction page: published viewing times, FICA registration before bidding opens with a registration deposit refunded if you do not win, a reserve agreed with the seller, the deposit due at the fall of the hammer, and the buyer’s commission and the balance as each auction’s conditions of sale set out. Property is sold voetstoots. Read the conditions and the rules of auction before you register (more in our liquidation auctions guide).

Arrears: rates, levies and who carries them

Arrears matter because they block transfer and add to what you pay.

Municipal rates and levies

The Deeds Office may not register a transfer without a municipal certificate that rates, service fees and other municipal charges for the two years before the application have been paid (section 118(1), Municipal Systems Act). After transfer, a new owner is not liable for municipal debts the previous owner ran up before transfer (Jordaan v City of Tshwane, Constitutional Court, 2017).

A sectional title transfer also needs a conveyancer’s certificate that the body corporate has certified the seller’s dues paid, or payment provided for to its satisfaction (section 15B(3), Sectional Titles Act), with no two-year limit. In an HOA estate, check whether the title deed or the association’s rules require its clearance.

Who carries them

At a sheriff’s sale the risk can be bigger than the clearance figure. Form 21 condition 9(b) makes the purchaser liable for all amounts due to the municipality, and says nothing to limit that to two years. Ask the sheriff or the bank’s attorneys for the full rates and levy figures: for a home, the bank had to put evidence of what was owed before the court (rule 46A(5)).

In an insolvent estate, rates for up to two years before sequestration, and from then until transfer, are paid from the proceeds (section 89(1), Insolvency Act). Otherwise, the conditions of sale decide.

Arrears and transfer duty

Arrears you agree to pay also count towards transfer duty: SARS adds seller debts the purchaser settles, such as arrear rates, to the value on which duty is calculated (SARS Transfer Duty Guide, section 6(1)(c)). At a sale in execution, only sheriff’s commission above 5% of the price is added (section 6(1)(a)), which on the High Court tariff happens only at low prices. Ask the conveyancer for the duty figure before you bid, and take your arrears off your maximum bid. See the costs of buying property on auction and transfer duty.

Occupied property and eviction

If someone is living there when you become owner, you cannot simply change the locks. Under the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE), nobody may evict an unlawful occupier without a court order, and doing so is a criminal offence. The Supreme Court of Appeal has held that this protection extends to a former owner who stays on after a sale in execution and transfer.

• You apply to court, which serves written notice on the occupier and the municipality at least 14 days before the hearing (PIE Act, section 4).
• An order is granted only if it is just and equitable, considering all the circumstances, including the needs of the elderly, children and disabled persons.
• If the occupier has been there more than six months, the court also considers whether alternative land can be made available, except where the property was sold in execution under a mortgage (section 4(7)).

Budget for legal fees, the time an opposed application takes, and carrying a property you cannot use or let. A tenant with a valid lease is different: under huur gaat voor koop, the new owner generally steps into the landlord’s shoes and is bound by the lease. Ask an attorney how any lease affects you before you bid.

Condition, voetstoots and the checks worth doing

Expect distressed property to be sold voetstoots, as it stands; ours is. The main exception the courts recognise is a seller who knew of a latent defect and deliberately concealed it (Van der Merwe v Meades), and a sheriff, bank or executor has typically never lived in the house. Whether the Consumer Protection Act affects the clause depends on the sale: where a bank sells by private treaty rather than at auction, its quality rules may apply, which is a question for an attorney. Either way, your inspection is your protection (more in our voetstoots guide).

The checks, in order:

1. Read the conditions of sale. Deposit, guarantee period, commission, arrears and occupation. If the sale needs the seller’s confirmation, they should say when your guarantee period starts.
2. Search the title and the municipal file. Owner, bonds, servitudes and interdicts at the Deeds Office; approved plans and zoning, against what is standing.
3. Find out who lives there. Drive past at different times; talk to neighbours or the managing agent.
4. Inspect, if only from outside. Roof, walls, damp, vandalism, stripped fittings.
5. Price in what nobody provides. Form 21 says nothing about compliance certificates or repairs, so at a sheriff’s sale assume you fund both.
6. Register and line up the money. Register before the auction starts (with a letter of authority if you bid for someone else), then the deposit on the day, any commission when the conditions of sale say, and guarantees by the deadline: see buying on auction with a bond.

Looking for distressed property from estates and liquidations? Every property we have on the market is on our property portal, our upcoming auctions list what is catalogued, and the desk on 086 155 2288 can tell you what is coming.