Decoding Section 57: Real Estate Transactions 1937

The Deeds Registries Act 47 of 1937 serves as a cornerstone in real estate transactions, orchestrating the orderly transfer of property rights. Within this legal framework lies Section 57 of the Deed’s Registries Act (hereinafter referred to Section 57 of the Act), a pivotal mechanism governing the substitution of debtors under a mortgage bond. Section 57 of the Act provides a structured process for the substitution of a debtor under a registered mortgage bond. This occurs when the owner transfers the entire mortgaged land to another individual without retaining any real rights in the property. According to Section 57(1) of the Act, the registrar is empowered to record the transfer and substitute the new owner as the debtor, formalising a shift in financial responsibility. The previous owner and debtor are removed from the property's title deed and mortgage bond and replaced entirely by the new owner and debtor, and the new owner and/or debtor take over the financial obligations under the mortgaged bond.

Conditions for substitution include the transfer of the whole mortgaged property to the new mortgagor, with the original mortgagor giving up all real rights that they had in the property. There are exceptions to the rule whereby a co-owner and co-debtor may transfer his or her whole share in the property to another existing co-owner and co-debtor or to an individual other than the co-owners. Still, consent must be obtained from all the co-debtors. However, substitution is not applicable in situations where only a share is being transferred, real rights are being retained, where an owner lacks the required legal capacity, where there are surety arrangements under a surety bond, and where the debtors are party to a notarial bond.

Another approach which can be considered is in terms of Section 45(1) of the Deed’s Registries Act 47 of 1937, which permits transfers by endorsement (a stamp placed on a document noting the transfer of the property or mortgaged bond from one co-owner to another and noting the new facts) in specific situations. The initial circumstance is a Section 45(1) transfer, which occurs when a property, previously part of a joint deceased estate, is acquired by the surviving spouse from the deceased spouse's share. Another scenario is outlined in Section 45 bis(1)(a) of the Act, which is applicable when spouses married in community of property undergo a divorce. One spouse is entitled to the other spouse's share in the property as stipulated in the divorce order. It's important to note that in these situations, the bond is also endorsed to accurately reflect the substitution of the debtor under the mortgage bond.

Written consent from both the mortgagee (creditor or financial institution) and the new mortgagor (new debtor) is an important requirement for the substitution process, ensuring transparency and legal compliance. The new debtor initiates the Section 57 request at the bank or financial institution, undergoing a credit check for mortgage bond eligibility. Upon approval, an attorney registers the substitution of debtors at the Deeds Office, absolving the previous debtor from obligations as of the transfer date, with the new debtor assuming responsibilities outlined in the bond.

In conclusion, Section 57 is vital to the orderly transfer of property rights. Its careful delineation of conditions, exceptions, and procedural steps ensures a transparent process for navigating complexities in real estate transactions.

Navigating property transactions: a deep dive into section 57 of the deeds registries act 47 of 1937

In the intricate landscape of real estate transactions, the Deeds Registries Act 47 of 1937 stands as a crucial legal framework, ensuring the orderly transfer of property rights. Among its notable provisions, Section 57 ¹ emerges as a key mechanism governing debtor substitution. This section plays a pivotal role in scenarios where a change in responsibility for a property's financial obligations occurs, intricately influencing the contractual relationships between parties.

Understanding the Essence of Section 57: Substitution of Debtor

Section 57 of the Deeds Registries Act 47 of 1937 (hereinafter referred to as the Deeds Registries Act) provides a structured process for substituting a debtor under a registered mortgage bond. The essence of this provision comes into play when the property owner, subject to a registered mortgage bond, transfers the entire mortgaged land to another individual without retaining any real rights in the land. According to Section 57(1) ², the registrar is empowered to record the transfer and substitute the new owner as the debtor in respect of the bond. This process brings about a formalised shift in financial responsibility.

Therefore, the primary conditions for the substitution under Section 57 ³ are as follows:

1. The whole mortgaged property must be transferred to the new mortgagor.

2. The original mortgagor must not retain any real rights in the land.

However, there are instances in which Section 57 ⁴ cannot be invoked:

1. Partial Transfers: Section 57 specifies that substitution is not applicable when only a portion of the mortgaged property is intended for transfer. Exceptions exist for co-owners transferring their entire shares to each other ⁵.  This means that the substitution of debtors may be registered if one co-owner transfers their whole share to another co-owner or any other person ⁶.  Where the share is transferred to another individual other than the existing co-owner, the consent of all existing bond co-mortgagors (debtors) must be obtained, and the legal exception de duobus vel pluribus reis debendi, i.e. the benefit of being jointly sued, must be waived. ⁷

Another approach which can be considered is in terms of Section 45(1) ⁸, which permits transfers by endorsement (a stamp placed on a document noting the transfer of the property or mortgaged bond from one co-owner to another and noting the new facts) in specific situations.

The initial circumstance is a Section 45(1) ⁹ transfer, which occurs when a property, previously part of a joint deceased estate, is acquired by the surviving spouse from the deceased spouse's share. Another scenario is outlined in Section 45 bis(1)(a) ¹⁰, which is applicable when spouses married in community of property undergo a divorce. One spouse is entitled to the other spouse's share in the property as stipulated in the divorce order. It's important to note that in these situations, the bond is also endorsed to accurately reflect the substitution of the debtor under the mortgage bond.

2. Real Rights Retention: If the owner retains a real right in the land, such as a personal servitude or usufruct.  ¹¹

3. Exclusions: Where the existing owner and/or debtor is a trustee in an insolvent estate, an executor in an insolvent estate, a liquidator of a company or a close corporation which is being wound up under the supervision of the court and is unable to pay its debts.

4. Specific Transfer Scenarios: Where the new owner lacks the necessary legal capacity to mortgage the land, such as a minor or fiduciary.

5. Surety: where the bond is to secure the obligations of a surety.

6. Notarial Bond: mortgagors (debtors) under a notarial bond cannot be substituted.

Bearing all the factors in mind, it is important to note that written consent, in a prescribed form, from both the mortgagee (creditor) and the new mortgagor (debtor) is a prerequisite for the substitution process. This ensures transparency and compliance with legal standards.

Procedure and Implications

Generally, it is the new debtor who initiates the request for substitution. When the new debtor initiates the Section 57 request, he or she must undergo approval by the bank. Irrespective of the banking institution involved, a comprehensive credit check is conducted on the new debtor to verify their eligibility for the mortgage bond. The subsequent paperwork varies among banks, ranging from a system update assigning a fresh home loan account number to the requirement of signing and submitting new bond documents. Upon approval, an attorney is instructed to register the Section 57 substitution at the Deeds Office, in which the previous debtor is removed from the bond as well as the existing title deed. Notably, the substitution and the land transfer co-occur.

Section 57(3)  ¹² clearly states that as of the transfer deed date, the previous debtor is absolved from any obligations secured by the bond, and the new debtor assumes the responsibilities outlined in the bond.

Conclusion:

In conclusion, Section 57 of the Deeds Registries Act 47 of 1937 plays a vital role in the orderly transfer of property rights, specifically pertaining to the substitution of debtors. This provision's careful delineation of conditions, exceptions, and procedural steps ensures a structured and transparent process for navigating the complexities of substituting debtors.

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¹ Deed’s Registries Act 47 of 1937
² Deed’s Registries Act 47 of 1937
³ Deed’s Registries Act 47 of 1937
⁴ Deed’s Registries Act 47 of 1937
⁵ Section 57(1) of Deed’s Registries Act 47 of 1937
⁶ Registrar’s Conference Resolution 7 of 1994 and 7 of 2006
⁷ Registrar’s Conference Resolution 19 of 2005
⁸ Deed’s Registries Act 47 of 1937
⁹ Deed’s Registries Act 47 of 1937
¹⁰ Deed’s Registries Act 47 of 1937
¹¹ Section 57(1) of Deed’s Registries Act 47 of 1937
¹² Deeds Registries Act 47 of 1937

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Written by: Ayanda Malotana
Moderated and approved by: Clive Smith

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