Thread by @n2a2o_jay

Buying Property Through a Joint Bond: Pros & Cons

A #Thread

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What is a joint bond?

This is a home loan taken from a financial institution by two or more people/entities towards the purchase of co-owned immovable property e.g a house. This information is then captured and reflected on the information that reflects at the deeds office.

Disclaimer: This thread does not focus on a married couple, as their terms of marriage whether in COP or otherwise, will dictate the sharing of assets.

Why do people get into a joint bond?

The most common reason is affordability; I mean two is better than one. This may be purchase between lovers (common), friends, colleagues, or even family. Before you commit, I hope this thread will enlighten you to make a good decision.

Unless otherwise stated, if two people get into a joint bond together, the deeds will reflect a 50/50 shared ownership. If the two parties will not be paying equally, it would be wise to draft a contract that will indicate the true split of ownership.

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This is vital when the property is being sold, each party will get amounts reflecting their share ownership of the property. Have everything in writing!

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Side note: For your primary residence(the house you live in), if lack of finances is the only reason you are taking a joint bond, I employ you to rethink, and after rethinking, I would like to urge you to NOT DO IT!

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A joint bond is commonly taken for a primary residence, mostly buy unmarried romantic partners or friends. But it can also be taken for investment purposes. In this case, it is purely a business decision.

Contracts must be drafted indicating who owns what share, and most importantly indicating what happens in case the other party does not honor their commitments( this will help a great deal if legal proceedings need to be instated)

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Majority of people who take these joint bonds for primary residences hardly draft a contract between themselves, which is bad. A bond is a legal agreement between you and the bank, most importantly, it's 20-year long contract, a lot can happen in 20 years

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I believe one should draft a contract for when times get bad, while times are good. Think of it as insurance, you will never need it until you need it, which will be too late.

Here are the Pro's of a Joint Bond

-Increased Affordability: A couple earning 20k each, can buy a house for R6k Each or R12k p/m jointly
-Adequate affordability: A couple earning R10k p/m each, can buy a house R3k p/m repayment, or R6k p/m jointly, to be fair, how many dignified houses are in the R3k p/m range?

-Stronger Together: two or more siblings can afford to buy a family home jointly, and still manage to live their own lives. If 3 siblings come together to buy a R6k p/m house, they will each be liable to pay R2000 per month @33.33% ownership.

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-Increased Buying Power: A group of ten friends buying a block of flats is for sale at R10 Million. Each gets an R1 Million home loan. Allowing you to buy the block of flats and begin a property investment journey with your TRUSTED friends. Alone, you can't normally do this!

-Extend a helping hand: Perhaps your sibling does not qualify to buy the house of they want, but if they get into a joint bond with you(they promise to pay the bond in full, alone), they can't get granted the home loan, and because we are blood and care for each other, you agree.

Side note: Never get into a joint bond you can never afford to pay for alone.

Up until this point, all people are in agreement and happy, now let’s look into The Bad.

Ever heard of the phrase, with great power comes great responsibility? It doesn’t apply to joint bonds

Unfortunately, joint bonds have what is called Joint Liability; this means all of you are jointly liable for monthly home loan repayments, rates & taxes, levies, legal and administrative fees associated with the purchase of sale of the property.

-The credit score of each partner will be badly affected if there is a default on any payment.

Imagine this scenario, you got into a joint bond with a family member for your family home. 10 years later they lose their job and cannot afford to honor the agreement.

You are now married in COP, meaning your stake in the house, your wife is legally liable for it well. Their credit record affected by decisions you took 10 years ago before even meeting them.

Let us look at the most common scenario; you break up with your partner. One of you moves out, and subsequently refuses to make any payments towards a house, but refuse to have their name removed from the deeds of the property.

What do you do if your ‘partner’ cannot afford repayments anymore?

-if they agree to have their name removed from the house, you will then enter into a new agreement with the bank, accepting sole responsibility of the balance of the bond

-If your partner refuses to have their name removed from the deeds of the property, The easiest and quickest way is to convince them to sell, and you both sell the property in its entirety. If that fails, you need to get an attorney to get a court order to remove the other person

As you may know, legal fees are hectic, and legal matters are stressful, brace yourself! In the interim, you are still liable for double costs as well.

What happens when a co-owner applies for debt review?

legally you should not be flagged, but there have been cases where one party signed over his power of attorney to the debt review company without telling their partner, now both of them are flagged at the credit bureaus

What are your options if the partnership ends?

- It depends on the type of bond, direct or indemnity. Direct bonds allow endorsements, while indemnity bonds would need to be canceled and re-registered.

To Be Continued....

-This frequently results in transferring a half share to one of the owners, enabling the beneficiary to become the full and sole owner of the whole property

- Alternatively, they may decide to jointly sell and transfer each of their shares in the land to a third party

-Even the transfer of a half share in a property requires the payment of advance rates and taxes, advance homeowner’s association levies, advance sectional title levies, home loan cancellation costs, bond re-registration costs, and transfer fees to the conveyancer.

- Most banks will allow the incoming purchaser to take over the existing home loan debt of the seller. This is called a section 57 substitution of the debtor.

- In order to have one party removed off the loan, the financial institution needs to conduct a full credit and affordability assessment to ascertain whether one of the bondholders may be released.

If you are already in a joint bond on intend on getting into one, please prepare for the following, in advance:

- Times of financial stress (or inability of one or more partners to meet their repayment commitments), e.g. current lockdown;

- Divorce to one of the co-owners who is married in COP or separation with your partner;

- Dissolution of the partnership ( for investment properties);

- The sale of the whole or portions of the property;

- How will It affect your affordability for your next house

- Death

A partner who dies with debts>assets may have their share auctioned even to cover winding the estate), Must the whole property be sold or does the survivor have the right to buy the deceased's share?

Lastly, home loan repayment comes off from one account, you decide who gets debited. if your partner has a temporary financial distress, you will be debited in full. Also, if the person whose bank was selected for debit order does not honor them, you may risk losing your house.