Bank-assisted property sales, sales in execution and sheriffs’ auctions may seem attractive, but there are issues to be aware of.
From 2018, a reserve price was required at sheriffs’ auctions. This rule was put in place after LLHRF brought a case before the full bench of the Johannesburg High Court to prevent ridiculous prices from being fetched at the auctions (some as low as R10). These results often left the previous owner with a large shortfall on their outstanding bond.
In 2021, Lungelo Lethu Human Rights Foundation (LLHRF) brought a R60 billion class-action suit against South African banks. An affidavit obtained in support of the suit found a sample of about 12 000 properties repossessed since 1994. These houses had been sold mainly through sheriff’s auctions for 50-60% of their proper value. And two hundred of those houses were sold for less than 17.2% of their market value.
So buying a repossessed home seems almost unethical to those who see it as possibly profiting from others’ misery. With interest rates as low as they are currently and banks approving more first-time home loans, isn’t there a win-win solution where distressed sellers can still get a reasonable price for their home and buyers can still get good value?
Yes. These days far fewer homes reach the sheriffs’ auctions due to the introduction of distressed, or bank-assisted, property sale programmes. These allow a seller in financial difficulty and unable to meet their bond payments to approach the bank to market the home through property companies. The intended result is financial relief for the seller, and the recovery of the outstanding debt on the home loan.
1. Attractive purchase prices
Because bank-assisted sales are usually urgent and sales in execution are a last resort to recoup the money loaned to the previous owner, Stevens says such properties are often well priced.
2. No transfer duty
A low transfer duty attaches to bank-assisted sales, and often bond costs may be significantly discounted. Transfer fees and attorney registration must still be paid.
In the case of repossessed homes, there will be a sale in execution. The attached property is auctioned, and there is no transfer duty. A reserve price is set, and if no bids come in above that, the bank will buy the property at the reservation price. If your bid is successful, a 10% deposit, sheriff’s commission are immediately payable, and attorney registration and transfer fees will fall due on transfer.
3. Outstanding rates etc. settled for distressed property sales
The bank will settle outstanding rates etc., up to registration or occupation. (Note: this is not the case for sheriff’s auctions, and those costs will be for the new owner to settle.)