2009/01/22

Bondholders who are planning to cancel their bonds (usually as a result of selling the property) should heed the warning that for a year or longer certain banks – not all – have been "making things very difficult".

"The first of the new rulings now applied is that it is necessary to give three months prior notice of cancellation. This gives rise to numerous problems, the most obvious of which is that in today's market it may well be impossible to sell your home in three months.

"When that happens, some banks, we have found, are understanding and will roll over the bond and delay cancellation. Others, however, now require the bondholder to submit a further cancellation notice for another three months."

One bank, said Steward, has gone so far as to intimate to a seller that when the three-month notice period ends they will go ahead and cancel the bond whether or not the house is sold.

This, said Steward, could be problematical because, on reapplying for a bond, many current bondholders could find that under the new National Credit Act (NCA) they no longer qualify for a loan at the previous level.

If a bondholder does not give three months notice and cannot delay the sale for that amount of time, many banks, said Steward, now charge excessively high cancellation fees although some are prepared to waive these if the bondholder takes out his next bond with them.

"Many of us in the real estate sector can see absolutely no justification for a cancellation fee because the costs of speeding up a cancellation are minimal. It is particularly unjust if the bondholder has been a regular payer. The whole setup appears to us to be simply a way to earn extra revenue for the bank."

What, therefore, should a bondholder planning to sell his home do?

Steward advises such people to go to their banks and find out directly what policy is being applied. The answer, she adds, should be in writing and should come from the correctly authorised person – there have been cases where a subordinate did not give the same ruling as his superiors and in one instance the court then ruled in favour of the bank despite the bondholder having been misinformed.

When a bondholder cancels his bond, adds Steward, it is important to get a receipt confirming that the bank acknowledges the cancellation.

"Regrettably today's bank clerical systems are not always efficient."

"Once the cancellation criteria have been established, the seller must ensure that the transfer date on the Agreement of Sale does not allow for cancellation fees to be payable."

Property24