There could be several reasons why your application for a home loan was rejected, however, this does not mean that it is the end of the road for you.
There are several other options available to a prospective buyer, one of it being an instalment sale, which is a sale which firstly gives a buyer the opportunity to purchase immovable property directly from the seller and secondly the buyer will be able to pay the outstanding debt off to the seller in instalments.
In other words, the seller in an instalment sale is the one who is financing the property for the buyer.
Now, as with home loans, there are of course laws governing such sales to protect both the seller and the buyer.
The National Credit Act 34 of 2005, for example, sets out the criteria for when a person who would like to provide credit, should apply to be registered as a credit provider.
It also sets out conditions applicable and obligations which must be fulfilled should the credit agreement fall under the scope of the National Credit Act.
Sections 4 to 25 of the Alienation of Land Act 68 of 1981 specifically applies to the sale of immovable property in instalments and sets out the content of such an agreement as well as the rights and obligations of the parties.
An instalment agreement basically works as follows: The seller, prospective buyer and an estate agent meet with an attorney to discuss and possibly reach an agreement on specific terms.
The attorney will then draft the instalment sale of land agreement which must be in accordance with prescribed law as mentioned.
The attorney then informs the existing bondholder that such an agreement has been concluded and requests that it issues a certificate which indicates the cancellation figures, in other words, the amount outstanding on the existing bond, any other costs it may require to cancel the bond as well as the interest rate on the home loan.
The attorney then registers the agreement against the title deed of the property in the deeds office which must be done before the seller receives any instalments from the buyer.
Thereafter transfer duty and transfer costs must be paid and the buyer must then make the payments as agreed upon in the contract.
The property gets transferred into the name of the buyer at the end of the agreement term.
Instalment sales bare huge risks for both the seller and the buyer, however, it provides people with an alternative way of entering the property market.
Article compiled by Michelle Nel, candidate attorney of SJ Botha Attorneys. You may direct any questions regarding property or conveyancing to conveyancing@sjbothaattorneys.co.za
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