REAL SECURITY MINDMAPS .pdf

REAL RIGHHTS REAL SECURITY Personal security – only 1 form: suretyship; right to look to a person General...

REAL RIGHHTS REAL SECURITY Personal security – only 1 form: suretyship; right to look to a person General mortgage – a deed or document which purports to in the case of breach hypothecate, bind or burden all the debtor’s moveable and Real security – gives the creditor the right to look to property to immovable property. A general mortgage is invalid. satisfy the debt owed to him A general clause is also invalid. The concept of a ‘mortgage’ may be used in a narrow or wide sense General clause – same as a general mortgage save for the fact Wide sense – refers to all forms of real security that it is a clause in a document. Narrow sense – refers to a specific type of a mortgage (mortgage Section 53(1) of the Deeds Registry Act provides for the bond) exclusion of general clauses in mortgage bonds. A general notarial bond is, however, valid. Express mortgage – is created by agreement and a public act – eg – A composite mortgage bond is also valid. mortgage bond, pledge, notarial bond, cession as security Composite mortgage bond – one document which contains and Tacit mortgage – created by operation of law and a public act – eg – deals with various mortgage bonds. liens, tacit hypothec) – this module = liens SECURITY REAL RIGHHTS Real security affords a real right and that is the right to have the proceeds REAL RIGHHTS of property belonging to the debtor (or a third party) applied to the satisfaction of the claim of the creditor, to the exclusion of the claims of The aim of having this right of real security is to strengthen the the other creditors. position of the creditor, should the debtor fail to pay or become insolvent. The debtor’s property, not his person. The type of real right depends on the type of property. If the property belongs to a third party, the right still applies – Movable property – pledge (physically deliver the property); provided that the third party agreed to it. register a notarial bond. E.g., Sibisi’s son wants to take out a loan with ABC Bank. To Immovable property – register a mortgage bond. secure his indebtedness, S agrees to pass a mortgage bond to ABC Corporeal property. Bank against his house. Incorporeal property – cession as security; e.g., shares.  MORTGAGES: MORTGAGES: WHAT IS A MORTGAGE BOND? CREATION OF A MORTGAGE BOND May be defined as a document in terms of which immovable PUBLIC ACT property is specifically hypothecated and which, once registered, creates a right of security over immovable property. Governed by the law of property. Effected by the registration of the mortgage bond against MORTGAGES: the title deed of the property. The public act is the means of informing the public or PARTIES other creditors that a real right of security exists in favour of a mortgagee over the property concerned. MORTGAGOR person who registers a mortgage bond and confers a right of security over his property (usually the debtor, ALWAYS the owner). SECURITY MORTGAGEE person in whose favour the security right is granted; creditor/ bondholder. MORTGAGES: MORTGAGES: FORMALITIES: CREATION OF A MORTGAGE BOND - Agreement + public act No formalities for a mortgage bond per se. AGREEMENT: Formalities for a sale of immovable property. Contents of a mortgage bond is determined by banking, Formation of agreements governed by the law of contract. conveyancing practice, statute and the common law. Various agreements. If 2 or more people are liable in the same obligation, they may pass 1 mortgage bond in favour of the 1) There must be an agreement regarding the principal obligation, to which the creditor for their indebtedness, provided that they each mortgage is accessory have immovable property secured by the bond. 1 bond, 2+ debtors. 2) There must be an agreement regarding the property against which the mortgage will Details of the mortgage bond will be registered against be registered/ attaches. each title deed. Debt owed to more than 1 creditor may be secured by 1 3) There must be a mortgage agreement, whereby you now agree to create a mortgage mortgage bond, naming all of them as mortgagees. bond. 1 bond, 2+ creditors.  MORTGAGES MORTGAGES REGISTRATION OF A MORTGAGE BOND WHAT PROPERTY MAY BE MORTGAGED? Must be prepared by a conveyancer (regulation 43(1) of Deeds Registries Reg). Any immovable property provided that it is privately Must be executed in the presence of the Registrar of owned. Deeds by a conveyancer or owner of property (section Only requirement: should not belong to the creditor. 50(1)). Co-owner of immovable property may mortgage is Registrar must attest the bond (section 50(1)). undivided share without the consent of the co-owner. Registrar must enter the details of the mortgage in the appropriate register. SECURITY MORTGAGES WHAT PROPERTY MAY BE MOTRGAGED BONHEUR 76 GENERAL TRADING v CARIBBEAN ESTATE - Deals with the alienation or burdening: alienate (by means of sale or donation) or burden (by means of pledge or mortgage) means that the ownership is divided but the thing is not. Co-owners must consent and cooperate in complying with the formalities - Was stated in the ratio of the case that a single owner cannot alienate or burden the whole property; the consent of all co-owners is required  FEATURES OF THE CREDITORS SECURITY INTEREST SECURITY THE MORTGAGOR MAY NOT ADVERSELY AFFECT THE MORTGAGEE’S SECURITY INTEREST The mortgagor may not deal with his right of ownership over security FEATURES OF THE CREDITORS SECURITY INTEREST interest in a manner that detrimentally affects the mortgagee’s security interest MORTGAGEE’S RIGHT TO IMMEDIATE EXECUTION - A person who obtains judgment against a debtor must first execute the (a) Transfer property (sell) – S56 DRA judgment against debtor’s movable property. - May not be transferred unless the mortgage is cancelled or the property released from the bond with the written consent of - If is the proceeds of the sale of movables is insufficient may the creditor mortgagee proceed to execute against immovable property. (b) Imposing personal/praedial servitude – S65(3) and S75(3) DRA - HOWEVER: If a mortgagee obtains judgment against a mortgagor, he is - Written consent entitled to an order declaring the mortgaged property immediately - If registered, subordinate to the right of mortgagee. executable. - Unless the bond stipulates otherwise, mortgagor may lease property (short lease and long lease) - Mortgagee may not execute on property without reference to the mortgagor - Should there be conflict, the mortgagee’s rights take precedent over or court. the lease - Mortgagee may ‘buy in’ the mortgaged property at a sale in execution and - In a sale in execution, if insufficient bids, property offered free of deduct the purchase price (the amount he paid) from the amount owed by the lease. mortgagor. - Unless the bond provides otherwise, the mortgagor may pass further bonds over the property – the general rule is that earlier mortgages take precedence. MORTGAGEE’S RIGHT TO IMMEDIATE EXECUTION If the amount owed is more than the purchase price, the mortgagee has a claim further against mortgagor (positive balance) ABSA v BISNATH If amount owed is less than the purchase price, the mortgagor is entitled to The obligations owed by a pledgee to the pledgor at common surplus (negative balance) law in regard to fruits of the property pledged, are owed by a mortgagee of immovable property to the mortgagor only E.g. Thobile owes Absa R800 000 under mortgage bond over her house. The where the mortgagee is in possession of the mortgaged house is sold in execution for R750 000. Absa may buy the property and then property. deduct the purchase price from the amount owing. Absa still has a claim of R50 000 against Thobile STANDARD BANK v HENDRICKS VOID CLAUSES IN A MORTGAGE BOND Reiterates the procedure to be followed when applying for immediate execution (1) PARATE EXECUTIE - The mortgagee must notify the mortgagor of the default, following This clause allows the mortgagee on default by the mortgagor to sell the property Section 129 of the NCA. without recourse to the debtor/court - The mortgagee should propose extra-judicial methods to cure the default. (2) PACTUM COMMISSORIUM - If the mortgagor doesn't cure the default, the mortgagee can proceed This clause effects that upon default by the mortgagor the mortgagee will to issue summons. become the owner of the property and all the proceeds will go to the mortgagee - When issuing summons, the mortgagee must reference the right contained in Section 26 of the Constitution. ** If a clause is invalid – only the clause will be invalid not the entire bond - The debtor should be called upon to provide any information supporting the claim that their housing right will be infringed. VALID CLAUSES - If there is no appearance to defend, the mortgagee can apply for (1) CONDITIONAL SALE CLAUSE default judgment. - In this application, the mortgagee should also apply for immediate SECURITY Effect that on default by the mortgagor, the mortgagee may execution, obtaining one judgment for the owed amount and another acquire the property at a fair value to declare the property immediately executable. (2) AN AGREEMENT CONCLUDED AFTER THE DEBT FALLS DUE CONSTITUTIONALITY OF IMMEDIATE EXECUTION ON PRIMARY The mortgagor is in default to the effect that the mortgagee RESIDENCE may take over the mortgaged asset in discharge of the Prior to Rule 46A, the approach of our courts has been to refuse outstanding obligation immediate execution if, amongst others: o The property in question is the mortgagor’s home CONSTITUTIONALITY OF IMMEDIATE EXECUTION ON PRIMARY RESIDENCE o The sale would unjustifiably infringe on the mortgagor’s right to access to On the face of it, the mortgagee’s right to immediate adequate housing – loss of right of tenure. execution is in conflict with the mortgagor’s right to have access to adequate housing and the right not to have o Execution against primary residence of the debtor is now regulated by Rule residence demolished or evicted without a court order in 46A of the Uniform Rules of Court – as of 22 December 2017. (nb stems terms of s26(1) & 26(3) of the Constitution. from interpretation of s26(3) of the Constitution) This limitation of the right must be justified ito s36(1) o No execution against primary residence may occur without judicial oversight  IN CONSIDERING AN APPLICATION FOR IMMEDIATE EXECUTION THE APPLICATION FOR DEFAULT JUDGEMENT AGAINST IMMOVABLE PROPERTY, THE COURT MUST: MUST STATE THE FOLLOWING: Rule 46(a)(9) (reserve price) Amount of arrears as the date of application Applies retroactively whether the immovable property was acquired in terms of Empowers the court to consider an application for a reserve price for state subsidy immediate execution whether the immoveable property is occupied or not Reserve price= if an offer matches the reserve price- then it will be sold to whether it is used for residential purposes or commercial offeror purposes If it is below the reserve price, Rule 46(a)(9) –they must go back to court whether the debt enforced was incurred to acquire the and ask the court to reconsider the reserve price- accepting the price or immovable property sought to be declared immediately waiver the reserve price executable IN CONSIDERING AN APPLICATION FOR IMMEDIATE EXECUTION AGAINST IMMOVABLE SECURITY PROPERTY, THE COURT MUST: (a) Establish whether the immovable property in question is the primary residence of the judgment debtor. IN CONSIDERING AN APPLICATION FOR IMMEDIATE EXECUTION AGAINST IMMOVABLE PROPERTY, THE COURT MUST: (b)Consider alternative means of satisfying the judgment debt that the STATUTORY PROTECTION OF MORTGAGOR ON judgment debtor may have other then execution against the primary EVICTION residence. The Prevention of Illegal Eviction from Unlawful Occupation of Land Act 19 of 1998 (PIE) provides that eviction order may only The court can only authorise execution against a primary residence, be granted if: if, after having considered all the factors, it considers that the The court has served written and effective notice of the execution is warranted. proceedings as prescribed in s4(2) – (5) of PIE The registrar cannot only issue writ of execution against primary After considering all the relevant factors, including the rights and residence unless the court has ordered execution needs of the elderly, children, disabled persons and households Rule 46A applies retroactively. headed by women (S4(6) &(7)), the court of the opinion that it is just and equitable to grant the order.  PREFERENCE GIVEN TO THE MORTGAGEE’S CLAIM FACTORS TO TAKE INTO ACCOUNT WHEN DECIDING WHETHER A SALE IN EXECUTION OF A PRIMARY RESIDENCE INFRINGES S26(1) The mortgagee has a preferential claim to the proceeds of the sale of the (EXERCISING JUDICIAL OVERSIGHT) property - Will render mortgagor and his family homeless This means, should the mortgaged property be sold in execution, the - The mortgagor is unlikely to own a home again mortgagee has a right to be paid first before all other creditor. - The amount of the debt Mortgaged property may be mortgaged at the instance of other creditors – - Whether the debtor owns sufficient movable property S66(2) of Mag. Court Act – mortgaged property may not be sold in execution at the instance another creditor, unless - The debtor is employed, has movable assets capable of attachment and sale in execution. The proceeds of the sale are enough to meet the claim of the mortgagee in full; or He accepts a compromise. - The mortgagor’s family members includes children Rule 46(5) of Uniform Rules provides that no sale of mortgaged property - The mortgagor is a previously disadvantaged individuals and low income in execution may proceed unless the mortgagee has been given 10 days earner. notice to set a reserve price or agree to sale without reserve. - The mortgagor has acquired equity in the property by reason of having made If the mortgagor becomes insolvent, the mortgagee has a preferential regular payments for a longer duration. claim to the proceeds of the sale of the mortgaged property to the exclusion of all other creditors. SECURITY LPGS PROTECTION & SECURITY SERVICES v FR BANK It is the duty of the judgment debtor to bring before the court sufficient information to allow the court to exercise judicial oversight. RELEASE OF THE MORTGAGED PROPERTY In this case the judgment debtor failed (at least four times) to A mortgagor who has discharged the principal obligation may insist that place before court any relevant information to assist the court in the Registrar of Deeds cancels the bond. exercising judicial oversight ito Rule 46A. Mortgagee may not hold the mortgage as security for another debtor of the mortgagor The judgment debtor may provide the relevant information by Right to security is indivisible! Mortgagor may not claim partial release way of affidavit. of the property on the ground that he has partially paid the principal obligation  PLEDGES Definition A real security right that is created by the physical delivery of the principal PLEDGES debtor's moveable property to the creditor DISTINCT FEATURES Parties Provided that the parties agreed, a parate executie is permissible pledger (usually debtor) – the person who delivers moveable property to only with respect to movable property, provided that the property the creditor's security- could also be a third party in question is in possession of the creditor. pledgee – receives movable property as security from the creditor The debtor may refer the matter to court if the pledge, in effecting How is it created? the sale, acts in a manner that is prejudicial to the debtor’s rights. created by agreement and public act agreement to create pledge as security Public act- what form will the public act take? physical delivery SECURITY PLEDGES PLEDGES BOCK & OTHERS v DUBURORO INVESTMENTS CHARACTERISTICS dependent on continued possession - Harms JA explained the legal position with respect to a paratie executie in relation to movables: should the pledgee voluntarily relinquish possession of the property, he loses the security interest therein “The principles concerning paratie executie (immediate execution) are trite. the position of the pledgee is similar to the mortgagee (in this context , A clause in a mortgage bond permitting the bondholder to execute without should the property that is subject to a pledge be sold then the pledgee has recourse to the mortgagor or the court by taking possession of the property a preferential claim against the proceeds of the sale of the pledged and selling it, is void. It is different with movables held in pledge – a term property) in an agreement to pledge, which provides for the private sale of the pledged parati executi is permissible in relation to immoveable property provided article and in the possession of the creditor, is valid. But a debtor may seek that the property in question is in possession of the creditor the protection of the court if, upon any ground, he can show that in carrying the debtor may refer the matter to court if the pledgee in affecting the sale out the agreement and affecting a sale, the creditor has acted in a manner acts in a manner that is prejudicial to debtors right which prejudiced him in his rights”.  NOTARIAL BONDS OVER MOVABLES NOTARIAL BONDS OVER MOVABLES SPECIAL NOTARIAL BONDS A notarial bond also relates to movable assets. A Prior to 1993, before the commencement of SMPA, the position in Natal was notarial bond is registered. different to that of the rest of South Africa. Notarial bonds gave bondholders very limited rights to the proceeds of the property, except in KZN. NOTARIAL BONDS OVER MOVABLES rd In the rest of SA, the mortgagor/owner could dispose of property to a 3 party NATURE & FORM free of the bondholder’s rights, provided that the 3rd party had no notice of the bondholder’s right over the property. A notarial bond is a bond registered over specific or all If the property was attached at the instance of another creditor, the movables, corporeal and incorporeal, belonging to the bondholder/creditor could not prevent the sale in execution and was not entitled debtor or a 3rd party. to the proceeds of the sale (no preferential claim). S102 of the Deeds Registries Act defines notarial bonds On insolvency of the mortgagor/debtor, the bondholder did not get any as ‘a bond attested to by a notary public hypothecating movable property generally or specially. preference on the proceeds of the sale of the hypothecated property – only ranks before unsecured creditor. Requirement: The notarial bond must be registered within three months after the date of its execution or within a period allowed by court on application (s61(1) of Deeds Registries Act). Notarial bonds are governed by the Security by Means of SECURITY Movable Property Act 57 of 1993 (SMPA/SMMPA). NOTARIAL BONDS OVER MOVABLES NOTARIAL BONDS OVER MOVABLES SPECIAL NOTARIAL BONDS v GENERAL PARTIES & CREATION NOTARIAL BONDS MORTGAGOR – The debtor/person who passes/registers a notarial bond over his moveable property Special NB: Hypothecates specific movable property of MORTGAGEE/BONDHOLDER – The creditor/person in whose favour the the debtor. notarial bond is registered General NB: Hypothecates of all of the debtor’s Notarial bonds are examples of express mortgages – it is created by agreement movable assets. and public act. This public act requirement is effected through registration of the notarial bond. A notary prepares the notarial bond.  NOTARIAL BONDS OVER MOVABLES NOTARIAL BONDS OVER MOVABLES SPECIAL NOTARIAL BONDS – post-1993 o The Security by Means of Movable Property Act – brings SPECIAL NOTARIAL BONDS – pre-1993 about uniformity for the whole of SA. o Notarial Bonds (Natal) Act 18 of 1932 – afforded stronger rights of bondholders. o S1(1) of the Act provides: o The property in question was deemed to have been pledged to the bondholder. Ø 1. Legal consequences of special notarial bond over o The bondholder could prevent an attachment of hypothecated property at the movable property instance of other creditors. Ø 1(1) If a notarial bond hypothecating corporeal o In the event of insolvency of the mortgagor/debtor, the bondholder’s claim was movable property specified and described in the bond preferred against all other creditors. in a manner which renders it readily recognisable, is registered after the commencement of this Act in o However, for the Act to apply, certain requirements had to be met: accordance with the Deeds Registries Act 47 of 1937, Ø The NB had to be registered against specific movable property. then such property shall: Ø The property in question had to be specially described and enumerated. Ø (a) subject to any encumbrance resting upon it on the date of registration of the bond; and Ø The property had to remain within the borders of Natal. Ø (b) notwithstanding the fact that it has not been delivered to the mortgagee, SPECIAL FEATURES OF SMPA be deemed to have been pledged to the mortgagee SECURITY IKEA TRADING & DESIGN v DOE BANK LTD as effectually as if it had been expressly been pledged and delivered to the mortgagee. A number of properties in the notarial bond were described in such a way that they could not be identified without reference to invoice or other documents, or SPECIAL FEATURES OF SMPA without the intervention of a 3rd party who was familiar Repeals the Notarial Bonds (Natal) Act. with the assets. The court held that the description was not enough and did not go far enough to comply with S1(1) – brings the law in other provinces in line with KZN – the position in KZN s1(1) of the SMPA, because the property was not readily prior to 1993 now applies with respect to all provinces. recognisable from its description in the notarial bond. Movable property that is specially hypothecated is excluded from the landlord’s The judge stated that a member of the public must be tacit hypothec, unless the notarial bond was registered after the landlord’s able to establish from the information lodged at the deeds hypothec was perfected. office whether particular assets of the debtor have been General Rule: the earlier notarial bond takes preference. pledged.  GENERAL NOTARIAL BONDS GENERAL NOTARIAL BONDS CONTRACT FORWARDING v CHESTERFIN & OTHERS An NB that hypothecates all of a debtor’s movable property The court stated that the holder of a general notarial bond does not enjoy a real generally. right of security in the assets subject to the bond. The position of a general NB is the same as before 1993. There is nothing to prevent the owner from dealing with and disposing of assets subject to the bond, or of bonding them to another creditor. Position of a general bondholder may be strengthened by way The creditor cannot prevent an alienation or pledge of the assets subject to the of a perfection clause. bond, cannot follow up the property in the hands of the acquirer and cannot A perfection clause allows a bondholder to take possession of prevent a judicial attachment. hypothecated property upon default of the debtor. The rights of the bondholder are of importance mainly upon insolvency. The bondholder is not a secured creditor and is entitled to preference over Perfection clause amounts to creating a pledge that is concurrent creditors of the insolvent. enforceable at the instance of the bondholder. The bondholder may enforce the perfection clause by: o Obtaining a court order allowing to take possession of any movable property of the mortgagor. SECURITY o Taking possession of the property as per the court order. TACIT MORTGAGES GENERAL NOTARIAL BONDS - A security interest that arises by operation of law as a result of the existence of certain facts CONTRACT FORWARDING v CHESTERFIN & OTHERS - Operation of law and public act The owner of movables registered four successive general NBs over his assets. E.g. You brought your car to fix- I fixed- I have a right to hold onto the Two of these were registered in favour of Chesterfin and Contract Forwarding. car until you pay- operation of law. However, CF obtained possession by means of a perfection clause in its bond. Retaining the vehicle – Pubic Act The court held that CF’s rights were stronger than those of Chesterfin due to the -2 types of tacit mortgages perfection clause. (a) Liens- enrichment liens- doing enhancement to a property without The judge stated that a perfection clause entitles the holder of the bond to take agreeing to possession of the movables over which the bond has been registered. Such a clause - debtor and creditor lien- arises when you enter into agreement to render a service amounts to an agreement to constitute a pledge and will be enforced at the instance (b) Landlords tacit hypothec of the bondholder.