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Buying property together can be a great way to achieve home ownership in South Africa. Whether you purchase with a spouse, partner, or friend, joint ownership often makes it easier to qualify for a mortgage bond and share the financial burden. However, life circumstances can change, and you may want to escape joint liability under the mortgage bond. This is a challenging process, but it is possible under the right conditions. Here’s what you need to know.

Understanding Joint Liability

When two or more people take out a mortgage bond, they are all responsible for paying back the loan. This is called being “jointly and severally liable.” If one person can’t pay, the bank can ask the other to pay the entire amount.

Joint ownership can be helpful because it allows you to get a bigger loan by combining incomes. However, it also comes with risks. If your relationship with the other person breaks down, or if one of you can’t afford to pay any more, it can create big financial problems.

Getting out of joint liability on a mortgage bond takes some planning and agreement between both parties and the bank must approve it. 

Here’s how you can do it:

1. Negotiate with Your Co-Borrower
The first step is to have an open and honest discussion with your co-borrower. Both parties must agree that one person will take over the bond and property. Without mutual agreement, it will be extremely difficult to move forward.

Consider Financial Capability: Can the remaining party afford to carry the mortgage on their own?

Evaluate Property Value: Determine the current value of the property to ensure fair outcomes for both parties.

2. Refinance or Substitution of Debtor

The most common way to escape joint liability is through refinancing the bond. This is where the person remaining on the bond applies for a new mortgage in their name only. This process is called a “substitution of debtor” and requires approval from the bank.

Steps for Refinancing:

Qualify for a New Bond: The individual taking over the bond will need to meet the bank’s affordability and creditworthiness criteria. This includes proof of income, a healthy credit score, and sufficient repayment capacity.

Lender Approval: The bank must agree to release the existing borrower from their liability. Banks are often reluctant to do this unless they are confident that the remaining borrower can service the loan.

Transfer of Ownership: If the bond is approved, ownership of the property will need to be transferred to the sole name of the remaining borrower. This involves legal processes and fees, including conveyancing costs.

3. Selling the Property

If refinancing or substitution of debtor is not an option, selling the property might be the most practical solution. By selling the property:

The proceeds can be used to settle the outstanding bond.

Any remaining balance can be split between the co-borrowers, as per their agreed ownership percentages.

While this option allows both parties to walk away from the bond, it may not always be ideal, particularly if the property market is unfavorable.

4. Legal and Financial Advice

Joint mortgage agreements can become complex, particularly during disputes, divorce, or financial hardships. It is advisable to consult with legal and financial professionals to ensure a smooth process.

Family or Property Attorney: A legal professional can assist in drafting agreements, handling the transfer process, and ensuring both parties’ interests are protected.

Financial Advisor: Assess the long-term financial implications of taking on a bond individually or exiting the joint liability.

5. Settlement Agreement in Divorce Cases

In cases of divorce or separation, the mortgage bond is often a major point of contention. Courts can mandate one party to take over the bond, but the bank still needs to approve any substitution of the debtor.

Ensure the settlement agreement stipulates how the property and bond will be handled.

Work with your legal representatives to ensure compliance with bank requirements.

Costs Involved

Escaping joint liability is not free and can come with various costs:

Bond Cancellation Fees: If refinancing involves canceling the original bond.

Transfer Duty: If ownership is transferred to one party.

Legal and Conveyancing Fees: For property transfers and drafting agreements.

New Bond Registration Fees: If refinancing under a new mortgage bond.

Escaping joint liability under a mortgage bond is a complex but manageable process. It requires clear communication, legal agreements, and the financial capacity to restructure the bond. Whether through refinancing, selling the property, or negotiating a legal settlement, there are options to help you move forward.

By taking the right steps and seeking professional advice, you can free yourself from joint mortgage liability and regain financial independence. If you are in this situation, don’t hesitate to approach your bank, legal advisor, or bond originator for guidance tailored to your circumstances.