Why a Home Loan Prequalification Matters
So you’ve been looking to buy your dream home, and you’ve seen something for sale that grabs your fancy. Now imagine yourself walking through the front door carrying a suitcase filled with cash. You’ll certainly get the buyer’s attention, won’t you? Of course, not many people are in the fortunate position of being able to pay cash for a property—but being prequalified for your home loan is the next best thing. What does it actually mean to be prequalified for a home loan, and does this process put you under any legal or financial obligations? The short answer is no. Unlike a promissory note—also known as a loan agreement—a prequalification doesn’t require any financial commitment on your part. However, this does not mean that you should set an unrealistic expectation of what your prequalification amount might be. Simply put, you wouldn’t walk into a store to purchase an item that you unequivocally could not afford. So why would you shop outside of your price range when buying a home? A prequalification is a clear indicator of what you can afford, and what your credit rating is. These two indicators are essential when purchasing a home. The bank will only approve you for an amount that you can afford to repay each month, and a bad credit rating (under 600) will not be accepted. According to recent statistics, 8.4% of home loan applications are declined due to poor credit scores, and 7.7% due to affordability. Do your homework Buying a home is an emotional and lengthy process. In addition to behind-the-scenes research and viewings, one needs to consider the process of putting in an Offer to Purchase, which—if accepted—is legally binding. This paperwork takes time, and requires input from the buyer, the seller, and the agent. Without a prequalification, there is a chance that the offer will be rejected—and that all the work would be done in vain. Also, keep in mind that if you have been rejected by the banks, you will need to wait three months before reapplying for a home loan. What a prequalification entails A prequalification can be easily undertaken online, and acts as an estimate of what you can afford as it is based on your monthly earnings, expenses, and any debts that you may have. The certificate is valid for 90 days. While this step won’t 100% guarantee that you will be approved by the banks, a prequalification is an easy way to determine the price category that you can shop around in. Conversely, if a prequalification is denied, it helps prospective homebuyers to be more realistic and to end the process before sinking any money or time into an application. Does a prequalification give you an edge? It certainly does, and the reasons as follows: Shopping with confidence: Knowing your credit score gives you the opportunity to address any issues before putting in an offer. A prequalification also gives you a pretty accurate picture of what you can actually afford. Standing out from the crowd: Sellers are more likely to accept an offer from someone who has a prequalification. This acts as proof that you can afford what you’re buying, and the likelihood that you will be approved by the banks. In a bidding war, a prequalification will help you to stand out. Avoiding disappointment: A prequalification protects you from putting in an offer on a property that you can’t afford, and will ten to one be turned down for. WRITTEN BY RHYS DYER Rhys Dyer is a real estate specialist. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Are You Obligated to Pay Arrear Levies When Purchasing a Sectional Title Unit? Part 2
Recently, the High Court and the Supreme Court of Appeal (SCA) were required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The issue in the appeal is firstly, the statuses of the parties, consequently, whether the body corporate’s reliance on the statutory embargo is susceptible to challenge and secondly, the High Court’s order, which irrespective of the interpretation given to the embargo provision, cannot stand. In 2018, Mr Steinmuller acquired a unit in a sectional title scheme at a sale in execution. The transfer was authorised by a court order that Standard Bank obtained against the registered owner of the unit. It’s important to note that, as per the Act, a body corporate is not considered an owner of property; it merely manages the common property on behalf of the individual owners. Simply put, the body corporate is not a party to the sale agreement. The said sale was contingent upon the published conditions of sale, which described that the Purchaser was liable for certain payments including: “All levies due to a Body Corporate in terms of the Sectional Titles Act, 1986…” If a property is sold in execution, a contract is established between the sheriff, who executes the court order, and the purchaser, whose bid is approved. The execution creditor (Standard Bank) is thus also not a party to the agreement. The purchaser bears the responsibility to pay the purchase price and any additional amounts due to abide by the terms of the agreement. This is a contractual obligation. The sheriff may enforce the terms of the sale agreement or seek cancellation of the transaction in accordance with rule 46(11) if a buyer fails to meet a condition of the sale. In this case, the terms of the sale stipulated that the sheriff would be entitled to recover levies that were due to the body corporate as part of the purchaser’s payment. This was the context in which the appeal needed to be resolved. Mr. Steinmuller would only have an enforceable right if he had fulfilled his contractual duties under the terms of the agreement of sale. His right operates against the sheriff and not the body corporate. If Mr. Steinmuller’s contractual obligations are limited by the terms of sale, he might be able to demand that the sheriff grant transfer upon payment of that money. He cannot, however, insist that the body corporate accept his offered payment and, as a result, offer a clearance certificate that would allow the transfer to take place. The body corporate’s statutory power to refuse to issue a clearance certificate until all outstanding payments have been made cannot be limited by Mr Steinmuller’s contractual right to transfer. A conveyancer’s certificate attesting to the fact that all money owed to the body corporate has been paid is required before the sheriff can grant transfer. Until the terms of the embargo are fulfilled, the body corporate would legally be able to refuse to deliver the certificate. The result is that Mr. Steinmuller is not a party to any disagreement that may exist conceptually about what is owed to the body corporate, he has no legal interest. As a result, the SCA ordered that the High Court’s ruling be set aside and replaced with an order dismissing the application with costs, including the costs of two legal counsels where so employed. The court concluded that, with regards to the decision in Barnard NO v Regspersoon van Aminie en ’n ander, legal fees paid to recover money owed to the body corporate was protected by s15B(3)(a) of the Act. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Tenant ‘Red Flags’ and How to Avoid Them
The wrong tenant can have a lasting negative effect. The residential property industry continues its upward trajectory, and investors are getting in on the action. However, with the rise of investors choosing to take advantage of low prices and invest in ‘buy-to-let’ properties comes an excess supply of rental properties in areas with high supply and low demand. Residential rental vacancies in Gauteng are currently sitting at a high rate of 11.9%, while the Western Cape is sitting at a slightly lower 11.4% vacancy rate, according to TPN’s 2021 Q4 data. Although landlords may be getting desperate, industry experts advise you to think twice before signing on the first tenant who comes your way. Placing a tenant in your vacant property might help curb your losses in the short term, but putting the wrong tenant in can have a lasting negative effect. Contrary to popular belief, the law protects both the landlord and the tenant’s rights—and both parties are strongly urged to do their due diligence prior to signing a lease agreement. In terms of obligations, those of the tenant include the requirement to pay rent promptly, to take care of the property, and to return the property in the same condition in which it was received. Landlords, on the other hand, are required to provide the tenant with access to a safe home in good working order. They are also required to maintain the exterior of the building and to protect the tenant’s deposit. While some properties are enjoying an influx of rental applications, others are desperately seeking tenants—both of which are at risk. Receiving a rental application is a big relief for a landlord, so much so that they often overlook several red flags. Unfortunately, the price of avoiding the warning signs and securing a problem tenant carries a high price for landlords. This is because evicting tenants is a long and costly process in South Africa, requiring landlords to serve tenants with a ‘tenant eviction notice’ before they are entitled to a court hearing. Even if the court process rules in the landlord’s favour, only a court-appointed sheriff is allowed to remove the tenant’s belongings – and this process can take weeks, if not months. The obvious red flags While some of these red flags can be avoided by using a reputable letting agent (and agency), some of these obvious ones are often overlooked. A poor credit score A credit score refers to one’s ability to pay back their debt on time. The COVID-19 pandemic has further exacerbated high levels of debt in South Africa, and this will be a prevalent issue for years to come. Therefore, prior to signing on a tenant, a thorough credit check should be run. A credit score of 610-plus is generally acceptable. Affordability The general rule of thumb is that one’s monthly rental should not exceed 30% of their monthly salary. Accordingly, an assessment of a prospective tenant’s affordability will give a landlord a clearer idea of their monthly income and expenditure. Agents and landlords should ensure that the tenant has enough income left over to pay their rent, electricity, and water (where required). References A tenant will require a reference from previous landlords to determine their behaviour as a tenant. A reference tells the landlord who the tenant is, and whether they are reliable. If the prospective tenant has no prior rental history, they will need to either arrange a co-signature on their lease agreement or offer to put another credible reference forward, such as their employer. The not-so-obvious red flags This list of potential red flags includes those that do not readily come to mind, which results in many landlords overlooking them in the tenant screening process: Employment history Employment is hard to come by. However, some prospective tenants’ short employment histories can tell a different story. Job hoppers or people who run into trouble in the workplace can sometimes display this kind of behaviour in their home lives as well. Criminal history Performing a criminal background check may sound extreme, but this is a standard part of the hiring process in many industries—and rentals should be no different. Some companies such as TPN provide a SAPS criminal background check to landlords as part of their Credit Check offering to ensure that your tenant is safe, honest, and reliable. General behaviour Quite often there are red flags from the very first engagement with a tenant. In some cases, they are hard to reach, or can be extremely difficult and demanding for no apparent reason. This is another reason why it’s important to use a rental agent whose judgement you can trust. Ensuring a good tenant-landlord relationship Here is some advice that will help landlords to ensure a smooth relationship with their tenant: Always communicate In cases where the tenant already occupies the property, be sure to communicate—and put everything in writing. Remain calm and rational should something go wrong and seek advice from estate agents and, when necessary, your attorney. Don’t be fooled by fast cash Don’t fall into the trap of accepting a large sum of cash upfront instead of regular rental payments. Just because they have the money now, doesn’t mean they’ll have it in four months’ time when the next payment is due. Don’t rush In cases where the tenant is dragging their feet about signing the rental agreement, don’t lose hope yet. Try your best to clearly communicate, perform all the necessary checks, answer any questions they may have, and spend a few days mulling over your decision before jumping into a lease agreement. Trust your gut Much like in any relationship, if something feels off when you’re engaging with a prospective tenant, trust your instincts. Paperwork can be forged, but your intuition is rarely wrong. WRITTEN BY GRANT SMEE Grant Smee is a property entrepreneur and a managing director. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles
What Can You Do When Your School Is Being Neglected by the Government?
The current statistics show that there are currently: 3 544 schools without electricity; 2402 schools without water supply; 11 450 schools still using pit latrine toilets; 22 938 schools without stocked libraries; 21 021 schools without laboratory facilities; 2 703 schools without fencing; and 19 037 schools without computer centres. This article examines the legal remedies available to address situations where a school is deprived of essential resources due to government neglect, hindering its ability to function effectively. The Right to Basic Education in South Africa As a point of departure, section 29 (1) of the Constitution provides that everyone has the right to basic education, adult basic education and further education. The South African Schools Act 84 of 1996 (“SASA”) sets out the legislative obligations the government ought to comply with, in order to implement S29 (1) of the Constitution. S5A of SASA provides that schools within South Africa need to have classrooms, electricity, water, sanitation, internet connection, libraries, security fences and sports facilities. In addition, the Minimum Uniform Norms and Standards for Public School Infrastructure, 2013 (“the Regulations”), apply to all public schools. These regulations mandate that schools must be maintained in a manner that fosters a conducive learning environment. This means the government has a responsibility to support schools in a manner that will create an environment in which everyone can enjoy the right to basic education. Case Law In the case of Section 27 & others v Minister of Basic Education & another, the Department of Basic Education (“DBE”) adopted a new national education curriculum. As a result, new textbooks were prescribed and these new textbooks needed to be available for use in time for the 2012 academic year for schools in Limpopo. It was therefore the responsibility of the government to supply schools in Limpopo with the new textbooks. A significant number of prescribed textbooks were not ordered or delivered to schools in Limpopo province in a timely manner before the start of the academic year. This government failure was never rectified. Consequently, Section 27, along with two other applicants, approached the High Court seeking an order against the Minister of Basic Education of the Republic of South Africa and the Executive Council of the Limpopo Department of Education. They sought a declaration that the failure to deliver textbooks violated the South African Schools Act No. 84 of 1996, Section 195 of the Constitution of the Republic of South Africa, and the rights to basic education, equality, and dignity as enshrined in the Constitution. The applicants also asked for a court directive to the respondents to provide textbooks for all relevant school grade learners on an urgent basis and develop and implement a ‘catch-up plan’ for at least the affected highest grade learners. The High Court granted both remedies. The Department of Basic Education of Limpopo was directed to deliver all outstanding books within the set deadline of approximately one month from the date of the order. In addition, the court directed the respondents to develop and implement a detailed ‘catch up/remedial’ plan for the learners in the highest affected grade, which was ordered to be filed with the High Court. If your school is in a situation where it does not have access to water, electricity, quality safe infrastructure or access to learning materials, it could constitute a violation of the right to basic education. In such cases, you could apply to the court for an order compelling the government to comply with its obligations. Should you require legal assistance of such a nature, feel free to contact us or book a consultation. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.