The cancellation of a mortgage bond is a critical, yet often misunderstood, component of property transactions in South Africa. Many sellers believe that paying off their home loan brings the matter to an immediate conclusion, only to discover that the bond itself must still be formally cancelled in the Deeds Office before transfer or refinancing can proceed. This administrative requirement forms a vital link in ensuring clear title and lawful transfer. 

In most transactions the process unfolds seamlessly through the coordinated efforts of the banks, conveyancers, and the Deeds Office. However, a more complex scenario occasionally arises, namely where the bondholder, being the financial institution or company in whose favour the bond is registered, no longer exists.  

These “bona vacantia” bonds, vesting by operation of law in the State, present both legal and practical challenges for property owners and practitioners. The topic is seldom addressed outside specialist conveyancing circles, yet it has significant implications for property transactions and marketability. 

This article considers the standard bond cancellation procedure before turning to the unique issues that arise when the bondholder has been deregistered or dissolved. It further explores available remedies and the evolving jurisprudence clarifying the powers of National Treasury in resolving such dormant encumbrances. 

The Standard Bond Cancellation Process 

The cancellation of a home loan does not occur automatically upon settlement of the outstanding balance. Instead, a statutory process must be completed in the Deeds Office, and several weeks of coordinated preparation precede the formal lodgement of the cancellation, transfer, and any new bond registration. 

The process begins with notice to the lending institution of the intention to cancel the existing bond. Most banks require ninety days’ notice and will advise the seller of the date on which the notice period expires. If cancellation occurs before the expiry of that period, penalty interest may be charged, unless an exception applies, such as where the property forms part of a deceased or sequestrated estate or where the owner intends to register a new bond with the same bank. 

Once notice has been given, a panel attorney appointed by the bank is instructed to attend to the cancellation. The bank then issues cancellation figures reflecting the outstanding balance, accrued interest, and projected interest until the anticipated date of cancellation. These figures are shared electronically with the cancellation attorney, who in turn furnishes them to the transfer attorneys responsible for administering the linked transfer. The transfer attorneys must ensure that sufficient funds will be available from the proceeds of the sale to settle the home loan and associated costs, including estate agent’s commission. 

If the purchaser is registering a new bond, the purchaser’s bond attorney will, once the bond documents have been signed, issue guarantees for the proceeds of the new loan. One of these guarantees will be made payable to the seller’s existing home loan account and will serve as security that the amount owing will be settled on the date of registration. The cancellation attorney receives this guarantee and confirms its adequacy before preparing for lodgement. 

The final step occurs at the Deeds Office where the transfer, the purchaser’s new bond, and the seller’s bond cancellation are lodged simultaneously. Once all documents pass examination, registration takes place, guarantees are paid out, the seller’s loan account is settled, and the bond is formally cancelled. Only then is the property released from the bond endorsement on the title deed. 

The Misconception of Automatic Cancellation 

A recurring misconception among property owners is that the settlement of their home loan extinguishes the bond itself. The loan agreement and the mortgage bond are distinct legal instruments: one creates the indebtedness, the other secures it by way of a real right registered against the title deed. Unless and until the bond is cancelled in the Deeds Office, the encumbrance persists, and the property cannot be lawfully transferred or further encumbered. 

This distinction becomes even more significant in situations where the bondholder has ceased to exist, as the cancellation cannot proceed in the conventional manner. 

When the Bondholder No Longer Exists: The Problem of Bona Vacantia Bonds 

A more complex challenge emerges when a bond is registered in favour of a company that has been deregistered or finally wound up. Upon dissolution of a company in terms of section 419 of the Companies Act 61 of 1973, any untransferred assets, including mortgage bonds, vest automatically in the State as bona vacantia. This principle was definitively confirmed in?Rainbow Diamonds (Edms) Bpk en Andere v Suid-Afrikaanse Nasionale Lewensassuransiemaatskappy?1984 (3) SA 1 (A), a landmark case that clarified that no court order is required for such vesting. 

The practical effect is that when a conveyancer attempts to cancel a bond registered in favour of a now-deregistered company, the conventional route, which involves obtaining written consent from the bondholder, becomes impossible. Historically, the only remedy was to approach the High Court for an order authorising the cancellation of the bond, a cumbersome and expensive process often disproportionate to the value of the property. 

More recent jurisprudence, however, offers a more pragmatic approach. In?G Walker Engineering CC t/a Atlantic Steam Services v First Garment Rental (Pty) Ltd?[2017] ZAWCHC 261, the court reaffirmed that upon deregistration, all claims and property rights vest in the State, and that National Treasury assumes full legal capacity to exercise any rights that previously vested in the deregistered entity. This includes the power to consent to the cancellation of a mortgage bond. 

The Treasury’s authority is further underpinned by Regulation 10.3.1 of the Treasury Regulations issued under the Public Finance Management Act 1 of 1999, which provides that where property or rights accrue to the State by operation of law as bona vacantia, the relevant treasury may exercise all powers and prerogatives associated with such property. Accordingly, there is no legal impediment preventing the National Treasury from issuing the necessary consent to cancel a bond formerly held by a deregistered company. 

Recourse for Property Owners and Conveyancers Faced with a Bona Vacantia Bond 

Where a bondholder has ceased to exist, practitioners now recognise three theoretical avenues for resolving the encumbrance. The first entails applying to court for an order cancelling the bond, an option reserved for matters where the value of the property or urgency of the transaction justifies the costs. The second is to reinstate the deregistered company, a procedure available under the Companies Act but administratively onerous and often impractical when the original directors or shareholders cannot be traced. 

The third and most cost-effective option is to request the consent of the National Treasury to cancel the bond. Provided that the debt secured by the bond has been fully settled or otherwise extinguished, the Treasury may, in its discretion, issue such consent. Although this process is not instantaneous and requires careful compliance with documentary requirements, it is substantially less burdensome than seeking judicial relief. 

By recognising the Treasury’s competency to act in this capacity, the courts have introduced an accessible and efficient mechanism for eliminating dormant encumbrances from the Deeds Office records. This offers substantial relief to property owners who might otherwise face disproportionate expenses merely to clear title. 

Conclusion 

The cancellation of a mortgage bond is a tightly regulated process that forms an indispensable part of any property transfer or refinancing. While routine cancellations follow a predictable administrative pathway involving the bank, panel attorneys, and the Deeds Office, the landscape becomes far more complex when the bondholder no longer exists. In such cases, the vesting of the bond as bona vacantia in the State introduces a unique set of challenges, but case law and statutory interpretation have provided practical recourse through the National Treasury. 

As transactions grow in complexity and more historic bonds surface during property dealings, the importance of understanding both the standard process and its exceptional variations cannot be overstated. Property owners, developers, and practitioners should remain mindful that the existence of a deregistered bondholder is not an insurmountable obstacle, and that lawful pathways exist to navigate these issues effectively. 

SchoemanLaw Inc. advises property owners, developers, and conveyancers on all aspects of mortgage bond cancellations, including complex bona vacantia scenarios. Our Property Law team is available to guide you through the process and ensure that your transaction proceeds with clarity and compliance. 

Written by Kerri Stewart, Attorney, Property Law, SchoemanLaw Inc