The time is nigh – When is the most favourable time to sell your home?
It is clear that when selling your home it must be for the right reasons and when it is best for you as the seller. It must be sold lawfully, not in an attempt to defraud or conceal either money or defects, and must be in your best interests, as well as those of your spouse and/or creditors.
So you need to sell your home?
It may be because your family is expanding and you need a bigger residence. You could be relocating. And there could be more difficult reasons to sell your home, like divorce, death or bankruptcy.
The big question on everyone’s minds is when is the most favourable time to sell?
There is no clear cut answer to this question (we are unfortunately not blessed with crystal balls) but there are some factors that may play an important role.
While we are not property agents and are therefore not in the best position to advise in a professional capacity on these contributing factors, we do know that market conditions play a vital role when considering the sale of your home.
There are two particular key contributors – supply and demand. When a country’s economy takes a knock, a consumer’s buying power is naturally affected. And when the demand for property drops, sellers have no option but to lower their asking prices. And this is not desirable. Interest rates should therefore always be taken into account when thinking about the best time to sell your home – remember an interest rate greatly affects people’s ability to buy property.
Keep in mind that a low-interest rate will bring down the costs to obtain a home loan and create a higher demand for property.
So, it’s perhaps a good idea to take note of the most recent Budget Speech 2021 –
“The personal income tax brackets will be increased by 5%, which is more than inflation. This will provide R2.2 billion in tax relief. Most of that relief will reduce the tax burden on lower and middle-income households. This means that if you are earning above the new tax-free threshold of R87 300, you will have at least an extra R756 in your pocket after 1 March 2021”.
Some advice? When considering market conditions, one must always consider a country’s economy. If it is struggling, the property market will reflect that. In these instances, it may be best to wait for signs of positive growth before putting your house on the market.
But what if there are other, more pressing reasons to sell?
While the sentiment here may not always be a good one, the question often comes up – should I sell the house before or after my divorce?
The answer here is not as straight forward as before or after.
The distribution of assets during a divorce is never a comfortable topic but needs to be addressed. For all intents and purposes, the distribution of assets should be kept fair, especially when choosing who should keep the family home (in the event that the home is not sold for the purpose of equal distribution of profit).
A guiding light is the marriage contract, which will pave the way for the proceedings of a divorce and determine asset distribution. How the couple was married is therefore an important consideration.
What is their marital regime?
As is well known, getting married in community of property is the most affordable and most common marital regime. In fact, the majority of couples (who do not seek legal advice prior to marriage) often get married in community of property. Remember if you do not enter into an ante nuptial contract before marriage, you are automatically married in community of property. It’s neither right nor wrong. It is a choice. In this situation, the couple’s estate is owned jointly in equal shares.
The assets of the joint estate should therefore be divided equally between the parties at the time of divorce – a rule that applies to all assets as well as to the marital home. Practically, it doesn’t matter whose name the house is in or whether or not the house was purchased before or after the marriage. The fact is, the immovable asset is part of the joint estate and will be divided equally between the parties. This is usually done by putting the house on the market and dividing the profits of the successful sale of the property equally between the parties.
But should one of the parties be able to afford to pay the mortgage bond, property taxes and maintenance costs of the home, the property does not necessarily have to be sold. That party could offer to buy the other party out of the house. Fairly. But due to lifestyle and budget changes, the home is often sold and the proceeds split equally between both parties. The reality is, without a joint income (together with other financial constraints), parties are simply unable to afford the mortgage payments themselves. Here the onerous requirements of the National Credit Act 34 of 2005 come into play.
Marital regimes aside, if the parties are able to reach a settlement agreement on how to divide the assets and in so doing decide who gets to keep the house without dispute, then this will be made an order of court by means of a settlement agreement and the parties can part ways. This is most often the case where children are involved and generally speaking will live with their mother following the divorce.
Remember, if you are in the process of getting divorced and know that you will conclude a settlement agreement to deal with the splitting of assets, we recommend that the parties fully consider all the costs and the manner of retaining or disposing of the immovable property (or any share therein), such as who will be receiving the property (or a spouse’s half share in the property), as well as who will be liable for the transfer costs. Although transfer duty is exempt if a property (or half share in the property) is disposed from one spouse to another in terms of a divorce, the transfer costs will still be payable.
In addition we recommend including the following in any settlement agreement, especially if the property will only be sold after divorce proceedings. Who will be liable for the cost of maintenance of the property, bond repayments, water, electricity, levies and rates and taxes (“ownership costs”) until such time as the property is disposed of?
The parties must agree upfront what events will trigger the disposal of the property, or if either or only one spouse is entitled (at their election) to sell the property. The agreement should also provide for the minimum selling price and, if the minimum selling price can’t be achieved within a determined period of time, one spouse may at his/her election lower the selling price. The agreement should also cater for who will pay for costs related to the sale of the property including bond cancellation costs, compliance certificates and rates figures. Lastly, we recommend that one party be empowered to appoint an agent to market the property, to sign the sale agreement on behalf of both parties and to sign the transfer documents on behalf of both parties.
These are just some practical steps to consider…
What about a couple who were married out of community of property?
If the property was purchased by one of the spouses before or during the marriage out of community of property, we recommend obtaining a copy of the divorce order to ensure that no order was granted affording the other spouse any rights to the property. If the divorce order is silent on the property in question, then such property remains the property of the original owner (spouse who purchased the property) and this party acting alone may decide to sell the property, sign the mandate, sale agreement and transfer documents. If the property becomes part of the accrual, the situation will mimic that of being married in community of property, i.e. either the parties can reach an agreement and the home will become part of the settlement agreement, or the parties will agree to sell the property and divide the assets jointly. Keep in mind the practical steps as set out above.
While Benaters is not a divorce firm, we are happy to advise and assist you on the sale of your home and will endeavor to support you as best as we are able to.
Debt and Bankruptcy
A person can declare themselves insolvent or bankrupt and file for sequestration if their debt is too great or unmanageable and their liabilities have exceeded their assets. Sequestration is a legal process whereby creditors can apply for debtors (insolvent parties) to be declared bankrupt or where the insolvent party applies to court to be declared bankrupt. The insolvent estate is then surrendered to the Master of the High Court under the governance of the Insolvency Act 24 of 1936.
It is important to remember that the main purpose of sequestration is for the orderly and equitable distribution of the proceeds of the debtor’s assets where all of his/her creditors cannot be paid in full. Sequestration is aimed at dividing the debtor’s assets in accordance with a fair pre-determined ranking of creditors (as dictated by the Insolvency Act). For example, “secured” lenders are paid first (these include the banks owed for houses and cars), then the South African Revenue Service is paid (first for value added tax, then for other tax fees) and lastly, the unsecured lenders such as cellphone, clothing and furniture accounts are paid.
An important caveat here is the following – for an individual’s estate to be sequestrated (whether by themselves or creditors), it needs to be for the benefit of his/her creditors. And in order for it to be beneficial, the insolvent must own assets (or have assets such as money in a bank account) in order to satisfy the claims of his/her creditors. It is at this point questionable whether to sell your home before declaring bankruptcy. Why? Because all the movable and immovable property of the debtor before and after the sequestration falls within the insolvent estate. The property which an insolvent acquired in the period between sequestration and rehabilitation also forms part of his/her insolvent estate and is available for the payment of his/her debts, unless excluded in accordance with the Insolvency Act. The debtor’s basic necessities such as clothing, bedding, pension and compensation for personal injuries are some of these exclusions. The insolvent is therefore divested of his property in order to satisfy his creditors’ claims.
One of the problems faced by an over-indebted individual is not that there are no alternatives to the sequestration proceedings, but rather that the available alternatives do not provide for a discharge of debt (which is one of the objectives the debtor seeks to achieve). Over-indebted people can make use of alternatives such as debt review in terms of the National Credit Act 34 of 2005 or administration orders in terms of the Magistrates’ Court Act 32 of 1944 to circumvent the sequestration process.
However, both debt review and administration orders do not provide for a discharge of debt and provide for debt-restructuring only, in order to eventually satisfy the creditors’ claims.
Therefore answering whether you should sell a property before declaring bankruptcy is sort of a moot point – doing so with the intention of defrauding creditors, hiding profits received from the sale of property in an overseas account or donating money to children would not be in line with what is in the best interests of creditors.
But is there absolutely no way to protect my assets?
Well, there is one way – trusts.
One of the most important benefits of a trust is that it will help you to separate your assets from your property investment debt, your business interests and/or other financial risks. Assets owned by a trust do not form part of an insolvent estate and therefore cannot be attached by your creditors.
Section 12 of the Trust Property Control Act 57 of 1988 states that “trust property shall not form part of the personal estate of the trustee except in so far as he or she as a trust beneficiary is entitled to trust property”. This would be the case with a discretionary trust, where beneficiaries become entitled to trust property when the trustees vest this property in such beneficiaries. However, a note of caution. This transfer of the property into a trust must be done while you are solvent. Why? Section 12 cannot be seen as a form of blanket protection, because there are a number of sections in the Insolvency Act that allow a trustee of an insolvent estate to claw back assets into the insolvent estate. Especially if the property was transferred during a time of over-indebtedness.
However, if assets were transferred to the trust while the estate was solvent, it is difficult for creditors to set aside the trust’s actions.
Therefore, the manner in which assets are transferred is relevant when it comes to the extent of their protection. For example, if you transfer an asset on a loan account, the amount of such loan account will remain an asset in your estate until the trust fully repays the loan. The implication is that the loan will not be protected from creditors. The loan is considered to be an asset in your own hands and it can be attached.
If your loan is repayable on demand, according to your loan agreement, creditors can demand repayment from the trust and if the trust has no available cash, can then liquidate assets in the trust.
Should you require assistance with the formation of a trust, Benaters is perfectly positioned to assist you with this intricate and complex process. Get in touch with us to see how we can best support you.
Lastly, should I fix problems with my home before selling it?
Well, this question involves a number of points – what is the market condition, what is the reason for selling and how urgent do you need to sell your property?
One important aspect here is you are not allowed to conceal any issues with the property, even though the home is sold voetstoots (“as is” or “without any warranty”). If a potential buyer asks you directly if there are any defects in the home, you and your estate agent are obliged to divulge any issues/defects. If you acted unlawfully in failing to disclose known defects to the buyer at the time of sale, regardless of whether or not you have a voetstoots clause in your sale agreement, the buyer can take you to court for failure to disclose these defects as it is fraudulent.
The lesson here? Disclose all defects you know of to potential buyers, or risk expensive litigation and damages claims.
So, in short, fix the house if market conditions allow for the earning of a profit in doing so. But do not fix the house if your intention is to conceal defects, unless the defects are properly fixed and this fix is disclosed to buyers.
Contact Benaters to assist you whether it is selling your property yourself, planning your estate or forming a trust.
We are here to support and advise. The right way.