Understanding the difference between various types of bonds

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Understanding the difference between various types of bonds

Most property owners will be familiar with a mortgage bond, but did you know there are various kinds of bonds which may apply across a range of circumstances?

Here’s everything you need to know:

1. What is a bond?

Mortgage bonds are concerned with the registration of bonds over immovable property. They are registered to secure an obligation on the part of a mortgagor (the debtor) towards a mortgagee (the creditor). In other words, to ensure the repayment of money lent to the mortgagor by the mortgagee. The bond enables the mortgagee, in the event of the non-fulfilment of the obligation, to have the mortgaged property sold and to utilise the proceeds thereof to satisfy the claim against the owner of the property.

A bond is seen as a real right of security against the immovable property of the mortgagor.

When there is a bond, a dual relationship is created:
– Contractual relationship between the mortgagor and the mortgagee and this comes into existence by means of a loan agreement.
– A real right has to be established which is enforceable against third parties. This real right is vested by registering the mortgage bond at the deed’s registry in accordance with the Deeds Registries Act.

2. Different types of bonds

– Covering Bond – this type of bond is registered to secure future debts
– Collateral Bond – this type of bond gives additional security for a debt or obligation for which security has already been given by the debtor to the creditor.
– Surety Bond – This type of bond is registered by a third party to provide security for the debt or obligation of someone else
– Substituted Bond – a substituted bond substitutes an existing bond, it takes the place of the existing bond which bond is cancelled simultaneously with the registration of the substituted bond.

3. Notarial bonds

This type of bond is attested by a Notary Public hypothecating movable property.

A Notarial bond is executed (signed) by the mortgagor (the debtor), in favour of the mortgagee (the creditor), attested by a notary, and registered by the Registrar of Deeds in the appropriate deed’s registry.

Notarial bonds are registered by a means of which a debtor may hypothecate the movable property that serves as security without having to deliver the property to the creditor. The debtor may continue to use the property.

Examples of movable corporeal property include: equipment and machinery; furniture; vehicles; stock-in trade; animals etc. whereas examples of movable incorporeal property include: shares; licences and permits; book debt; unregistered leases or subleases and registered leases of immovable property

The above assets can be secured by means of the following Notarial Bonds:
General Notarial Bond – which hypothecates all movable property of the mortgagor as security. A General Notarial bond registered over all the movable property of a debtor and does not entitle the creditor to a real right of security in the property. Therefore, a creditor is not secured and is only entitled to a preference over the concurrent creditors with respect to the proceeds of property subject to the General Notarial Bond.
Special Notarial Bond – which hypothecates specific movable property of a mortgagor as specified and identified in the bond as security. This type of Notarial Bond burdens specifically described movable property belonging to a debtor. On liquidation of the debtor, the holder of the Special Notarial Bond ranks as a secured creditor in respect of the specific movable property over which it is registered.

For more information, contact Hammond Pole Attorneys
Michelle Orsmond – MichelleO@hammondpole.co.za

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