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Thursday Aug 31, 2017

Durban considers blocking sale of indebted properties

The eThekwini municipality is mooting interdicting the sale of properties in cases where there is debt owing now that historical municipal debt can no longer be passed on to the new property owner.

Briefing members of the executive committee on the implications of Tuesday's watershed Constitutional Court ruling, the deputy head of the city's legal unit, Malusi Mhlongo, said the city would make amendments to its credit and debt collection policies.

He said this would be to ensure that conveyancers acknowledged debt each time they transferred a property that had municipal debt owing.

Mhlongo said this would be among steps taken "to ensure that we are protected".

"We still have the right to interdict the transfer before it is affected if we are owed.

"In the past we were not interdicting the transfers because we always knew we had the security of property.

"Now that we no longer have the security of property we are going to interdict the transfers," he told the committee.

This follows the court's judgment this week that declared that municipalities could not burden new property owners with historical municipal debt incurred by previous owners.

Previously the city "burdened" the debt on the property, which meant that the debt was transferred when ownership of the property changed hands.

"There is no apparent loss except that you no longer have the security of the property on the debt, it depends on the profile of the consumer," Mhlongo said in response to a question on whether the city would suffer any financial loss.

Durban attorney Stavros Anthias said he did not think there would be any conveyancer who would agree to sign an acknowledgement of debt, especially if there was no net equity on the property.

"Where there is a shortfall we can never give any undertaking.

"If there is nothing in the kitty, there is no way that any conveyancer in Durban would sign the acknowledgement," Anthias said.

He added that the municipality held the key to the transfer of property because no property could be transferred if the municipality withheld the rates clearance certificate.

"I don't think it will ever get to the point of interdicting the sale, it does not need to go that far," he said.

Kelly Northmore, of Northmore Montague Attorneys, also said she did not believe there was any conveyancer who would take on the liability of historical municipal debt by signing the acknowledgement.

However, she warned that the municipality may be risking a court challenge if it were to try and withhold a rates clearance certificate for reasons other than for rates debt and other municipal charges on the property limited to two years preceding the application for the certificate.

"The municipalities, however, remain in the driver's seat.

"They have to be more effective in their debt collection," she added.

Northmore said there were cases where debt was allowed to accumulate for years without municipalities taking any action to recover it.

Russell Pearson, the chief executive of RE/MAX Address, said the city had to improve its debt collection and accounting system as these sometimes involved long and protracted processes.

"Long before properties get sold the municipalities have got to take decisive action to recover their debt," he said.

He added that an acknowledgment of debt could work if it was required from the seller of the property, and not the innocent buyer.

"The conveyancer in that case can then acts as a conduit, just like in the case of the transfer duty receipt where a conveyancer can act as an agent for Sars," Pearson said

Edwin van Niekerk, the KZN chairman of the South African Property Owners' Association, said the municipality should go after the account holder in their personal capacity to recover debt.

Asked to clarify whether indebted sellers would have to sign an acknowledgement of debt, eThekwini spokesperson Tozi Mthethwa said Mhlongo had said he would not be adding anything to what he told councillors at the meeting as the legal unit had yet to discuss the nuances of the matter.

The Mercury

 
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