The National Credit Act, Act 34 of 2005 (the Act), which has been operative for approximately one year now, defines a credit agreement as an agreement which meets all the requirements of section 8 of the Act. Furthermore, it defines a mortgage as a pledge of immovable property that serves as security for a mortgage agreement, which in turn is defined as a credit agreement that is secured by a pledge of immovable property.
Given the above definitions, section 90 of the Act provides that a credit agreement must not contain any unlawful provision. Should a credit agreement contain such an unlawful provision, the court inter alia may declare the entire agreement unlawful. The waiver of certain legal exceptions as provided for in regulation 32 may not be waived and should same be waived the credit agreement will be unlawful (see section 90(2)(c)).
The question now begging an answer is whether there rests an onus on the Registrar of Deeds to register a mortgage bond containing the waiver of such legal exceptions.
The Chief Registrar of Deeds was approached for an opinion in this regard and the matter was discussed at a Registrars management meeting where the Registrars concluded as follows:
There is no indication in the National Credit Act that there is an obligation or duty on a Registrar of Deeds to see to it that bonds comply with the provisions of the Act.
The duty in the abovementioned regard is on the Banks and credit suppliers.
Bonds serve a dual purpose:
- on the one hand it is a credit note / instrument of security;
- on the other hand, on registration of a bond, it creates a real right over immovable property.
A Registrar of Deeds only concerns himself/herself with the registration of real rights.
In terms of section 50A of the Deeds Registries Act, No 47 of 1937, a Registrar of Deeds shall not examine any provisions relating to a bond which is not relevant to the registration of such bond.
Therefore, the question to be answered is whether the waiver of the exceptions relates to:
The answer is obvious that it is not relevant to the registration of bonds.
- the instrument of security;
- the registration of a real right.
It is respectfully held that the response contains numerous contradictions. As a Registrar is responsible for the registration of real rights over immovable property, surely the registration of a bond, which has the effect of creating a real right over immovable property, must be lawful to create such a real right.
It is further submitted that the provisions of section 3(1)(b) of the Deeds Registries Act 47 of 1937 prohibits a Registrar from registering unlawful deeds and documents, and thus there rests an onus on the Registrars to determine the lawfulness of a bond before registering it. Lawfulness obviously only in respect of the facts which is prima facie available.
Another school of thought, however, holds the view that Deeds Registries should not raise a query that has nothing to do with the applicable deeds registration requirements. It is also held that the Registrar is not qualified to express a legal opinion on the applicability or otherwise of the Act in relation to a deed lodged for registration in a deeds registry. Whether or not the mortgage bond complies with the requirement of the Act is not a factor that entitles the Deeds Registry to reject the document.
Lastly it is also held that a general covering bonod and, does not constitute a "credit agreement" for the purposes of the Act.
All this is very confusing and ultimately, it is the financial institutions which will have egg on their faces, should a bond be regarded unlawful and not constitute a real right.
Readers' views would be appreciated regarding this issue, the subject of a legal dispute.
P.S: The submission of this article was to late to make it into this week's newsletter.