Old debt dogs homeowners

Crucial ConCourt judgment on buyer’s liability pending.

Acritical judgment pending at the Constitutional Court will soon decide if new property owners can continue to be held liable for previous owners’ historic debts.

A full bench of judges heard this week historic debt could prejudice new homeowners and promote the deprivation of property.

Banks complained that current municipality rights to claim historic debt from new owners threatened to usurp their right to reclaim unpaid mortgages in the event of default.

But battling municipalities hit back, arguing several remedies are available to new homeowners, including the right not to buy a property with unaffordable historic debt.

The Tshwane and Ekurhuleni metros are appealing last year’s judgment by the High Court in Pretoria that municipalities cannot hold new property owners liable for historical debt.

Municipal debt specialist New Ventures Consulting & Services, representing several property owners facing historical debt demands, is a respondent.

The Banking Association of South Africa (Basa), property developer Tuhf and the eThekwini Metropolitan Municipality have joined the matter as friends of the court.

As the law stands, a property can’t be transferred to a new buyer until a municipal certificate clearing debt over two years is issued under the Municipal Systems Act (MSA).

But debts predating the twoyear cut-off point became the liability of the new owner.

Municipalities can attach and sell the property to settle that historic debt.

Section 118 (1) and (3) of the MSA includes a provision for historical debt to be incurred by the new owner.

Judge Dawie Fourie in November declared the section unconstitutional because it limited the property rights of new owners.

David Unterhalter SC, who represents New Ventures Consulting & Services, argued that sections of the act don’t explain the type of liability that can be charged to a new owner and the duration of the security enjoyed by municipalities to claim old debt.

“How can a new owner be burdened with a debt that he has absolutely no connection to?” Unterhalter asked the court.

He added that it’s the obligation of municipalities to collect the debt while the potential seller occupies the property.

But Tshwane argued it doesn’t have the resources to monitor and collect old debt.

Unterhalter added that new owners cannot ascertain the debt owed to a property as the municipalities’ records are “imperfect”.

Basa’s counsel, led by Alfred Cockrell SC, argued giving municipalities primacy in debt claims could crimp mortgage issuance.

“It ultimately leaves the bondholder with nothing … banks don’t know if a municipality would take the first bite from proceeds of a property sale.”