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Auction property: Bargain or municipal nightmare?

Many people look at buying properties on auction hoping to find a bargain of a lifetime, sometimes only to realise it was the mistake of a lifetime. All too often purchasing repossessed and distressed properties have a number of associated potential nightmares, especially when it comes to historic municipal debt.

Potential bidders are under the false impression that the amount that you bid at an auction is the amount that you pay in total for a property. If you do not listen very carefully and ensure that you fully understand the terms and conditions of the sale agreement that you sign, depending on the wording of the contract, you could end up being liable for unfathomable amounts of money. This extra expense is often not budgeted for, potentially placing you under severe financial and legal distress.

Methods or scenarios under which a property is sold on auction:

  • Private auctioneer houses,
  • Sheriffs of the Court known as sales in execution,
  • Estate agents,
  • Online auctions,
  • Properties in possession (this is when the bank buys the property back from a previous auction and resells same),

are just a few of these methods or scenarios.

Conditions of sale

House for sal

Bungled municipality bills making you think of selling? Read this first (click the pic)

In the instance of a Sheriff sale in execution, the conditions of sale are supposed to conform to The Rules of Court, Form 21. However, even though the conditions may or may not limit the risk to the purchaser, a recent Supreme Court of Appeal judgment has in effect made the purchaser responsible for all debts related to the property, subject to certain legislation.

It is absolutely imperative that on the day of the auction, the parties are aware of what the estimated arrear municipal debt (rates & taxes, water & electricity) is on the property. Very often the Sheriff or attorneys do not have this information at the auction, and if the Sheriff proceeds to auction the property, this places the purchaser in a potentially dangerous situation.

Many of the auctioneers often advise that even if they do have the estimated arrear rates & taxes, the amounts cannot be guaranteed. Again, this places the purchaser at risk as it becomes very difficult to calculate and estimate the correct amounts you would like to bid on the property.

Some auctions are carried out on the basis that the Purchaser will only be liable for municipal debt from the date of sale going forward. We have seen a wide variety of wonderful and worrying contracts of how municipal debt payments are structured. It is very important that the parties understand what they are binding themselves to when signing the contract.

Surprises after the auction

Believe it or not, there have been cases where on the day of the auction the purchaser was advised, and therefore budgeted to pay approximately R100,000. Only to find that after the transferring attorney had applied for clearance figures from the local municipality, that the clearance figures went up to staggering amounts of between R500,000 and R750,000, and even up to R2,5m.

Remember!: In the case of Sheriff sales in execution, the amount that you pay towards the municipal debt will affect the amount of transfer duty that needs to be paid to SARS.

The light at the end of the tunnel

Using an experienced municipal debt specialist can ensure that a purchaser does not pay more than what is required to obtain the clearance certificate. Equally valuable is the fact that these services will assist in ensuring that all historical municipal debts are properly extinguished so that there are no further risks to potential purchasers and owners in the future.

#AskaMunicipalDebtSpecialist Got a burning question?

E-mail mariette@hometimes.co.za and we will be sure to assist you

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Who is Peter Livanos?


Peter Livanos the Managing Director of New Ventures Consulting & Services(NVC): the Municipal Debt Specialist (MDS), has been a true pioneer of the correct implementation of Municipal Clearance Figures & Certificates since 2002. He was one of the first people to approach the courts to enforce the public’s rights for Section 118 of the Municipal Systems Act. Over the years, his consulting practice grew into a serious force in the property industry. Due to NVC becoming the authority, they now act for most of South Africa’s major banks, transferring attorneys, real estate agents and property owners. To date, his company has successfully assisted in excess of 12,000 property owners in reducing and correcting municipal debt, resulting in savings of hundreds of millions of rands.

According to many, NVC has been declared the people’s hero, as they have been fighting for the helpless and funding all the legal costs. Their most recent litigation against Ekurhuleni and City of Tshwane is of major importance, as it will affect every single property owner in the country. This ground breaking court case could potentially have devastating effects on all banks’ mortgage bonds over a property. In the North Gauteng High Court recently, the judge declared that it was unlawful for a municipality to hold new owners liable for historic debts of a property. The judge further announced that if the municipality believed that the Municipal Systems Act allowed Municipalities to do this, that he declare that Act unconstitutional and referred same to the Constitutional Court (Con Court) for confirmation. Both the City of Tshwane and Ekurhuleni Municipalities have appealed the NVC cases and the matter is set to be heard in the Con Court during May 2017.


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