Public property auctions can be a double-edged sword

A sale in execution is known as a public auction held by the Sheriff of the Court once a writ of execution has been issued to attach and sell immovable (and moveable) property. For this article, we will be focused solely on immovable property.

The intention is to recover the debt owed by the property owner to the execution creditor.  Although purchasing immovable property sold in execution may often be touted as a potential bargain, it can indeed be a double-edged sword for the following reasons: 

1. Financial implications 
Properties sold in execution are often neglected and poorly maintained. This situation arises as homeowners struggle to meet their financial obligations, let alone allocate funds towards property upkeep.  Immovable property requires regular maintenance to ensure that the property remains habitable, and to ensure that the value of the property continues to increase. 
Furthermore, homeowners also fail to pay municipal accounts and body corporate levies.  These arrears are likely to be substantial, which the purchaser will be liable for in terms of the conditions of sale. 

2. Access to the property 
Another issue is the potential inability to inspect the property before purchase.  The property is also sold as described in the title deed, with the Sheriff not accepting responsibility for any defects that may be discovered. It is sold voetstoots, without any warranties or representations, and is subject to all servitudes and conditions outlined in the title deed. Neither the Sheriff nor the execution creditor is aware of any defects in the property, nor will they be held liable for any defects that exist at the time of sale or that may arise afterwards. 

3. Costs 
It is important to note that when purchasing immovable property sold in execution, the sale is unconditional and cannot be contingent on selling another property or obtaining financing from a financial institution.  Immediate funds are required, and purchasers have a short window to secure the balance of the purchase price, necessitating pre-approved financing or cash on hand.

4. Profitability 
While some property investors have realised profits from sales in execution, these sales should not be seen as a guaranteed path to easy money. Profitability hinges on purchasing the property significantly below its market value, avoiding extensive repair costs, and ensuring that the previous owner does not unlawfully occupy the property resulting in costly legal action. 
However, with a thorough understanding, sales in execution can yield favourable investment returns.

It is of utmost importance to familiarise yourself with the conditions of sale, including potential additional costs as mentioned above.  The conditions of sale are essentially the “Offer to Purchase” in a sale in execution and once signed, it is a valid and legally binding contract. The matter of Sheriff of the High Court Piketberg and Another v Lourens; In re: Standard Bank of South Africa Ltd v Trustees for the Time Being of the Eila Trust and Others (3467/2014) [2016] ZAWCHC 93  demonstrates the consequences of purchasing property through a sale in execution without adequate information. In this matter, the Court was tasked with deciding whether the sale in execution could be set aside due to failure on the part of the Respondent to pay VAT. 

The conditions of sale stipulated that the purchaser would be responsible for covering all costs required to complete the transfer of the property, including, but not limited to, VAT. It later became evident that the property sale was a VAT transaction due to the execution creditor being a registered VAT vendor. The Court held that the Sheriff is under no obligation to communicate the VAT status of the seller to the purchaser, or whether the transaction in question is a VAT transaction. 

In conclusion, it is of paramount importance to conduct thorough research before purchasing immovable property sold in execution. Always ensure that you fully understand your obligations as a purchaser as outlined in the conditions of sale.

For expert guidance on navigating the complexities of purchasing immovable property in a sale in execution, our Property team is here to assist you. With our deep understanding of property law and experience in sales in execution, we can help you mitigate risks and make informed decisions. 

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 

September 20, 2024
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