On making the decision to apply for bridging, it’s important to ensure that certain criteria is met before an bridging finance application can be processed successfully. So what needs to be in place and what does a successful bridging finance application look like?
Successful bridge finance applications hinge on the following being provided:
- Bridging application form and T&C’s document
- An OPT (Offer to purchase)
- Rates account/clearance figures from the city council (levy figures as well for sectional titles)
- Undertaking (signed by the conveyancer)
The OTP or offer to purchase is a legal document containing the monetary offer made by a potential purchaser to the seller of a particular property. Should the offer be accepted by the seller, this is then signed by all parties involved and becomes legally binding. A signed OTP is needed for a successful bridging finance application.
The guarantees are in place to prove that there is enough money available to cover the cost of the property in the OTP. The process of getting guarantees in place begins with the purchaser receiving an AIP (approval in principle) for the bond from his or her bank. Buyers are not always approved for a 100% bond, in which case a deposit will need to be put down. After receiving the AIP, the bank will perform a valuation on the property to ensure its value. Thereafter once all is in order, the buyer will receive their final bond grant, which on signing begins the transfer process.
There are two sets of attorneys which work on every transfer of property, the bond attorneys and the transfer attorneys. The bank will nominate the bond attorneys, while the seller of the property will nominate the attorneys who will facilitate the transfer of ownership. The buyer will need to sign the bond grant and pay bond registration fees to the bond attorneys. He/She will then need to sign, pay transfer costs and the deposit if applicable to the transferring attorneys. Once this is in place, guarantees can be issued by the bond attorney’s.
In the instance, where a Seller of a property require bridging finance, and the cancellation of an existing bond and registration of a new bond is applicable, the process differs slightly- as guarantees are then applicable. A ‘guarantee’ is a written undertaking by a bank to pay a certain amount (loan amount) to a specific beneficiary at an uncertain future date (registration) when specified events take place. In a property transaction, these specified events usually refer to the following: 1) the registration of the property into the name of the purchaser (transfer); 2) the registration of the purchaser’s bond; and 3) the cancellation of the seller’s bond (if applicable).
A guarantee is requested in favour of the seller’s bank to settle the seller’s outstanding bond account and to cancel his/her bond. This guarantee will usually reflect the outstanding amount plus interest thereon- and this guarantee is referred to as the “PLUS GUARANTEE”. The Seller of the property will have to request the outstanding amount due on his existing bond from the bondholder/bank where the bond is registered. This can be done through the transferring attorneys and will be referred to as the cancellation figures. The amount due in terms of this guarantee will be paid directly into the Seller’s bond account on date of registration. This means that the Seller’s bond is settled on the date that the property is registered in the Purchaser’s name. 2) In many instances, the attorney attending to the cancellation of the seller’s existing bond will request a guarantee for their costs and the bond attorney will then issue a third guarantee to cover these costs. – This is a straight guarantee. 3) The third guarantee is issued in favour of the transferring attorney’s trust account. This guarantee will usually reflect the balance amount available (i.e. the loan amount minus the seller’s outstanding bond amount) minus the interest as stipulated on the abovementioned guarantee- this is referred to as the “MINUS GUARANTEE. This guarantee represents the difference between the purchase price and the cancellation figure (profit). The amount due in terms of the guarantee will be paid into the transferring attorney’s trust account on date of registration.
This is indicative of the amount of money the Seller will receive out of the sale of the property, after all costs are covered. It is this MINUS guarantee that can be bridged on.
Rates/Levy Accounts and Clearance Figures
Before the ownership of a property can move from one person to another, there needs to be a settlement of any outstanding rates and levy accounts from the previous owners. This is the amount that sellers will sometimes bridge for as these can be unexpectedly large and need to be paid before the sale can go through. Clearance figures are the amounts that need to be paid to obtain clearance certificates from the deeds office for the transfer of ownership, all of which again can be an unforeseeably large expense for which the capital is not always readily available.
Each time you bridge funds, there are a number of documents that need to be in place. An application form needs to be filled out with the particulars of each claim and the T&C’s document needs to be signed and initialled. The conveyancers handling the property transfer will need to provide an OTP, guarantees, rates accounts and clearance figures, as well as sign the undertaking stating that they will pay back the bridged funds once the sale has gone through. If all of the above criteria is met, Better Bridge finance is able to bridge clients 80% of their funds before the sale of the property goes through.