By Johan Fourie
Sheriffs are inundated with various interpretations by attorneys and banks when it comes to the role of conveyancers appointed by the execution creditor to transfer immovable property sold in execution.
The sheriffs’ profession and banks have made representations to the Rules Board in respect of the revision of the form 21 conditions of sale in execution of immovable property, as contained in the first schedule to the Uniform Rules of Court for the High Court. Various other representations have been made regarding possible changes to r 46 of the Uniform Rules of Court that will be considered in the Civil Justice Review Project of the Justice Department.
The abovementioned recommendations to the Rules Board do not, however, deal with many other issues relating to the correct procedures that should be followed by conveyancers and sheriffs in regard to the payment of the proceeds of the sale in execution and transfer, which seem to be locked in a quagmire of misconceptions by some attorneys, conveyancers and sheriffs.
Simply put, the execution creditor has the right to appoint the conveyancer. However, while this appointment is by the execution creditor, who is not a party to the execution sale contract, some conveyancing attorneys think that they need to answer to the execution creditor and not the sheriff on issues relating to the transfer following a sale in execution.
This perception is incorrect as the conveyancer must answer to the sheriff and, in doing so, all the conditions of sale, as well as the requirements of the rules of court, should be complied with before transfer is authorised by the sheriff and the relevant documents are lodged at the deeds office by the conveyancer.
To get to the root of the problem, it is necessary to analyse the procedures that should be followed after a sale in execution.
Calculating the amount of the debt
The execution creditor’s claim is calculated from the writ of execution issued in terms of the judgment and the sale in execution is conducted in terms of this authority.
There is no similar High Court provision to s 66(4) of the Magistrates’ Courts Act 32 of 1944 that provides for an attachment of immovable property to lapse after one year if the sale in execution has not occurred by then. Attachments of fixed property in terms of r 46 of the Uniform Rules of Court do not, therefore, lapse. This means that the original writ will undoubtedly become outdated in financial terms should the sale not take place immediately after judgment.
In practice, in the vast majority of sales in execution, the execution creditor will, over a period of time from the judgment and attachment of the property by the sheriff, consider arrangements made by the debtor to prevent the attached property being sold.
In some cases arrangements are made in terms of which vast sums of money are paid by the debtor and accepted by the execution creditor to stay the procedures. This is done to accommodate the debtor and prevent the property being sold. In my opinion, this is good practice and is for the benefit of both the debtor and the execution creditor.
However, this practice causes a severe problem as there is no mechanism in the Uniform Rules of Court whereby this exchange of money is officially recorded.
These payments or costs are not recorded on the writ or in the court file. Further, the sheriff is not informed of this exchange of money and the quantum thereof. The sheriff is simply informed not to proceed with the sale and the sale is stayed. The attachment is not withdrawn and the execution creditor has the option to proceed at a later stage if necessary.
Should the debtor keep to his undertaking, this may not be problematic. However, should the execution creditor decide to proceed with the sale at any time after such payment and arrangement, it becomes difficult for the sheriff to determine the correct amount of the debt as the judgment amount in the writ is no longer a true reflection of the indebtedness of the debtor.
In other words, the amount owed to the execution creditor in terms of the original judgment is no longer correct and this writ no longer serves as a trusted source for the sheriff in determining the judgment debt when the sale is conducted and distribution of the proceeds of sale is finalised.
This dilemma in the High Court is addressed in r 36(4) and (5) of the magistrates’ courts rules, which provide for the writ to be reissued after receipt of payments after the judgment and before a sale takes place. The High Court rules do not contain such a provision and some recommendations have been made to the Rules Board in this regard.
I acknowledge that an execution creditor with a High Court judgment may issue as many writs as necessary under the same judgment but I do not believe this route will solve the problem.
As long as this is not resolved, the problem will persist and must be addressed in a reasonable interim procedure to ensure that the interests of the debtor, as well as the creditor, are protected.
Payment of proceeds
The payment and distribution of the proceeds of the sale in execution constitute a further bone of contention, which is sometimes widely misunderstood by transferring attorneys and sheriffs.
The sheriff is mandated by the rules of court to deal with the proceeds of the sale and should not pay this money to the execution creditor or another beneficiary before transfer has taken place (see r 46(14)(a) of the Uniform Rules of Court).
The sheriff shall receive a 10% deposit and either receives the balance of the purchase price plus interest on transfer or, should payment be made earlier than transfer for any reason, the proceeds shall be in the hands of the sheriff and not the conveyancer.
The provision in r 46(14)(a) that the proceeds can be transferred into the account of the magistrate of the district has been overtaken by s 22 of the Sheriffs Act 90 of 1986, which requires that the sheriff shall pay all funds received into his trust account. The Rules Board has been requested to amend the rules by removing the section requiring payment to the magistrate from r 46 (this should have been done at the time of the enactment of the Sheriffs Act).
Some conveyancers have developed a practice of collecting the purchase price or the balance thereof and depositing it into their trust accounts without the knowledge or instruction of the sheriff.
In some instances, the security for the balance of purchase price, which should be handed to the sheriff and which requires payment of the outstanding money to the sheriff, is not handed to the sheriff but is retained and the proceeds are collected from the purchaser by the conveyancer and kept in his trust account without the sanction or instruction of the sheriff.
In some cases the balance of the purchase price is collected by the conveyancer and invested on instruction from the purchaser in an interest-bearing account for the benefit of the purchaser, who is also then exempted from paying interest due to the early payment, and the purchaser is refunded the interest earned on the proceeds on transfer. The sheriff is then paid the outstanding balance of the proceeds without interest. This is also done without the sheriff’s instruction or knowledge. This practice is highly prejudicial to the debtor and should not be allowed.
It is clear that the conditions of sale and the rules of court are misinterpreted by those who indulge in the abovementioned practices.
The correct procedure to be followed in terms of the rules is:
Who is mandated to authorise transfer?
The conveyancer does not have a mandate of his own, nor does he take instructions from the execution creditor. The conveyancer takes instructions from, and is accountable to, the sheriff. Transfer is passed only after all the requirements of the conditions of sale contract, the rules of court and the sheriff are met. This should be confirmed by the sheriff to the conveyancer before any lodgment at the deeds office. The execution creditor, its attorney of record and the debtor have no role in this.
The sheriff takes the responsibility for ensuring that all relevant conditions have been met and it is the sheriff who authorises transfer to proceed – no one else. The conveyancer has the professional obligation to lodge the necessary documents for transfer once satisfied that the above has been confirmed by the sheriff.
Once the sheriff is informed that transfer has passed, he shall (without any avoidable delay) pay out in terms of the distribution account.
Any other encumbrances, such as those relating to rates and taxes or any applicable body corporate or homeowners’ association levies, should be counter-checked and sanctioned by the sheriff prior to payment.
In order to perform the above, the sheriff must be able to confirm that all money has been paid and that he can now distribute the proceeds.
Calculating balances and distributing the proceeds
To finalise the distribution account, the sheriff needs to know the extent of the debtor’s indebtedness and will need a balance certificate from the execution creditor of the balance of the judgment debtor’s bond account at the time of the sale in execution. This certificate should incorporate any amounts received since the judgment and the issue of the writ.
This will enable the sheriff to make an informed determination from the balance reflected on the certificate against the proceeds of the sale of a possible shortfall or surplus. Once this is clear, the account can be finalised and payment can be made to those entitled to it.
When the execution creditor becomes the purchaser
Sheriffs face serious challenges when the execution creditor purchases the property at sales in execution and wishes to be exempted from paying any money or provide any guarantees to the sheriff. The conditions of sale are constructed to accommodate the financial preferences of the banks.
This deviated procedure manifests in additions to the form 21 conditions of sale and is done in such a way as to provide that the guarantee for the purchase price will be provided by the execution creditor to the sheriff only if the proceeds of the sale exceed the debt.
It is the sheriff’s obligation to make this determination at the time of the sale and he is unable to do so in the absence of the true quantum of the debtor’s indebtedness.
Further, set-off by banks in such circumstances is not possible as the debt owing to it would not have become due on transfer (see Absa Bank Ltd v the Sheriff of the High Court, Simon’s Town In re Absa Bank Ltd and Expidor 124 CC (WCC) (unreported case nos 26018/2010; 3045/2010, 9-5-2011) (Blignault J).
To accommodate this procedure, as mentioned above, sheriffs and banks have formulated additions to the form 21 conditions of sale, which are currently being considered by the Rules Board.
The certification and other procedures, as indicated above, are essential for the sheriff to perform properly in terms of the rules of court.
The certificate of balance needs to be available to the sheriff at the time of the sale to ensure that if a surplus exists according to the calculations made by the sheriff from the balance certificate, it will be possible to make an informed determination of the obligations of the execution creditor as purchaser.
When the above is concluded, all that remains is that the execution creditor must provide the sheriff, on transfer, with proof of payment of the full amount credited to the account of the debtor, together with the amount of the interest paid on the purchase price, if any.
In my experience, there remains misinterpretation by banks and conveyancers as to the obligation of the bank to pay the interest on the purchase price under such circumstances.
Who pays and benefits from the interest?
The issue of banks paying interest is simple: Should the execution creditor pay/credit the full amount of the purchase price within one month of the sale date, it does not need to pay any interest. Should the execution creditor choose not to make this financial adjustment to the credit of the debtor, it will be liable to pay interest as stipulated by the conditions of sale from the date of sale to the date of transfer.
Some attorneys and sheriffs do not ensure that this procedure is meticulously followed and therefore fail to protect the interests of the debtor and become susceptible to damages claims by debtors who have not received the full benefit of the sale of the property. It is the sheriff who is likely to be liable as it is he who is responsible for ensuring that all of the requirements of the rules and the conditions of sale are met before transfer.
Should the transferring conveyancer not ensure strict compliance, he may also find himself liable for damages or guilty of misconduct.
To address these issues, attorneys, banks and sheriffs should be more vigilant in the execution of their duties. The debtor does not have the advantage or the finances to be able to protect his interests and is reliant on the various role players, especially the sheriff, to ensure that justice is delivered.
The issue of interest may at first seem insignificant, but millions of rands are at stake that do not find their way to the benefit of debtors, who are the most vulnerable parties in relation to these procedures.
Who is responsible to remedy this?
It is the prime responsibility of those who apply the law to ensure that those who do not have easy access to justice are afforded the best possible protection.
The South African Board for Sheriffs should take note of this shortcoming and be vigilant in their disciplinary mandate to protect the interests of debtors.
The board should also take note of the consequences of non-performance by sheriffs and the threat this poses for the Fidelity Fund for Sheriffs.
Conveyancers and sheriffs who do not deliver properly in terms of transfers should ensure correct compliance or face disciplinary procedures from the competent authorities.
Further, such negligence could result in damages claims against sheriffs and ultimately the Fidelity Fund for the profession.
Johan Fourie is the sheriff for Simon’s Town in Cape Town.
This article was first published in De Rebus in 2013 (March) DR 34.