In short
Security is a route to something beyond the borrower's promise. In South Africa it takes five forms: a mortgage bond over land, a notarial bond over movables, a cession of claims, a suretyship by another person, or nothing at all.
What any of them is worth is a calculation, not a label: forced sale value, less the costs of sale, less rates and levies, less everything ranking ahead of you. Secured is not insured — security gives you a right to a process, and the process has a cost and a queue.
01The five forms
| Form | What it covers | What it gives you |
|---|---|---|
| Mortgage bond | Land and buildings | A real right over the property, registered at the Deeds Office. The benchmark. |
| Special notarial bond | Specifically described movables — a named machine, listed vehicles | A secured claim over those items, as though you held them |
| General notarial bond | Movables as a class | Only a preference on insolvency, out of what is left once properly secured creditors are paid |
| Cession of claims | Money owed to the borrower — invoices, rentals, levies | The right to collect those claims yourself |
| Suretyship | Nothing. It is a person, not a thing. | A second party to sue, worth exactly what that party is worth |
The special and general distinction on notarial bonds is the part worth carrying away. If somebody offers a general notarial bond and calls it security over the business, the description is doing more work than the bond will. A general bond over a business whose equipment is all on finance secures the furniture.
02A signed bond is not a registered bond
A mortgage bond is created by registration at the Deeds Office. A notarial bond is executed before a notary public and registered there too. Until that happens, you have a document in which somebody agreed to give you security.
Registration also changes the life of the debt, which almost nobody mentions. An ordinary debt prescribes after three years. A debt secured by a mortgage bond prescribes after thirty.
| The debt | How long before it dies |
|---|---|
| An ordinary debt, including an unsecured loan | Three years |
| A debt secured by a mortgage bond | Thirty years |
| A judgment debt | Thirty years |
Prescription starts running as soon as the debt is due — not when you decide to act on it. Lesson nine comes back to this, because three years passes while a lender is being patient.
03The queue, and the arithmetic
When a property is sold in execution, the proceeds are applied in a fixed order:
- The costs of the sale itself.
- Rates, taxes and levies owing on the property. These rank ahead of bondholders and the arrears can be substantial.
- The first mortgage bond, in full.
- The second bond, then anything below it.
Rank matters more than the type of security, the registered amount or the valuation. A first bond over a modest property usually beats a second over an impressive one.
04Establish rank before you lend
- Do a Deeds Office search. It shows every bond registered over the property and in whose favour. It costs very little.
- Ask the municipality about rates arrears. They rank ahead of you and are invisible on the title deed.
- For sectional title, ask the body corporate about levy arrears. Same point, different creditor.
- Get an independent valuation from somebody with no interest in the deal proceeding.
- Then do the arithmetic. Forced sale value, less costs, less rates, less prior bonds. What is left is your actual security, and it is usually well below the valuation.
05Suretyship, and why it is not security
A surety undertakes to pay if the borrower does not. It gives you a second person to sue. It does not give you a claim over any particular asset.
So a suretyship is worth whatever the surety is worth, and that is a question about their assets, their other liabilities and whether they are married in community of property. A surety with nothing is a signature. A surety from a company inside the same group as the borrower often adds nothing at all, because it fails for the same reason the borrower does.
Next: what actually happens when the borrower stops paying — how long it takes, and what it costs.