If during the process of a transfer of a property, a liquidation order (an application from a creditor to claim monies from a debtor) is passed, the order will be put ahead of the transfer mandate and it is important for estate agents to check whether there is any chance, however remote, of this happening, says Lanice Steward, managing director of Knight Frank Residential SA.
Consumers, i.e. buyers of property, should be aware that the agent might not have investigated the property and seller fully and possibly does not know about the financial distress or imminent foreclosure of the property by the bank, said Steward.
This is mentioned in a court case, Biz Afrika 104s (In Liquidation) v Fuchs Roux Inc (the conveyancing firm, represented by Hartley), which was mentioned in a Smith Tabata Buchanan Boyes property law update, where the property was due to be transferred on the 30th of May 2012 but on the 11th May the conveyancer received a letter of demand from the attorneys acting for a creditor of Biz. The letter informed them that an urgent liquidation application would be issued and any monies would be paid to the creditor.
Diedericks, who acted on behalf of Biz, instructed Hartley to continue with the transfer, insisting that she was obliged to continue with the instruction to transfer the property unless a court order was issued to the contrary.
A provisional liquidation was granted on the 25th May and the letter reached Hartley on the 4th June which confirmed that the sale proceeds had to be paid over to the liquidators but by then Hartley had already paid out proceeds of the sale to other parties. These amounts were the estate agent’s commission and money due to builders.
The liquidators then applied for judgement against Fuchs Roux, for the amount of R182 400, which was what was paid out after being informed of the order.
The courts granted summary judgement in the amount of R182 400 against Fuchs Roux, as the granting of the liquidation order effectively terminated the mandate. In continuing to make payments to third parties, she acted without the authority to do so, said Steward.
“This is an unusual situation but it is not completely unlikely that it could happen and the advice I would give any buyer or seller of property, is that that they must be aware of certain legal processes. If there is any chance of the property being attached, the seller must realise that the liquidator’s order goes ahead of his mandate to the conveyancer to pay out the proceeds of the sale,” said Steward.
“And while this does not affect a buyer directly, it might end up delaying the transfer process while the other legal matters are sorted out,” she warned.