Monday, December 10, 2012

Real Estate Contracts – Changes, Risks and Management

If you have bought and sold a couple of properties, you would have realized that the procedure is fairly standard and that the contracts are largely similar. This is the case especially if you have been the vendor/purchaser of registered property which has changed hands a few times. If you purchased from a real estate developer, your experience might have been a tad different with bulkier, more complicated contracts, split contracts, longer lead times for delivery of title etc, and escalation costs to provide the vendor with a buffer against inflationary pressures on inputs like labour and materials. 

While consistency suggests safety and reliability, as commercial activity and government regulations evolve, there will be changes in contract terms and management initiatives pre and post contract. We have seen this before regarding alterations made to payment terms based on decisions by the court in relation to forfeiture of deposits and based on changes in the law in terms of taxes and duties payable. For example, agreements used to call for a fifteen (15%) percent deposit but subject to forfeiture that requirement was adjudged as penal. Now the clauses as shown below, are drafted to allow not only for structured payments with a maximum of ten (10%) deposit but also for percentages to be changed depending on the legal tax/duties requirements which are, as we have shown before, subject to change.

 (i) A deposit of the sum set out at Item 7 of the Schedule on the signing hereof payable to the Vendor’s Attorneys-at-Law ASHLEY & ASHLEY. 
(ii) A further payment of the sum set out at Item 8(A) of the Schedule also to be paid on the signing hereof
(iii) Balance set out at Item 8(B) shall be paid on completion.   

But with globalization of markets, the global thrust against corruption and money laundering and the need to maximize economic opportunities while minimizing risks, questions arise whether the processes and documentation will become more complex with calls for more due diligence investigations, transparency, accountability, controls to protect reputations and heavy penalty clauses to discourage breaches; or whether this forecasts the expansion of the role of the real estate attorney to incorporate the contract manager function.

Let’s consider for example the situation of a well known US company purchasing land for development in Jamaica. What would be the consequences if such a buyer greases the palm of a government official with a view to gaining an advantage in the transaction such as a reduction in government duties based on a false property valuation? The Foreign Corrupt Practices Act (FCPA) has a notoriously broad reach and the fact that it is a US company would make it even easier. Should the lawyer and or the contract of the future embed clauses that address these issues or should that be reserved for the post contract execution phase? The kind of regulatory risk is likely to increase and it will behoove lawyers to consider the impact on their role in the transaction. 

There are several and significant risks inherent in real estate transactions and especially in construction contracts. These include deceptive vendors, fake titles, defective titles, design flaws, financial risks, process risks, payment schedule risks, natural and other disasters, labour issues and more. In some cases it is not practical for controls to be embedded in contracts. In terms of delay, there may be clauses to deter such as those which mandate interest charges or define liability or there may be clauses inserted to encourage early payment. It is not uncommon too to observe clauses related to insurance to address the effect of force majeure events and other potential disasters. On the other hand in order to ensure success of the commercial venture more effective communication, monitoring of obligations and controlling of risks could be of practical value in diminishing disputes and claims and simplifying emerging complexities. 

The real estate legal services sector is poised for change – more complexities, more regulations and more risks. It will be interesting to observe whether such change will also include partnerships between lawyers and contract management professionals.

Sunday, October 21, 2012

Homeseller Ignorance

The Sunday Gleaner recently published an article entitled Homebuyer Ignorance, addressing the costs involved in purchasing real estate and the failure of buyers to factor these costs and fees when planning to purchase their home. At Ashlaw we have written several posts here and here and also here on the chargeable costs on real estate transactions including the costs associated with mortgage financing, as we understand that purchasing real estate can be complicated and being informed is key. That is why we have recommended time and again that the parties - both vendor and purchaser - source reliable and separate legal representation so that they can get a good idea of the costs, the obligations and the technicalities involved in the process.

The question of  real estate costs is not only relevant to the purchaser. Sure the purchaser has to fork out more money but the vendor bears some costs too and so will net less sale proceeds the higher the costs payable.

Persons who are investing should bear in mind two things:
  1. Time is money, so the money you have today will not have the same purchasing power tomorrow, and
  2. Whether you are buying a house, stocks or even equipment for your businesses there will be costs over and above the purchase price. These figures must be added to your calculation in determining:
  • whether to make the investment and 
  • how long it will take for that investment to generate returns. 
Thus we were somewhat surprised when the National Housing Trust, the state-run organization whose Chairman is quoted in the above-mentioned Gleaner article, embarked on a frolic into the upscale housing market without apparently considering the implications.

In 2007 The Gleaner's business reporter informed the public about NHT's expensive experiment, stating,
The National Housing Trust (NHT), known generally to provide lower and lower-middle income housing solutions for Jamaicans, is to invest $280 million in the construction of 14 townhouses in upper St. Andrew, commencing September..
What does not surprise us however is the recent update advising that of the 14 units, 7 remain unsold. In an attempt to respond to the suggestion that the market has scoffed at its foray into upper income bracket, the Trust claims that the properties were put to market years after the announced scheduled completion date of September 2008. Accordingly they went to market  "in February 2011 in the case of Salisbury, and in September 2012 for Paddington." This invites one to ask the question why.  Why were the homes put on the market 3-4 years after the scheduled completion date?

  • Were there delays in completion of construction? 
  • Were there other considerations? In light of these delays or time overruns, were there also budget overruns? 
  • Was the original amount of $280 million exceeded? 
  • Were they waiting for the real estate market to improve and property values to increase? 
  • Have they increased the sale price to compensate for the delay?

Measuring the Return

Despite the NHT's mandate to provide housing solutions to low and middle income earners, the decision to engage in real estate construction and to sell property (whether to high or low income earners) ought not to be based on emotion but on financial measures. Whether it's the payback method, the discounting cash flow method or the internal rate of return method, the failure to sell 7 of the units represents zero (0) return to date on NHT's investment

As we have said above and elsewhere before, time is money and the longer the Vendor has to wait to collect the sale proceeds, the less present value that money has today and the lower the internal rate of return. This is compounded by the fact that there are no reports of the property generating income.

We remain perplexed as to the basis for NHT's actions which despite their explanation, suggest that they were affected by Homeseller Ignorance.

Wednesday, August 29, 2012

Fraud in Real Estate Transactions

Many of you have heard of investors in the David Smith/Olint or the Madoff Investment Scheme  being defrauded of millions of dollars. Some of you would have heard of cases of lawyers defrauding clients of funds in real estate deals. Few of you might have heard of the incidents of fraud which were uncovered at the Titles Office now the National Land Agency (NLA) about ten years ago. The fact is that wherever investment takes place, fraud is a possibility and so vigilance is recommended.

When we speak of fraud we simply mean "profiting by means of deception". It involves depriving the public or an individual of money or property by deceitful act(s). Real estate deals provide fertile ground for the perpetuation of fraud as they involve the exchange of money for interest in property.

More and more organizations are implementing controls to mitigate the risk of fraud in light of the negative effects fraud can have on a company's reputation and its bottom line. Interestingly in many cases the fraud is perpetuated by employees, even those at the top. The National Land Agency was in the news not too long after it was transformed as an executive agency. Over 50 cases of fraud were reported to the Fraud Squad. In some cases landowners were deprived of their property through forgery of signatures or uttering entire fake documents. No doubt the "inside job" participant would have played a role.

I was working at the NLA around that time and got the opportunity to see first hand the efforts that were made by the organization to eliminate fraud. This included document tracking and scanning, training and communication and improved technological solutions to facilitate easier searches. Just this year the public was informed of a property watch initiative whereby landowners will be notified if a transaction is done on a title.

Similarly individuals must be aware of risks of fraud and take initiatives to avoid same. Being hoodwinked out of your money or property is no laughing matter and can have far reaching negative effects. It is important that you not be a willing victim.

Some Tips

  1. Never sign a blank cheque.
  2. Research the parties you will be dealing with. This includes the real estate agent, the buyer or vendor, the attorney and the lender.
  3. Ensure that you comprehend the nature of the transaction. Get your own reputable attorney. It is not recommended that the vendor and purchaser share attorney.
  4. Don't pay funds directly to the vendor. Get a reputable attorney.
  5. Make sure you get a proper receipt when you effect payment. It should include all details - your name, the property, the signing officer and the stamp of the organization.
  6. Find out the costs up-front.
  7. Research the property. Make sure it exists and that the owner is in fact selling.
  8. When you pay a deposit, lodge a caveat on the property to give notice to the world that you have an interest in the property. Some deceptive owners or con artists pretending to be owners sell to more than one person at a time.
  9. Keep your title and all other property documents in a safe, secure place.
  10. Bring a healthy dose of skepticism to investment schemes.
As pointed out above in the first paragraph, there have been cases of unscrupulous attorneys defrauding their clients. This is especially the case where clients or mortgage companies pay funds to the attorney's account and the attorney converts the funds to his or her own use. It is for this reason that the emphasis is placed on securing the services of a reputable attorney. Jamaica is not unique in this regard. As reported recently in Law360, claims against attorneys for malpractice in the US are more often a result of their handling of real estate transactions.  Getting an attorney via a good referral is one method of protecting yourself.

Sunday, July 8, 2012

Time is Money

One of the issues that prospective foreign purchasers have to contend with when they seek to purchase property in Jamaica, is currency exchange rates. This can be particularly perplexing for a buyer who is unaccustomed to dealing in an environment of unstable exchange rates.

To have an idea of the extent to which exchange rates have fluctuated over the years, just take a look at the Bank of Jamaica website which sets out historical rates from 1971 relative to the US dollar. In 1971 the US  dollar was worth 77 Jamaican cents! That deserves an exclamation. Yes there was a time when our dollar was worth more than the US greenback. That state of affairs continued until January 1978 and from then on continued to be distant memory. Indeed over the last forty years the Jamaican dollar has declined in value by over 11,000%.

It is no surprise therefore that the Jamaican vendor generally welcomes foreign buyers with open arms as they show a willingness to part with their US currency. Since the rate isn't fixed and moves daily, negotiating a rate for the transaction is a critical part of the deal and reference is often made to the above-mentioned BOJ selling rate to come to a final agreed figure.

It is important to state a rate of exchange for a number of reasons including:
  1. To establish certainty.
  2. To facilitate computation of ad valorem costs. Eg. Stamp Duty, Transfer Tax and Registration Fees.
  3. To hedge against devaluation.
Protection against devaluation is usually the driver or motivating factor behind a vendor's push for US or other strong currency priced transactions. Interestingly, in light of this the foreign purchaser can leverage his financial position as a negotiating strategy to get the best bang for his buck. Conversely and equally interestingly the vendor can capitalize on the anticipated devaluation too.


A number of factors can determine the length of time it takes to complete a sale. Two main factors are:

(i) whether the purchaser's financing is in place and

(ii) whether the title to the property is in order.

A sale can take anywhere from 30 days to 120 days to close. This completion period is usually expressed in the contract and can be crucial to determining price.

It is not unknown for a purchaser to avoid escalation costs when buying property in a new real estate development because he is willing and able to pay in US dollars up front and prepared to wait for the building to be completed. This may be an extreme example but it demonstrates the point that the quicker the purchaser can pay in hard foreign currency the better his chances of negotiating a favourable price.

A smart vendor who is familiar with the lay of the land can argue that he anticipates devaluation of the dollar by the stipulated completion date. Indeed a sale price of US$100,000 at US$1.00:J$86 is equivalent to J$8,600,000.00 but three months later the rate could move to US$1.00:J$87.50. In other words three months later it could cost J$8,750,000.00 to purchase US$100,000.00.

Let me insert the caveat that no assumption should be made that the Jamaican dollar only moves in a downward direction. A careful examination of the historical rates confirms this. Note the period from May - September 2010. A Vendor in May 2010 who assumed that the rate would have fallen and set  the price accordingly would have had his costs on the sale linked to the higher exchange rate and would have seen his purchasing power diminish .........for a short while. But since we know that time is money that short while could cost him dearly.

Sunday, May 13, 2012

Money Laundering in Jamaica (Part 3) - The Move towards Legal Professionals

In examining the move to pull lawyers - especially those who practise real estate law - under the AML regulatory net, I have underscored two broad areas which have been the focus of AML initiatives and which underpin the AML laws/regulations.

They encompass (i) identification of the client and (ii) reporting of large and suspicious transactions and fall under FATF recommendations 5, 6, 8-12 and 13-16 respectively. The Guidance for Legal Professionals makes it very clear that legal professionals include lawyers and notaries and cover legal professionals when they prepare for and carry out the activities outlined earlier in Part I ie.
  1. Buying and selling of real estate
  2. Managing clients' money, securities or other assets
  3. Managing bank, savings or securities accounts
  4. Organizing of contributions for the creation, operation or management of companies
  5. Creating, operating or managing  legal persons or arrangements and buying and selling of business entities
What is KYC

KYC is short for Know Your Customer or in the case of the legal profession Know Your Client. It is the foundation of a customer due diligence program which aims to avoid anonymity and ensure transparency by flushing out criminals and politically exposed persons (PEPs). So it entails establishing, verifying and keeping records of clients’and beneficial owners' identification and their business activities. When you go to the bank to open an account and you are required to provide identification, your address, your tax registration number and give references, you are being subjected to the bank's due diligence measures.

In some jurisdictions like the UK, Austria, Bahamas, KYC covered entities already comprise designated non-financial businesses and professions (DNFBP) like legal professionals. It is interesting to note that that is not the case in the United States pg. 16. According to the 2006 FATF Summary of the Third Mutual Evaluation Anti-Money Laundering and Combating the Financing of Terrorism.United States of America:
Accountants, lawyers, other legal professionals, real estate agents, and trust and company service providers (other than trust companies, which are subject to the same requirements as banks) are not currently subject to AML/CFT requirements (other than the large cash transaction reporting requirements).

It is worthy of note too, that the United States Permanent SubCommitte on Investigations in 2010 made the following recommendations after finding as a matter of fact inter alia that US attorneys facilitated the circumvention by a foreign client of anti-money laundering controls at US banks.
  • Attorney-Client and Law Office Accounts.Treasury should issue an AML rule requiring U.S. financial institutions to obtain a certification for each attorney-client and law office account that it will not be used to circumvent AML or PEP controls,  accept suspect funds involving PEPs, conceal PEP activity, or provide banking services for PEPs previously excluded from the bank; and requiring enhanced monitoring of such accounts to detect and report suspicious transactions.
  • Professional Guidelines. Professional organizations, including the American Bar Association, National Association of Realtors, ................. should issue guidance to their members prohibiting use of any financial account to accept suspect funds involving PEPs, conceal PEP activity, facilitate suspect transactions involving PEPs, or circumvent AML or PEP controls at U.S. financial institutions.Source Pg 6
Despite this and despite the FATF guidelines referred to in an earlier post, to date US lawyers remain unregulated in this regard. Like legal professionals in Jamaica, they are subject to the criminal laws and the standards of professional conduct which many argue are sufficient to capture the kind of illicit activity identified by the Subcommittee above.

It will be interesting to see in light of the clamp down on foreign corruption and the push against terrorist financing and money laundering by the United States (a major money laundering country) whether US legal professionals will ever be subjected to AML regulations. The American Bar Association has already spoken out strongly against any federal regulation saying it supports only voluntary risk based client due diligence. Will the Jamaica Bar Association adopt a different stance?

The thinking of course, in an environment where anonymity is frowned upon, is that if the legal practitioner is unable to verify the client's real identity he should not proceed to represent the client. So the lawyer who receives a call from the millionaire he's never met who resides in Guernsey and who wants to purchase real estate in the name of his grandson will have to get proof of the gentleman's identity and his grandson's identity and assess the transaction carefully if he is to proceed. If he cannot get verification he must forfeit those attractive fees.

What is STR

STR is where the legal profession will likely be up in arms or at the very least arguing before the court about confidentiality or legal professional privilege as STR involves reporting suspicion of money laundering activity by clients if there is reasonable grounds to suspect the funds are proceeds of criminal activity. According to FATF, lawyers should effect both customer due diligence and reporting of suspicious transactions when they carry out the activities specified and identified in Money Laundering Part 2 below.

The FATF is mindful of this challenge and has quite reasonably recommended under recommendation no. 16 that:

Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.”

However the boundaries of legal professional privilege while addressed in several decisions in common law, are not always clear and given how jealously guarded the client's privilege is among legal professionals, it will depend on the legal requirements of the particular jurisdiction. Attorneys who engage in certain activities in the UK, EU member countries, Hong Kong, New Zealand and others are subject to reporting requirement. Of course lawyers who handle real estate transactions are not exempt.

It is not surprising however that some jurisdictions have excluded lawyers from the list of professionals who must report their suspicions. Lawyers who however participate in activities on behalf of their clients which enable the laundering of ill-gotten funds might find themselves being subject to investigation for committing a money laundering offence whether or not they are obligated to report their suspicions.

It will be interesting to observe the approach taken by the Jamaican authorities to this aspect of their initiative to bring lawyers directly under the scope of money laundering regulations.  If they are exempt from the suspicious reporting requirement it will be all the more remarkable given the fact that they often seek to emulate the UK legislation. Perhaps they will be more inclined to approximate the United States position where the attorney/client relationship is sacrosanct.

Friday, March 30, 2012

Money Laundering in Jamaica - Part 2

It is important to note as a follow up to my last post that Jamaica continues to be a member of that group of "Countries of Concern" according to Volume II of  the 2012 International Narcotics Control Strategy Report Money Laundering and Financial Crimes.published this month - March 2012. As usual I am obliged to inject a dose of reality however and alert readers to the classifications and qualifications. There are three categories defined in the Report -
  1. Countries/Jurisdictions of Primary Concern or Major Money Laundering Countries. To qualify for inclusion here the country must be one where financial institutions engage in transactions that involve significant amounts of proceeds of crime. The focus here therefore is on the sheer volume of money thus it should come as no surprise that countries like the US, UK, Canada and Cayman Islands fall in this category. Some of you may be a bit shocked that Belize, Cambodia and Curacao are similarly qualified.
  2. Countries/Jurisdictions of Concern - Several factors determine whether a country might qualify here including the  financial institutions' engagement in transactions involving significant amounts of proceeds from serious crimes, the extent to which the jurisdiction is or remains vulnerable to money laundering, notwithstanding its money laundering countermeasures and "whether the jurisdiction has taken appropriate legislative actions"
  3. Other Countries/Jurisdictions Monitored share some of the factors as outlined in 2 above but not at the same level.
With respect to whether Jamaica has taken appropriate legislative actions we have already noted the Minister's plan to strengthen the POCA to bring non-financial businesses and professions into the mix. Currently lawyers are not regulated by the money laundering legislation but like any ordinary person in Jamaica they are subject to POCA to the extent that they can be found to have committed an offence if they:
(a) engage in a transaction that involves criminal property;
(b) conceal, disguise, dispose of or bring into Jamaica any such property; and
(c) convert, transfer or remove any such property from Jamaica and knows or has reasonable grounds to believe at the time he does any of the above, that the property is criminal property.

In light of the above many of the requirements and measures that already affect lawyers in other jurisdictions are not yet in place in Jamaica. Here lawyers are subject to The Legal Profession Act and the Canons of the Legal Profession but have no responsibilities specifically in respect of Anti-Money Laundering obligations. This therefore adds to the sense of vulnerability to money laundering activities and  risks presented by legal services in the Jamaican context.

The Financial Action Task Force (FATF) recommendations and  Guidance for Legal Professionals referred to previously seeks to guide legal professionals who engage in the following:
  1. Buying and selling of real estate
  2. Managing clients' money, securities or other assets
  3. Managing bank, savings or securities accounts
  4. Organizing of contributions for the creation, operation or management of companies
  5. Creating, operating or managing  legal persons or arrangements and buying and selling of business entities
The role of the real estate attorney therefore is one which will come under serious scrutiny for depending on the services he performs for his client he could be caught under more than one of the abovementioned activities. In the future, no longer will it be sufficient for lawyers to do nothing more than insist that substantial funds be paid via cheque. The risk based approach will however require that they use their judgement to determine where the risks are greatest and apply controls accordingly.

In our next post, we will look at two broad areas which are already imposed on financial institutions   and which are proposed to be extended to DNFBP (Designated Non Financial Businesses and Professions) including legal professionals. They are:
  • Know Your Customer (KYC) rules and
  • Suspicious Transaction Reporting (STR) requirements.
These measures are likely to be contemplated by the Jamaican Legislature and the Jamaica Bar Association as they consider how to improve Jamaican anti-money laundering initiatives.

Thursday, March 8, 2012

Money Laundering in Jamaica - Part 1

Since my post on What is Due Diligence, the Minister of National Security, Mr. Peter Bunting made an announcement which is of relevance to this blog and all stakeholders in real estate transactions. He indicated that the Proceeds of Crime Act (POCA) is being strengthened to facilitate the seizure of assets of facilitators of illicitly acquired gains."

This announcement has been welcomed by members of both the local and international community. Media houses, participants in social media and internet puublications such as The Jamaica Observer, LinkedIn and Insight - Organized Crime in the Americas have weighed in and anti-money laundering professionals are taking note.

The government's concern may or may not have been precipitated by the listing of Jamaica as a "Country of Concern" in the International Narcotics Volume II Money Laundering and Financial Crimes March 2011 prepared by the US Department of State, pursuant to their Foreign Assistance Act. Whatever the case, it is noteworthy that among the factors included in deciding to place our country in the jurisdiction of concern category is an assessment of the country's legal framework to combat money laundering. Further, the report highlights the fact that drug money managers are attracted to jurisdictions with varied characteristics including:

  • large black market economics,
  • limited asset seizure or confiscation authority, and
  • limited money laundering and financial crime enforcement".
As an aside let me just clarify that Jamaica is not here considered as some sort of rogue state. We are in the company of countries like Barbados, Belgium, Chile, Ireland, Malaysia, Portugal and South Africa. We like many of those countries have been cooperating in the fight against money laundering but given the complex and stealthy nature of the activities involved, our systems are still vulnerable to penetration and so we do have some way to go if we are to avoid being perceived as attractive to money launderers.

Given the Minster's other comments that,
it is clear that these professionals and their clients will have to be on their guard. Lawyers and clients in real estate transactions must be aware that they are in a high risk environment. The banks know this and the government recognizes this. Unless lawyers adopt a risk based approach to managing these transactions they could find themselves being involved (even unwittingly) in money laundering.

The Financial Action Task Force (FATF)  2008 set out Guidance for Legal Professionals which   discusses the purpose of the risk based approach. No doubt this has been scrutinized by Bar Associations worldwide and it would be useful for us also to examine same which will we do in Part 2 in general and specifically in the context of the Jamaican experience.

Saturday, January 28, 2012

The Crazy Mortgage Crisis in America

How was this possible? The US mortgage crisis was an explosion of madness, incompetence and fraud! Should anyone therefore really question the need for serious regulation and oversight of financial institutions? Watch this.

In light of the absence of evidence of who owns the mortgages, home owners who refuse to pay the financial institutions ought to be on solid legal ground. The problem gets even more complicated when they ask: Where is my title?

Tuesday, October 4, 2011

What is Due Diligence

In the context of a real estate sale or purchase, exercising due diligence simply means taking care by checking out all the facts, paying attention to the details and implementing risk controls before you go ahead and buy or sell. When we say checking we mean checking the person, the property and the money/price involved in the transaction. So important questions must be asked concerning ownership, location and so on.

One reason why purchasing registered land is highly recommended is that a registered title which is an official record of who owns the land, its description and location is guaranteed by the state. The original is maintained at the National Land Agency Office of Titles in the Register Book of Titles. When you purchase land,  you get the duplicate certificate of title with your name duly endorsed on completion of the transaction.

Unlike sellers of unregistered land who often have to produce several documents to prove ownership, the vendor of registered land must only show his registered title.

* Person(s)

When you are buying land you want to ensure that you are purchasing same from the rightful owner. It is imperative therefore that you conduct a title search. If there are multiple owners registered and only one of the owners is selling and purporting to sell the entire property then you may have a problem,. If the explanation is that the other owner(s) is/are deceased then your lawyer will make the necessary inquiries to ensure the legalities are complied with so that the sole vendor can proceed or in certain cases the deceased's personal representatives can join in the sale. If the person selling is not the owner nor his legal representative then you WILL have a problem but it is better to know before you part with your money that unscrupulous persons are misrepresenting themselves in the hope of making you the victim of their scam.

As I mentioned in my post on Pre-contract Matters you will have to conduct further searches at the Companies Office if the registered proprietor is a company. Be aware the foreign companies can own real estate so you will have to make searches in the foreign jurisdiction to ensure that such a company is in good standing and in a position to sell.

Of course you also want to ensure that the vendor is not selling the same property to several persons at the same time that he is selling to you.  In this regard and for your general protection buyers should ask your lawyer about the importance of lodging a caveat.

* Property

The registered title for land will have a deposited plan unless the property was registered by metes and bounds. You must examine this plan to see if the property your Realtor showed you accords with that on the plan. It is critical that prospective buyers see the property they are buying but if they are away in foreign lands they should take the next best step. Get a Commissioned Land surveyor. He will confirm whether:

  • the property on the ground is the same as that in the title,
  • the boundaries are fine and
  • the restrictive covenants are being complied with or not.

* Money

Is it really worth what they are asking? It is important to get a valuation report which a mortgagee will require if a purchaser is financing the purchase via mortgage loan.However a cash purchaser may not want this added expense. At the very least one should seek to get an idea of comparable values of homes in the neighbourhood.

Sometimes the parties may seek to engage in "passing money under the table" to allow the vendor to avoid paying taxes. BEWARE! Some of these transactions are downright illegal and in any event the Transfer Tax Act gives the Commissioner the power to assess the tax on a higher value than declared.

Another area that is becoming of increasing concern is that of money laundering. The ordinary man may think that this issue is one that is of interest only to financial institutions but it is important to note that property may be forfeited if it is derived from criminal acts. So a potential party to a real estate action who has reasonable suspicion to believe that the vendor or purchaser is disposing of or transferring criminal property should not proceed or he runs the risk of forfeiture and/or being charged with a criminal offence.

It is better to be safe than sorry.

Friday, July 29, 2011

Delays in Property Transfers

Not too long ago the manager of Jamaica National Building called upon the government of Jamaica to reform the land transfer system. Judging from the comments left by The Gleaner readers, the view is that such reform is long overdue. There were many complaints of land transfers or land sales taking abnormally long periods - in one case 7 years.

Let me be quite clear. If the following conditions exist there is no reason for a property transfer to take more than  90-120 days.

  • The land is registered
  • The owner/vendor is alive
  • There are no competing equitable interests as would be revealed by caveats
  • The property being purchased is the whole of the land comprised in the title
  • There is compliance with the restrictive covenants
  • The purchaser has the full purchase price and costs or has secured funding for same
Usually delays arise where one or more of the following occur: the land is unregistered, the owner is deceased, there are person(s) other than the registered owner who have an interest/claim against the property, the property being sold is a part of the property in the title or otherwise conflicts with the deposited plan, there are breaches of restrictive covenants or the purchaser cannot secure funding to close in time. 

It is critical therefore that the parties secure good legal representation to make the necessary inquiries to ensure that the ideal conditions exist for the transfer to proceed smoothly or to effectively address the conditions that can cause delays. If the property owner is dead for example, his estate will have to be administered and that process could very well cause a sale to be delayed for up to one year or more. Similarly if the property is not registered an application for registration of land can cause long delays.

In the event that certain conditions exist that will impede the sale process it is important that the parties are informed so that expectations for completion are not unreasonable.