Thursday, July 31, 2008

Real Estate in Jamaica - The Witness to Signatures

One of the annoying little issues that parties in the real estate transaction should be aware of is that of proper attestation of documents abroad. I have had to return documents to clients, sometimes repeatedly (hence the annoyance), because they do not comply with the law in terms of attestation, or having their signatures properly witnessed. Signatories must realize that failing to comply with the legal requirement will result in a rejection of the document at the National Land Agency and hence delay in completion of the process, not to mention the cost of returning the document for proper execution.

Section 152 of the Registration of Titles Act governs this issue. For the purpose of this post I will set out the proper persons who can witness documents signed abroad:

Great Britain or Northern Island:
1. The Mayor or Deputy Mayor
2. Chief Magistrate or Deputy Magistrate Chief Magistrate
3. Notary Public
Any other Commonwealth country:
1. The Governor
2. Commander-in-chief
3. Judge of any court
4. Mayor or Chief Magistrate
5. Notary Public
A foreign country or state
1. The Jamaican or British Consular Officer
2. Notary Public.
The latter often creates a problem, as there is a proviso under the Act that there must be annexed to instruments witnessed by a Notary Public in a Foreign State or Country a certificate from the appropriate officer within that country or state that the Notary Public is duly commissioned and practicing in such State or Country and that full faith or credit can be given to his acts. What this means is that if you sign an instrument in Florida and your signature is witnessed by a notary public you must take another step of obtaining an original certificate (see sample below) from the authority that appointed the notary public, that simply verifies that at the time he witnessed your signature he was a duly commissioned notary public in that state.

For some reason clients fail to obtain this certificate, often referred to as an apostille, they tell you that the notary public says his stamp showing the date of his commission is fine, or that he does not know where to get the certificate or that he provided a copy of this certificate of appointment as a notary. These excuses will not be entertained by the National Land Agency and your document will be rejected.
If however you have a problem getting the certificate (Floridians have to send to Tallahassee) then try to find the nearest Jamaican or British consulate and request that the consular officer act as witness.

Monday, July 21, 2008

Selling Real Estate in Jamaica - Transfer Tax

Today I received a telephone call from an officer at the Stamp Office reagrding a contract for sale of property (land only) in Red Hills. The officer wanted to visit the property for the purpose of determining whether the sale price on the contract was reflective of the market value. This is a common practice in Jamaica where the Stamp Commissioner is entitled to look behind the sale price or consideration stated on the contract.

Indeed under the Transfer Tax Act the transfer of land shall be deemed to be for a value equal to the market value whether the property is transferred pursuant to a sale of even as a gift, and the tax is calculated as a percentage of the market value (formerly 7.5%, currently 6%). Some persons seek to understate the sale price and collect the additional amount outside of the contract, in the hope that they will be charged less tax but apart from the obvious risks associated with having to collect money NOT shown on the contract, the Commissioner might not accept the face value and assess tax on a higher amount. This is an issue that must be discussed thoroughly with the attorneys involved.

The Transfer Tax Act clearly states that the transfer tax "shall be borne by the transferor" or the vendor. It is important therefore, that a Purchaser - who is sometimes urged to pay this tax by a Vendor wishing to net more sale proceeds - understands who bears the obligation at law.

While the Vendor does not usually take money out of his pocket to pay the tax, his payment is usually effected as a deduction from the moneys paid by the purchaser towards the sale price. Indeed a 15% deposit is often required from the Purchaser because that amount is enough to cover the stamp duty and transfer tax which are payable early in the transaction.

This is not to say that a Purchaser must close his eyes to whether a Vendor honors his obligation. To further clarify the issue, section 18 of the Act provides that it is the purchaser (being the party spending the cash) who shall pay this tax but as it is really a cost to the vendor it can be deducted from sale proceeds or the Purchaser can even recover it by way of a lawsuit against the Vendor. The latter is important as the deposit out of which the tax is often paid is usually remitted to the Vendor's attorney and if he does not ensure that the tax is paid then a purchaser might have to make his own payment and rely on his right to recover from the Vendor in court.

Saturday, July 12, 2008

Buying Real Estate in Jamaica - Mortgage Costs

Since the issue of mortgage costs was raised in my last post I have decided to address it in more detail.

Many prospective purchasers are unaware that it costs to borrow money. Apart from the duties and other fees payable on the transfer of property, there are duties, fees and other costs payable on the mortgage side of a real estate transaction.

These include:

  1. Commitment Fee – payable to the mortgage institution starting at 1%. Some institutions like Victoria Mutual Building Society and Jamaica National Building Society have employed the marketing strategy of waiving these fees.
  2. Attorney’s Fee – payable to the attorney who prepares and advises the borrower on the terms of the mortgage instrument; this can start at 1% of the loan amount and do not forget to add General Consumption Tax (GCT) which is currently 16.5%.
  3. Stamp Duty – payable on the mortgage instrument itself, it amounts to 0 .625% of the loan amount.
  4. Registration Fee – payable to the National Land Agency to register the mortgage on the title; it amounts to 0.5% of the loan amount.

In addition to the above, since the mortgage institutions will require that you have the property surveyed and valued you will incur costs charged by the valuator and the surveyor. In some cases the mortgage institution will incorporate the fees/charges in the loan but this is only possible if the borrower qualifies for that increased amount. If not a purchaser will have to budget for these sums, in addition to the deposit and closing costs on a transfer, when considering purchasing a home.

Tuesday, July 1, 2008

Real Estate in Jamaica - Title Insurance Part 2

A forum was held recently by the Realtors Association of Jamaica addressing the Impact of Title Insurance on Real Estate practices and Land Management during which several stakeholders in the real estate industry including the Minister of Water and Housing met to inform and hear about recent developments.

The CEO of Caribbean Title Limited highlighted some areas where the real estate industry failed in its potential to maximize its contribution to Jamaica's economic growth. They are among others:
  1. Slow Processes - this can be seen in the lengthy delays in completing a real estate transactions especially in the areas of stamping documents, processing mortgage loans and registering mortgages and transfers
  2. Informalities - especially in the area of unregistered land where properties are sold by way of cash payment and the issuance of receipt with no transfer of title
  3. High Costs - the transfer tax and stamp duties at 6% and 4.5% on transfers of land for value are still considered high despite the fact that these are reduced amounts. We were informed that Jamaica ranks 157/178 in terms of high real estate transaction costs according to a World Bank Study.
Mr. Chris Hind of NEM Insurance presented on the nitty gritty of title insurance. Title insurance which is simply insurance against loss in the event that there are defects in titles or challenges to the ownership of title is supposed to provide the following additional benefits :
  1. Shorten processing time for sale transactions - if you have protection against the above identified loss then mortgage institutions should be able to disburse mortgage proceeds quick
  2. Guarantee a common law title - in the case of unregistered land you will recall in an earlier post where I spoke about the accessibility of mortgage financing to the common law title holder with title insurance.
  3. Reduce Costs - this is supposed to lower the costs of mortgage application by imposing one fee instead of several components.
In relation to costs those seeking to promote title insurance will need to do some serious marketing as there are some serious doubters out there. Here are the figures.

Now while I can understand the developers or owners of expensive properties being able to afford title insurance as a buffer against high interest rates accruing during the period that their title takes to be perfected, I do not believe the typical owner of unregistered land in rural Jamaica will find a $50,000 processing fee plus a one time premium attractive. This is not an easy sell.

To soften the blow, the NEM rep assumes that the applicant will be seeking mortgage financing and advises that this $50,000.00 processing fee will become the entire charge for processing the mortgage loan (which of course includes title insurance) and that this is substantially lower than the usual costs associated with mortgage financing. It is interesting to note that to date only one mortgage institution - Jamaican National Building Society - has taken the step in the march toward title insurance, and so this "benefit" would only be accorded to those who borrow from JNBS. Of note too is that the fee for the owner's and lender's policy is the same taken singly and simultaneously. I suspect it is the buyer who pays for the lender's coverage.

I noted that few attorneys attended the forum. They would do well to bear in mind that the proposed lowering of the mortgage costs which is touted as an advantage when purchasing title insurance has been made possible through the removal of the attorney's fees usually involved in preparing the mortgages. On the other hand perhaps it is this very fact which influenced their lack of support of a movement which has been in force in several countries for some time and which has been creeping into others. Is it a just a matter of time before other financial institutions sign on? More importantly will the acquisition of this type of insurance become mandatory in the future?