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Property Fraud: Buyers, Bondholders Beware

ReadDoc_NoBoarder“Our system of deeds registration is negative: it does not guarantee the title that appears in the deeds register” (extract from first judgment below)

Although in practice title deeds as registered in the Deeds Office are accepted as proof positive of property ownership, two important SCA (Supreme Court of Appeal) decisions illustrate a little-known but potentially serious danger here.

Case 1: Forgery most foul

The facts of the first case were these – 

  • A property owner died a week after (apparently) signing an agreement selling her property to a company controlled by her two sons
  • A bank thereafter registered a bond over the property to secure a R6m loan to the company
  • The company was liquidated
  • It came to light that one of the sons had forged the mother’s signature on the sale agreement, and had also forged his brother’s signature on a “consent to sale”
  • The executors of the mother’s deceased estate, wanting naturally to set aside the transfer and get the property back into the estate, approached the High Court for assistance.  The Court ordered the Registrar of Deeds to transfer the property back to the deceased estate, and to cancel the bond.

Confirming this order on appeal, the SCA commented that “….. where registration of a transfer of immovable property is effected pursuant to fraud or a forged document ownership of the property does not pass to the person in whose name the property is registered after the purported transfer”.   Where there is no “genuine intention to transfer ownership” on the part of the seller, ownership does not pass and registration in the Deeds Office has no effect.

Case 2: Fraud even fouler

The second SCA case involved a homeowner whose inability to pay her bond instalments led to the bank attaching her house.  Desperate to raise a loan, she approached a property investment company whose agent fraudulently tricked her into signing sale and leaseback agreements – she thought she was signing paperwork to raise a loan.

Confirming that where a sale agreement “….. is tainted by fraud, ownership will not pass despite registration of transfer”, the SCA upheld a High Court order for reregistration of the house into her name.

The bottom line – investigate!

The danger of fraudulent transfers taking place seems to be particularly high at the moment, with media reports of high level investigations into alleged fraud, corruption and maladministration in our Deeds Office system.

Both buyers and bondholders are at risk here, and need to investigate thoroughly at the slightest hint of anything amiss in a property transaction – taking Deeds Office records at face value isn’t always as safe as it seems!

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