Fraud in the property market – Everything you should know
The property market remains an attractive investment option for many, and while interest rates remain relatively low, more first-time buyers are finally stepping onto the property ladder.
With substantial sums of money on the line, the property market is both an attractive investment option and a target for fraudsters and scam artists.
Knowing how criminals operate and the anatomy of common scams is the first line of defense in not falling prey to a con.
CYBER FRAUD IN THE PROPERTY MARKET
THE SCAM: The most common type of criminal activity in the property sector occurs by way of electronic email interception or cyber fraud where emails exchanged between buyers, real estate agents and conveyancing attorneys are intercepted. When electronic communication is intercepted in this way, email addresses of buyers corresponding with conveyancing attorneys in the transfer process are hacked, resulting in bank details being amended, and buyers making payments into fraudulent bank accounts.
HOW IT WORKS: Typically, a buyer’s email would be hacked and the email from the conveyancing attorney would be redrafted and delivered to the buyer from a fraudulent email address which appears, at least on the face of it, to be a legitimate email from the attorney.
Fortunately, conveyancing attorneys and financial institutions are well aware of such threats and have various security protocols in place to prevent email interception and cyber-attacks.
That said, criminal schemes are becoming more and more sophisticated and technical, so security measures need to be updated and advanced regularly.
HOW TO AVOID IT: It is always advisable that clients double check bank details by making a call to the attorney’s firm prior to making payments for various costs and deposits.
For more on cyber fraud and business email compromise click here…
THE SCAM: Property syndicates are another common scam where individuals operating in the property sector represent themselves as property practitioners and persuade unsuspecting home buyers into concluding property transactions.
HOW IT WORKS: This type of fraud typically occurs where property listings are duplicated on the internet and homes are sold unlawfully. In this instance, fraudsters posing as property practitioners work in conjunction with tainted attorneys and other professionals in the transfer process, to mislead a buyer into believing they are entering into a legitimate property transaction, when in fact the actual property owner is dealing with another practitioner or is not selling at all.
Under these circumstances, the owner of the property may be forced to bring an interdict against the individuals involved to stop the sale of his property. This of course, usually takes place where there is a clean sale and there is no existing bond over the property.
Thankfully the deeds registry system in South Africa is well managed and it is unlikely that the deeds office would transfer a property twice. However, it is not impossible that this can occur and by the time it gets to the deeds office deposits and would have already been paid which would result in the fraudsters being enriched at the innocent buyers’ expense.
HOW TO AVOID IT: Buyers and sellers should always work with trusted and reputable property practitioners to avoid being implicated in a potential scam. If in doubt, insist on the property practitioner’s fidelity fund certificate to determine if practitioners are registered with the Estate Agency Affairs Board (EAAB).
In the same way individuals can own property in South Africa, so can juristic entities such as companies and trusts own property.
THE SCAM: Company secretarial information such as directors and shareholders are recorded at the Companies and Intellectual Property Commission (CIPC) and details of directors can be obtained and used unlawfully by criminals in property transactions.
HOW IT WORKS: The modus operandi involves the details of directors being changed unlawfully and assets of the company or trust being sold unlawfully. Fake company records are presented to attorneys and property practitioners on entering into contracts for the sale of property.
Again, the unsuspecting buyer is led to believe that they are entering into a legitimate property transaction when in fact the true directors of the company have no intention of selling the asset.
HOW TO AVOID IT: With the introduction of FICA laws, conveyancers and property practitioners are obliged to carry out investigations to check company records and ensure that the persons representing the company in property transactions are legitimate.
RENTAL PROPERTIES AND UNLAWFUL OCCUPATION
THE SCAM: Rental properties are a frequent target for fraudsters. There are cases where entire apartment blocks have been compromised by syndicates who unlawfully occupy a vacant property and offer it for rent to unlawful tenants.
Usually this occurs where sectional title complexes are badly managed and eventually become overrun by crime and unlawful occupiers.
HOW IT WORKS: Typically, legitimate tenants would vacate the property at the end of their existing lease making the property vulnerable to intrusion by the syndicate who would forge a lease agreement and pose as property letting agents to facilitate a lease agreement.
A tenant is led to believe that they have a lawful lease agreement in place when in fact the real owner of the property is not involved in the transaction at all.
This leaves the owner in a position where his property is occupied by unlawful tenants and he is forced to start costly eviction proceedings.
HOW TO AVOID IT: Criminal activity in this sector can be overcome by investigating the property practitioner and working with a reputable letting agency.
Individuals who buy with the intention of renting out their property should always investigate the body corporate’s financial statements and annual reports to determine if things are being properly managed.
HOW TO AVOID IT: While FICA laws and the Property Practitioners Act have been introduced to help eliminate these scams; buyers, sellers, as well as legitimate Property Practitioners are advised to always err on the side of caution when dealing with exchange of funds and contracting with unknown persons in property transactions.
For more information about the blog article, please contact: Neil MC Kinon – Attorney and Conveyancer – Hammond Pole Attorneys (NeilM@hammondpole.co.za)