Business

Purchasers beware

BY VENICE WILLIAMS-GORDON

Sunday, August 26, 2018

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The attempt to acquire a property requires purchasers to exercise prudence, and invest time and effort. Under normal circumstances in Jamaica, the average timeline for the completion of a property sale ranges between 45 to 120 days.

Such transactions require financial accountability on the part of the purchaser, who may attempt to lower associated costs by foregoing the services of an attorney. This can result in the purchaser undertaking one of the following approaches:

1. Relying on realtors to handle the sale;

2. Relying on friends with legal training to vet the documents and ensure that they contain no unfavourable provisions; or

3. Deciding to self-represent in the transaction.

OBTAINING THE SERVICES OF AN ATTORNEY-AT-LAW

While there are no legislation or conveyancing rules in place, it is highly recommended that purchasers retain the services of an attorney-at-law. Potential buyers should be mindful that there are different challenges in purchasing a property and choosing the right attorney will help to make the process easier.

Although recent reports circulated in the media about unethical behaviour by attorneys might cause scepticism, steps have been taken by the General Legal Council to remove unethical attorneys from the bar.

There is a high percentage of practising attorneys to choose from who are exemplary, upstanding, and highly ethical.

PRE-QUALIFICATION PROCESS

Pre-qualification is a process that determines affordability. Therefore, as soon as a decision is made to purchase a property, the purchaser — if he or she is a contributor and has not yet received a benefit — should visit the National Housing Trust.

Purchasers who are not contributors, who have forgone their benefits, or who have already received a benefit should visit a reputable financial institution to be pre-qualified.

Buyers are advised never to make an offer on a property without being aware of what they can afford.

FINANCING

Once a pre-qualification letter is secured, purchasers should ensure that they make provisions for any shortfall. A shortfall is the difference between the deposit, the mortgage sum, and the purchaser's expenses; and if no mortgage is involved the deposit and total expenses should be taken into consideration.

Expenses such as stamp duty, registration fees and attorney's fees, among other related charges, are usually added to the purchase price. Purchasers must ensure that the shortfall is available when called upon to fund the closing of the sale.

Failure to fulfil this obligation can result in the purchaser paying interest charges to the vendor and, ultimately, in the cancellation of the transaction, even where a bank has issued a letter undertaking to pay the amount that the purchaser is qualified to receive as a mortgage.

CHOOSING THE RIGHT PROPERTY

When seeking a property, purchasers can either choose independently or contact a licensed real estate agent from a reputable institution to assist in the process. Purchasers should ensure that they arrange appointments to visit suitable properties with the agent: drive-by viewings are not recommended.

If a purchaser is not able to attend, then he or she must arrange for a representative to view the property. It is recommended that purchasers undertake due diligence to determine whether an agent has proper authority to list and sell the property.

Pertinent questions can include but are not limited to:

1. Is there a title?

2. Do you have a signed contract from the seller permitting the sale of the property?

3. Do you have the identification of the seller(s) on file?

FORECLOSURES

Foreclosures occur when a bank subsumes the rights to a property because the registered owner has failed to pay his/her mortgage. When this happens, the property is usually advertised for sale in the form of a public auction, inviting buyers to make offers to purchase by way of sealed bids.

Often, potential buyers will not see the inside of a property, as it is still occupied by its current owner(s) and there is a possibility that the environment might be hostile. As a result, the lending institution will sell the property through advertising alone.

However, for properties that are not being sold by way of foreclosure, purchasers must ensure that arrangements are made with agents to view the inside of the house. This procedure also adheres in the case of vacant lots, whereby the purchaser must visit the lot with the agent.

The real estate agent should ensure that he or she arranges a viewing at a time suitable to the owner(s)/tenant(s). At times, tenants/occupiers may be hostile, so buyers will need to use discretion or speak with an attorney about the situation before offering to purchase.

NEGOTIATION

Once a purchaser has decided on a property, the next step is to seek the services of an attorney. This is important because purchasing a property is a complicated process and the attorney will need to investigate whether there are any breaches, caveats, unpaid water bills, unpaid property taxes, possibilities of improper ownership, issues with estates, failures in the registration of land, disputes, incorrect titles, misrepresentations of the right to sell, mortgages, undertakings or tenancy issues, among other factors.

Therefore, buyers are advised in the strongest possible terms to seek legal advice from an attorney who can properly represent them.

DOCUMENTATION

When an offer has been accepted, the purchaser should ensure that his or her attorney provides a provisional statement of account. This statement will inform the purchaser of all expenses and will outline the shortfall, if any. The attorney will ensure that the sales contract is negotiated in the buyer's favour.

Once the terms have been deemed acceptable, the purchaser is then required to make a deposit (usually 10 per cent of the purchase price) before signing the final sale agreement.

Where a purchaser is represented, the deposit should never be paid to the seller or the real estate agent.

When purchasing a property the following details are important:

1. A taxpayer registration number is mandatory, even if the buyer resides overseas and is not a Jamaican.

2. Inconsistent names can be a challenge when documents are to be augmented by stamp duty and transfer tax, and will not be accepted. Therefore, purchasers must ensure that their names are consistent on their TRN card/letters, deed poll documents, birth certificates and marriage certificates, where applicable.

3. Purchasers should have a surveyor's identification and valuation report conducted. It is recommended that purchasers refrain from relying on reports furnished by sellers. Although purchasers are often advised that this practice is cost-effective, because of the obvious propensity for bias it is not in the interest of the purchaser. Buying a breached property without knowing can cost thousands of dollars when the breach is discovered, often years later. Cash purchasers often forego obtaining a surveyor's report and valuation, but it is not prudent to do so. Professional surveyors are trained to ensure buyer awareness of property condition, extent and value. Buyers must be informed as to whether the property in which they are investing is worth the asking price and whether or not it is subject to a breach, among other things.

4. Many strata today are not being managed effectively because owners fail to pay maintenance, which can affect purchasers.

5. Purchasing property with tenants and/or squatters can pose challenges, and buyers should ask an attorney about the implications of doing so.

6. Purchasing property that falls to an estate can significantly affect the timeline of a purchase. Purchasers must advise their attorney if this is the case.

7. Purchasing a property with caveats can prevent an attempted purchase from becoming a reality; buyers are strongly advised to consult an attorney before doing so.

Venice Williams-Gordon is an attorney-at-law at Lewis, Smith, Williams & Co.

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