FILTERS:

Owner of property?

11 May 2006

In South Africa, with only two exceptions, the owner of immovable property is the person in whose name it is registered at the Deeds Office, where records are available to all. The two exceptions are expropriation and marriage in community of property. In the latter case, on marriage a spouse automatically acquires an undivided half share in a property registered in the name of the other spouse.

Except in these circumstances, ownership of immovable property can be transferred only by registration.

So if one wants to know who the owner of a property is one simply looks at the Deeds Office records. This, anyway, is what most people think. Unfortunately, what the Deeds Office records show will not necessarily be correct. They will show in whose name the property is registered but, notwithstanding that ownership can be transferred only as we have already said, the person whose name appears as owner may not be the true owner.

Consider the following situation, which actually happened. The matter to which it relates has a long history but Law News will simplify the facts.

A man knows that a property belonging to a company has no mortgage registered over it. In fact he was the previous shareholder and director of the company, having sold the shares and resigned as a director many years ago. He knew the title deed was with the company's attorney.

Unbeknown to the company, he made an application for a copy of the title deed. For this he had to allege that he had authority to make the application, that the title deed had been lost or destroyed, that it wasnot being detained by anyone as security and that he had no idea where it was. All of this was false.

For a short period these applications had to be advertised in the Government Gazette and a local newspaper. This was, of course, to give notice to all interested persons but unfortunately they do not usually read the Gazette or the many pages of the newspapers containing often hundreds of miscellaneous formal advertisements. After all, most people do not have any reason to suspect that anyone may be trying to steal their property.

Nevertheless the possibility was that the advertisement would be read by or come to the attention of the relevant person/s.

In the present case the man, again falsely purporting to act for the company, signed an agreement of sale of the property with another fraudster and then he signed the transfer documents. The agreement is patently false but because the matter is the subject of litigation, Law News says no more about it.

Anyway, to get back to the procedure, after the copy is obtained the transfer goes ahead to a purchaser in terms of a written agreement. The purchaser may be in good faith or he may have acted in collusion with the seller. In the case we are dealing with, he acted in bad faith and in collusion with the seller.

Incidentally, in South Africa, selling property, movable or immovable, which one does not own is not illegal. All the seller has to do is deliver. Unless the contract so requires he is not required to transfer ownership. This is similar to what happens in a "short-sale" on the stock exchange.

We will not deal with all the mechanics of the transfer, but eventually it is registered and sometimes the property is mortgaged. The Deeds Office does not receive any documents which will alert it to the fraud nor does the Receiver of Revenue. The conveyancer who attends to the transfer may be able to detect the fraud, or if not, may incur liability under regulation 44A in terms of the Deeds Registries Act.

In South African law an owner of property (movable or immovable) cannot unlawfully be deprived of its ownership. He is entitled to follow up the property and to recover (vindicate) it from anyone who has it, whether or not that person is bona fide.

In that case ownership will not have passed to the transferee even though the transfer has been registered. This is because a person who acquires any kind of property cannot have any greater rights than those of his predecessor.

The result is that, in the case of land, a court will, on application of the dispossessed owner, order the current title deed to be cancelled and the true owner's title deed to be reinstated (section 6 of the Deeds Registries Act). This will restore the record of his ownership.

A natural consequence of that order would be cancellation also of any mortgage bonds registered over the property, and if there had been several transfers and mortgage bonds before the order is made probably all of them would be cancelled.

The consequences of this are awful. Each transferee would have a claim against the person who "transferred" the property to him. Lenders whose claims were "secured" by cancelled mortgage bonds would have merely unsecured claims against the borrowers who would then not have the asset.

Imagine the following position.

In the circumstances mentioned, above a vacant piece of land is transferred. The transferee or his successor erects sectional units on the land or subdivides it and in either case borrows, probably from a bank, to finance the construction. Perhaps even the initial unlawful acquisition was financed by a bank, completely ignorant of the dishonesty. That loan is secured by a mortgage bond registered in favour of the lender.

The buildings are constructed and separate units or stands are sold. Probably every sale is financed by a loan from a lender, again probably a banker.

Then the fraud is discovered.

On application by the original dispossessed owner, all the transfers and all the bonds will be cancelled and the title deed of the original dispossessed owner will be reinstated.

What a mess. A lot of people, probably all or nearly all honest ones will have no property and will have lost a lot of money and one or more lenders will be left with unsecured claims against the borrowers who no longer have the asset which constituted the security.

True, those who have lost a property will have a claim against the seller but that will probably be worthless.

One of the problems is that the records at the office of the Department of Trade and Industry relating to the names of directors of a company at any time are not always accurate. That is not often the fault of that office because at the moment the failure to submit a form CM29 recording appointment and resignation of directors does not affect the appointment or resignation.

During discussions the editor had with a banker, it was suggested that, if a property had in the circumstances mentioned above been developed, there would be a claim for unjust enrichment. That is a complex topic and will be dealt with in a later issue of Law News.


Reproduced from Routledge, Modise, Moss Morris' Law News and published with permission

Reader Comments: 2
Daryl Burman 11/05/2006:

Fraud is always fraud. Nothing is really fraud-proof. Our South African system is arguably among the best, if not the best, in the world. Life always goes on, despite instances of fraud. Let us not panic into the the way of obligatory title insurance as in other jurisdictions - this would put home ownership beyond the reach of most of us

Riana Bisschoff 12/05/2006:

We had a similar situation. My father was a trustee and benificiary of a trust. The trust was registered in the Masters Office of Pretoria in 1984. At the time the Deeds Office did not include the trust numbers in the title deeds. The trust was the owner of two properties (vacant land). One of the properties was sold to a buyer. The buyer's attorney registered a trust with the same name in the Masters Office in Bloemfontein. They applied for a copy of the title deed at the Pretoria Deeds office. The deeds office did not notice any fraud as the Trust had the same name as the one registered on the title deed.

They issued a copy (VA) with the new trust and its trust number thereon. Both properties has since been sold by the unlawful buyer although only one was lawfully purchased by him. We had no recourse as the original title deed was indeed lost and we did not have the financial means to pursue legal action when we realised what had happened. We discovered the fraud more than 3 years ago. Has our claim prescribed? We can prove that the new trust was formed after the first registration of the property into the name of the original owner (trust).

Answers please? Editor

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