Property Scam

Did the Property Developer Scam Us?

Our story began what seems a long time ago in 2016. To realise you may be the victim of a property scam is bewildering. Was I really so gullible?

So much water and bad blood has flowed under the bridge since the beginning that I wonder what more can go wrong? In fact, the water did not flow under the bridge – it flowed right into our basement cellar and also into our garage! See our post from winter 2021 Winter Blues.

Property Scam – What Does It Mean

What exactly does it mean to be the victim of a property scam?

• Is it being scammed out of your money by email interception?
• Is it being scammed into buying or renting a property that does not actually exist?
• Does it involve identity theft or a fake agent?

Afrihost describes some methods fraudsters use and what you can do to protect yourself and to be aware of these pranks.

Scamming Methods

Phishing is the fraudulent practice of sending emails supposing to be from reputable companies …

Spoofing is the forgery of email headers to mislead the recipients …

Read the details in this article by Afrihost.

• Get more details on identity theft, intercepted emails, duplicated listings and developers who expect payment for work not done in this article by Engel & Volkers. Craig Hutchison, CEO of Engel & Volkers Southern Africa stresses that you should check the accreditation of your estate agent and check their Fidelity Fund certification. Never rely solely on email communication.
• BusinessTech has a very informative article on how the scams are carried out. It is so serious that, according to Eduan Milner of Eduan Milner Attorneys, Notaries and Conveyancers, the Attorneys Indemnity Insurance Fund no longer covers attorneys who are victims of cybercrime. It is of the utmost importance to be on your guard in all real estate transactions says Grahame Diedericks, manager principal in Midrand for Lew Geffen Sotheby’s International Realty.

Scamsters use many methods to take what isn’t theirs and they are clever. These scams are real and they are happening now.

As the problem increases, there are more and more blogs and articles on property scams in South Africa. See below for some useful contact numbers and websites.

Our “Property Scam”

Our scam involves none of the above. So, is it, or was it, a scam? I believe it is a scam as fraud, perjury, misrepresentation, legal negligence and misappropriation of trust funds are all involved.

1. Subdivision of the Mother Erf

We bought a plot on a new eco estate but at the time the mother erf had not been subdivided. Without subdivision the plot was not transferrable. Simply put, it did not exist as an independent entity.

Neither the developer nor the conveyancing attorney notified us of a possible delay in transfer of ownership. They continued as if transfer was imminent. Understandably they feigned imminence as they wanted building to start. They needed the estate to take off. But how could subdivision have been imminent with a known dispute between the developer and the municipality?

At the time, who could have imagined that subdivision (and transfer) would take a further 22 months.

Subdivision Disputes

The subdivision scenario is not unusual – developers of new estates fail to inform prospective buyers of the subdivision process and how long it may take.

• If your plot cannot be, and has not been, transferred and registered in your name, the developer will be able to change your building plans without your knowledge and without your consent.

See the comment to our post Building Agreement. Here someone else was scammed out of his deposit when he expected building to start imminently.

2. Property Scam – Withholding Information

Are estate agents complicit in a property scam when they, along with the developer and attorney, fail to inform the buyer that transfer of ownership will be delayed?

• Estate agents are paid commission on transfer
• They certainly know when their commission is isn’t paid.

3. The Scam of No Transfer

I questioned not seeing the registration of transfer document. The conveyancer then told us to pay the first 10% of the build costs. I was sure that transfer depended on full payment of the plot. We had paid for the plot but now we were asked to pay 10% of the build cost prior to transfer. This was a new condition. Nevertheless we paid the 10%.

Transfer was not mentioned again as the builder started building.

At regular intervals the attorney demanded money for each stage of the build and we paid. After all, the builder was building … something.

• As the conveyancer, she knew that transfer had not taken place
• She also knew that building should only have started after transfer
• She made payments to the builder out of our funds in her trust account prior to transfer
• Was she complicit in this scam?

Keep yourselves safe –

• Don’t build prior to registration of transfer. Remember, if the builder is the owner, everything is in their name.
• Don’t build without municipal approved plans that have your signature.
• Make sure your name is on the building plan application that is submitted to the municipality.
• Also, it is probably much safer to have a bank mortgage – banks will not make payments without the necessary registrations, approvals and sign-offs.

4. Promises

Promises Made

Prior to signing the Sales and Building Agreements, the developer told us, in writing, that:

1. The Architect and Engineer will sign off each stage of the build to “ensure quality of construction and all elements are according to the approved plans”. This was very important to us as we do not live nearby and we needed assurance that somebody was checking the build for us.
2. Drawdowns will only be made on the Architect and Engineer signing off each stage.
3. The homebuild will be enrolled with the NHBRC as required by law for all new home builds.
4. We, the purchasers, will sign off the plans for submission to the municipality for approval.
5. The build will take “4 to 5 months max“.
6. The plot will be registered and transferred to us prior to building.

Promises Broken

1. It was never part of the Architect’s brief to sign off the building progress.
2. The conveyancing lawyer has failed to give us any proof of sign-offs by the competent persons prior to drawdowns.
3. The developer failed to enrol the home build with the NHBRC.
4. We signed no plans.
5. Here we are 4 years later and we still cannot occupy our house.
6. Transfer of the plot was 2 years after we signed the agreements.

Property Scam or not?

Do all the broken promises constitute a property scam?

5. Building Plans

The Scam of The Plan

There were no approved building plans when the builder started building our house. As far as we knew the the developer submitted the building plans in November 2016.

• The developer emailed us a copy of the plans for our records.
• We believed that the municipality approved the plans.
• We heard nothing more about plans until more than 2 years later.

In February 2019 we discovered that the developer submitted an “As-Built” or Rider plan to council during 2018. As we were not the registered owners until June 2018, the builder / developer submitted all the paperwork in their name for a show house on the mother erf. They changed the room descriptions upstairs.

They were building their own show house using our funds!

Below are the first plans for the type D house.

• There is a bedroom on the first floor
• We have a bedroom on the first floor
• We paid for a bedroom on the first floor.

Unfortunately the builder failed to build a bedroom that

• conforms to SANS 10400 for a habitable space
• follows the approved building plans
• the result is that the municipality will not issue an occupation certificate.

6. Scam or Misleading Marketing

As can be seen above, the marketing material clearly shows the 3 bedroom house has one bedroom upstairs on the first floor. However, the developer stated under oath that she never called the upstairs bedroom a bedroom. But this is part of her media marketing pack! Surely the upstairs room with a bed and pedestals is a bedroom?

Does this misleading marketing form part of a property scam?

We paid for a 3 bedroom house, not a 2 bedroom house with a store room.

7. No NHBRC enrolment

Is it a scam if the builder fails to enrol the home build with the NHBRC? Especially as the enrolment fee was included in the price?

• All home builds are required, by law, to be enrolled with the NHBRC
• We were told the build would be enrolled
• The developer is registered with the NHBRC and should abide by the NHBRC code of conduct

8. No Approved Building Plans

Is it a scam if the builder fails to build to the approved plans?

• Without transfer of ownership we were not the registered owners and we did not know the municipality had refused to approve the plans
• The NHBRC code of conduct prevents builders from building without approved plans
• The building agreement prevents the builder from starting to build without all the necessary approvals
• But this builder just went ahead

9. No Occupation Certificate

Is it a scam, or is it just shameful, that the builder cannot get an occupation certificate? After numerous attempts and inspections he simply cannot obtain an occupation certificate. Recently the builder asked the NHBRC to relieve him of his responsibility to obtain the occupation certificate.

Why will the builder not fix the house and give us what we paid for?

Useful Numbers

For the Legal Practitioners Insurance Indemnity Fund LPIIF website and telephone (012) 622 3900. This fund is to protect the attorney if funds are stolen from them.

Another name used is the Attorneys Fidelity Fund website Fidelity Fund and (012) 424 5351.

The fund is “to reimburse clients of Legal Practitioners who may suffer pecuniary loss due to the theft of money or property entrusted to an attorney in the course of his/her practice…”

Check that the attorney’s Fidelity Fund Certificate is current and valid.

To check if an estate agent has a valid licence and a valid Fidelity Fund Certificate, contact the Estate Agency Affairs Board and the contact number 087 285 3222. Their offices were open sporadically during COVID lockdowns. The latest times will be on the website.

You can also get a  Lightstone Report that gives you the details of the current registered owner. The contact number is (012) 643 1405.

Conclusion

The engineer, architect, conveyancing lawyer, builder and developer knew we paid for a 3-bedroom house. With all those professionals involved, were we the fools? I don’t think so.

The builder failed to build what he was contracted to build. As a result, they are doing all they can to avoid accountability.

They created this property scam and they deliberately hide behind vexatious litigation to avoid arbitration. Only in arbitration will they be held fully accountable.

Shame on them.