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Sep 27, 2014

How to burn big bucks without even trying: pay for land before settlement!

Each year we come across people who have been severely burnt by paying for land in advance of settlement.

Buying land is different to buying anything else whereby you just hand over money and walk away with your purchase. If you do that with land you are likely to do your dough and not get the land.
Even if the seller hands over the title in exchange for your money, who knows what other claims are against the land. 
The simple fact is you don't own the land until it has been registered in your name by the land title registry, which in WA is called Landgate, formerly DOLA. Asserting your rights to land you paid for prior to transfer, without court action costing thousands and thousands, is nigh on impossible. 
For Landgate to put your name on the title, they must first check that no one else has any legal claim to the land via a mortgage or other legal device like a Caveat or Property (Seizure and Sale) Order. If there are, those matters generally need to be dealt with first, which means until they are, the property can't be transferred into your name.
In these cases by the time you find out, your money is usually long gone, either because the seller is too, or the money has simply been spent.
If you've just paid someone for some land but someone else has an interest in it (like a mortgage over it) the mortgagee is not going to allow it to transfer without them getting what they're owed. Or worse, they might agree to the land being transferred, in which case you become liable for what they're owed. The basis of property law can be neatly summed up as "whoever owns the property owns the problem.
We often tell clients that Certificates of Title to land ought to be treated as if they were a great wads of cash to the same value. In other words, if you paid $300,000 for the land you should treat the title as if it were a large suitcase containing 30 bricks of $100 bills, which you presumably wouldn't just leave lying about for anyone to steal.
However in these cases the reverse analogy is apt: suitcases of cash ($100,000+ in some cases) were effectively treated like worthless bits of paper! This is what happens if you don't follow basic steps to protect yourself.
The process of purchasing property is complex for that very reason, that buyers need to protect themselves against the situations described above.
So what should you do?
  1. Seek advice from a duly qualified professional - a lawyer, settlement agent or real estate agent. The few hundred dollars you spend might be the cheapest you ever spend. Certainly the people in the above examples now all agree.
  2. Obtain a title search and plan of the property, in order to: ensure the seller does in fact own the property; ascertain the limitations, interests, encumbrances and notifications relating to it; and ensure it is the same property you think you are buying.
  3. Enter into a contract of sale that correctly describes the property being purchased and the terms and conditions under which it is being purchased. The standard REIWA pattern Contract of Sale of Land or Strata Title by Offer and Acceptance is appropriate in almost all cases. Ensure there is sufficient time for the appropriate property enquiries to be made and responded to. 21 days is a minimum if due diligence hasn't been satisfied prior to the contract being entered into.
  4. Employ the services of a lawyer or settlement agent to protect your interests as purchaser and to ensure that good title in the land is conveyed to you from the seller.
  5. Do not hand over any money to the seller until satisfied that all terms and conditions have been satisfied AT SETTLEMENT, where all documents are checked BEFORE any money is handed over. 
This is a very brief summary of a far more exhaustive list, the key point is DO NOT JUST PAY FOR LAND HOPING SHE'LL ALL BE RIGHT JACK! If it's not, you've just done your dough, with no-one to blame but your very stupid self.
DISCLAIMER: The above advice is intended to provide a summary and is not intended to be relied on in any particular case. It should NOT be construed as legal advice. For detailed advice specific to your circumstances you should seek specific advice from an appropriately qualified professional.

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