Buying a house is the most significant purchase most people will make. There are many risks associated with buying property. One of those risks is the myriad of scams the real estate market faces. It’s critical to approach homebuying carefully to reduce the chances of falling victim to a scam.
The problems experienced by the Morecrofts can teach us much about the potential pitfalls homebuyers can face, including how a court ruling can affect property transactions. . This article will explore what they went through and how you can ensure it doesn’t happen to you.
Key takeaways
- The Morecrofts purchased a home at auction in Queensland.
- They couldn’t transfer the property’s title into their name as the original owner, Hind Issa, retained ownership.
- A relative of Ms. Issa unlawfully mortgaged the house as collateral for a loan.
- The Morecrofts underwent a drawn-out legal battle to resolve the issue.
- Due diligence in verifying the seller and assessing the legalities of the sale is vital.
- Title insurance can finance legal costs and provide compensation to the purchaser.
- Professional legal representation can help homebuyers avoid real estate scams.
Facts of the Case
Jess and Jackie Morecroft are a Queensland couple who purchased a home at a mortgagee auction for $1.2 million. At least, that’s what they thought. According to Federal Court rules, the home they thought they bought still belonged to the previous owner, 83-year-old Hind Issa.
How did this happen?
The original owner, Hind Issa, alleged that a relative illegally mortgaged the house as security for a loan. The relative then defaulted on the loan. Ms. Issa couldn’t afford a court injunction to prevent the sale. Instead, she placed a caveat over the property to prevent its sale.
Ms. Issa agreed to remove the caveat after being paid $40,000 by the mortgagees who sold the property. The Morecrofts found they couldn’t transfer the property’s title into their name after settlement as the Registrar of Titles had placed a second caveat on the house.
What is a caveat?
A caveat is a legal notice to the public that someone claims a particular interest or right in a property. When a caveat is lodged or placed on a property’s title, it warns others that the person who lodged the caveat (the “caveator”) has an interest in the property. This could affect the ability to sell or deal with the property freely until the caveat is removed or lapses.
A person or entity that believes it has a legal interest in a property can lodge a caveat. This could include creditors, beneficiaries of a will, co-owners, or others who have a claim based on an agreement or court order.
Real estate fraud
The second caveat was placed after Ms Issa informed the Registrar of the real estate fraud. She complained to the police without mentioning the $40,000 settlement she’d made with the mortgagees.
Legal action was taken, and the proceedings went to the Queensland Supreme Court. At the trial division, it was found that the Morecrofts had no legal interest in the property. It was evident that the mortgagees knew of the fraud at the settlement date. At the trial, a handwriting expert determined that Ms. Issa’s signature had been forged on the loan documents.
The judgment found that the mortgagees who sold the property had no authority to sell the house. The Court decided that the mortgage using the property as security was considered fraudulent.
The judges found the Morecrofts were also victims of the fraud. However, no court orders have been made to compensate them. The Morecroft family has spoken of their desperation and fear that this situation will ruin their lives.
How to Avoid Real Estate Fraud?
Prospective homebuyers need to be able to identify potential real estate scams. Here are some ways to protect yourself.
Due diligence
Do your due diligence before purchasing a property. Here are some pointers to consider.
Title Search and Review
Conduct a comprehensive title search to verify the property’s ownership history and ensure the seller has the legal right to sell it. Check for any encumbrances, liens, caveats, or other claims against the property that could affect ownership.
Legal Ownership Verification
Confirm the property owner’s identity and ensure it matches the person or entity you’re dealing with. In cases of corporate ownership, verify the authority of the person acting on behalf of the corporation.
Caveat Examination
Understand any caveats lodged against the property. Investigate the nature of these claims and how they might affect the transfer of ownership. If there are caveats, seek legal advice to understand their implications.
Property History
Investigate the property’s history for any irregularities or patterns that might suggest fraudulent activity, such as frequent changes in ownership or unusual financial transactions.
Engage with Professionals
Hire a reputable real estate lawyer to review all documents and the transaction process. Their expertise can be crucial in identifying potential fraud.
Title insurance
Title insurance indemnifies potential homeowners and mortgage lenders against financial loss resulting from defects or claims against a property’s title. Unlike traditional insurance, which guards against future events, title insurance covers past occurrences that may affect the property’s title. Here’s how title insurance can help protect homebuyers from scams and title-related issues.
Coverage for Legal Defence
If a claim is made against the property’s title, title insurance will cover the legal costs of defending the homeowner’s title in court. This is crucial in cases where legal action is required to establish a property’s rightful ownership.
Compensation for Loss
A title defect may result in a financial loss for the homeowner. For example, a homeowner could lose their property due to a previously unknown lien or legal issue. Title insurance will compensate the homeowner up to the policy’s limit.
The Morecrofts could have benefited from title insurance. This coverage could have protected them from the financial loss they suffered due to the real estate fraud and helped with the costs of the subsequent legal battle.
The insurance company would have completed a title search, which could have uncovered the title issues and anticipated the dispute.
Legal assistance
Before purchasing a home, it is vital to engage a lawyer familiar with real estate regulations to act on your behalf. You may be concerned with the fees involved, but the risks you’ll avoid are always greater. Here’s how a lawyer expert in the property purchasing procedure could have assisted the Morecrofts.
Title and Legal Due Diligence
A lawyer could have thoroughly reviewed the property’s title and legal status. Before finalising the purchase, they would have identified potential issues, such as the existing caveat or claims against the property.
Expert Advice on Caveats
Understanding the implications of the caveat lodged by the previous owner would have been critical. A lawyer could have advised the Morecrofts on the risks associated with proceeding with the purchase and the steps needed to address the caveat.
Risk Mitigation
A lawyer could have advised the Morecrofts on risk mitigation strategies, such as obtaining title insurance or ensuring proper escrow arrangements. This would have protected against potential fraud or title issues.
Conclusion
The Morecrofts were the victims of a high-profile fraud. While this was an unusual case, homeowners must beware of scams. There are many ways to protect yourself as a purchaser. Due diligence is critical. Assessing the seller and the property can help avoid problems. Title insurance is an added layer of protection that can cover legal disputes and losses.
One of your most vital resources is an experienced lawyer. Contact us today for all of your property matters.
If you need help with family law matters, contact us for a free discovery call.
The above information is intended to be general advice only and is not a substitute for personalised advice. It does not consider your individual circumstances. It is not intended to be relied upon, and any loss or damage arising from any such reliance is disclaimed. Any financial or legal decisions should only occur after you have received tailored advice from a legal or financial professional.
