This article first appeared in The Legal Times
A home is often a family’s most valuable asset deserving careful protection. Some of that protection is contained in acts of parliament and regulations issued over the decades, to ensure that when the transfer of ownership in property is at stake, sellers and purchasers have a shield against unscrupulous behaviour.
Not all residential property transactions are the same. Conveyancing attorneys, estate agents, banks, mortgage originators and bridging finance institutions interact to ensure that the flow of funds is dealt with efficiently. Cases where the seller of a property purchases a new property and the purchaser simultaneously sells a property can lead to a scenario where nine transactions are linked in the deeds registry and three families’ financial hopes are in the hands of conveyancers and estate agents.
The Attorneys Act and the Estate Agency Affairs Act contain very strict provisions to manage clients’ trust monies. Property transactions often involve several hundred of thousands or even millions of rands and financial control is paramount. In a residential property sale agreement, a purchaser may be required to pay a deposit. The agreement should provide that the deposit, or even full purchase price, be paid into trust with either the estate agent or the conveyancing attorney. The agreement must also state whether the deposit will be invested in a separate interest bearing account pending transfer.
Both the Attorneys Act and the Estate Agency Affairs Act dictate how the funds must be managed and accounted for. In brief, if funds are paid into trust with an attorney or estate agent, those funds will be held in its trust unless specific instructions (such as those contained in the sale agreement) require the attorney or estate agent to invest the funds in a separate account for the benefit of the purchaser. In the latter case, the attorney or estate agent must open a separate interest bearing account with a reputable institution so that the deposit will accrue interest for the client’s benefit.
Trust money must be kept complete separately from the attorney’s or agent’s own money.
In contrast, where the funds are held in the attorney’s or estate agent’s own trust account, all interest that accrues on the trust monies must be paid over to either the Attorneys Fidelity Fund or Estate Agents Fidelity Fund to ensure that where misappropriation of funds by the agent or attorney do occur, the victims may be compensated for their losses from these funds.
Estate agents and attorneys must ensure that all this money is immediately paid into the trust fund and that their trust accounts and investment accounts are properly managed by having mandatory annual audits conducted by independent auditors. Also, complete financial records must be available and open for inspection by the Estate Agency Affairs Board or relevant Law Society. The acts therefore place great emphasis on ensuring that estate agents and attorneys act with the utmost good faith in relation to those trust monies as the funds are always received on account of a person in trust.
Where attorneys or estate agents act improperly in relation to trust funds, the relevant professional body will act to prevent further misconduct and to protect the client’s interest. These steps may include revoking the fidelity fund certificate issued to that firm or its directors, interdicting (temporarily or permanently) the estate agent or attorney from practising, and placing the trust and investment accounts under curatorship.
In addition, the Financial Institutions (Protection of Funds) Act, emphasises that where anyone deals with trust monies, they must so with the “utmost good faith…proper care and diligence” and such person may not “…make use of the funds or…gain directly or indirectly any improper advantage…” whilst being the custodian of those funds. After all, trust always comes with highest level of responsibility.