How to tell if a land deal is real

Wednesday October 26 2016

It is estimated that 20 per cent of all land transactions in the country end acrimoniously for the buyers. The Nairobi-based firm carries out due diligence and processes title deeds for land buyers. GRAPHIC | NATION

It is estimated that 20 per cent of all land transactions in the country end acrimoniously for the buyers. The Nairobi-based firm carries out due diligence and processes title deeds for land buyers. GRAPHIC | NATION 

By LUKORITO W JONES
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Like most Kenyans, Gladys Macharia, a secondary school teacher in Kiambu County, wanted to own a home where she could enjoy her retirement.  And she believed buying a parcel of land was a good place to start. However, after paying Sh280,000 for a  piece of land in Ruai four years ago, she has nothing to show for it.

“There was a firm that was advertising one-eighth acre plots in the newspapers and on radio stations. I knew that land transactions, especially in Nairobi, often go awry, but since this company was advertising in the mainstream media, I felt it was legitimate, so I did not bother to find out much about it,” she says.

Ms Macharia took her life savings and paid for the piece of land, which was to be subdivided among 44  buyers. The firm’s directors promised to process the individual title deeds once everybody had paid for their plot.

However, months after she had paid for the plot, the company’s directors went quiet and all attempts to contact them were fruitless. Upon visiting their offices in the Nairobi central business district, Ms Macharia discovered that the firm had closed shop without informing its customers.  Only then did it dawn on her that she and the 43 other buyers had been conned.

“We tried coming together to seek legal redress but abandoned that option after some members of the group received death threats. Personally, I gave up  pursuing the matter because the Sh280,000 I had paid was not worth risking my life for,” Ms Macharia rues.

But even after being ripped, Ms Macharia did not give up on her dream of owning a piece of land. Three years later, she was ready to get another parcel of land, albeit with extra precautions this time around. Once bitten, twice shy, they say.

“I had vowed never to buy land from a land selling company, no matter how credible it might purport to be. I decided I would buy only from an individual whose land has been in the family for generations,” she says.

She did chance upon a piece of land in Kanunga in Kiambu County that was going for Sh1.1 million. Ms Macharia says she had a gut feeling that the land was legitimate since the  owner’s homestead was right next to it. She took a Sh300,000 bank loan and paid a deposit.

THIRD PARTY OBSERVERS

However, when she went back to clear the balance, the man told  her that he was no longer selling the piece of land since his wife was completely opposed to the sale. When Ms Macharia demanded her deposit back, the man told her that he had already spent the money and could not give it to her immediately. After an anguishing year, Ms Macharia has only  recovered a third of her money.

“I have given up on buying land completely,” she sighs exasperatedly.

Ms Macharia’s predicament, though disheartening, is not unique. Mr Erick Kamiri, the Director of  First Title Deed Company, estimates that 20 per cent of all land transactions in the country end acrimoniously for the buyers. The Nairobi-based firm carries out due diligence and processes title deeds for land buyers.

“We started this company 10 years ago after realising that many real estate sellers were taking their buyers for a ride when it came to processing title deeds. The sellers would ask for exorbitant title processing fees, which were a complete rip-off,” says Mr Kamiri.

He gives an example of sellers who would tell buyers that a piece of land cost, say Sh300,000. After receiving the amount, they would ask buyers for an additional Sh80,000 to “facilitate” the processing of title deeds.

“Most land buyers are not aware that they have the option of engaging their own lawyers with regard to processing  title deeds,” says Mr Brian Ondimu, a realtor and property valuer with Advent Valuers.

“People are also unaware of the existence of title processing companies that can help fast-track the process and ensure that the title deeds buyers get are genuine.

Since the average land buyer lacks the capacity to carry out due diligence on their own in terms of money and resources, they should consider engaging professional companies for the task,” says Mr Ondimu.

He adds that it is a good idea to engage a third party that can monitor the transactions, even when you are sure that you are buying from a genuine owner.

Meanwhile, Mr Kamiri says that the process of acquiring  a title deed that is clean starts way before one pays a deposit for it. “We help our clients avoid endless court cases and agony by acting as their consultants throughout the land-buying process,” he says

WARNING SIGNS

The tricks land fraudsters use

With 10 years’ experience in real estate, Mr Kamiri has become conversant with the tricks conmen use to sell non-existent plots. He says it is important to know how to spot some of these red flags during the land-buying process so that you can bail out of process before it’s too late. 

1. The deposit trap:

Fraudsters, Mr Kamiri says, are usually after your first deposit since they are not patient enough to wait for the entire amount. They will scout for a piece of land that has been idle for a while and advertise it at a ridiculously discounted price. If they advertise the land for, say, Sh10 million, they will insist that you pay a Sh500,000 deposit to prove that you are a serious buyer. However, once you deposit the money into their account, the disappear into thin air.

One way of avoiding this, he says, is by using the escrow system. This is where, instead of the seller transferring money directly to the buyer, he or she hands the money  to a third party, usually a lawyer. The full amount is given to the seller only after the title deed has been processed and bears the buyer’s name,” Mr Kamiri says.

He cites a  case in which a buyer had paid the deposit for a piece of land on which, after his company carried out the due diligence, found that it actually belonged to an elderly woman who did not have the capacity to develop it.

The buyer was refunded his entire deposit since it was held in escrow while the seller was forced to pay a 10 per cent penalty to the buyer for breach of contract. 

2. Initiating fake land search results:

Prudent land buyers usually conduct a search at the Ministry of Land to ascertain that the land they are buying actually belongs to the seller. However, Mr Kamiri notes that the land ministry is known to have people who are extremely corrupt.

“Some people purporting to sell land that’s not theirs bribe such officials, such that when one does a search for the plot in question, falsified ownership records show up. To avoid this, we go a step further and visit the site. While there, we talk to the neighbours and investigate whether the land actually belongs to the seller,” Mr Kamiri says. 

3. Missing files:

Even with the much touted digitisation of records at the land registry, Mr Kamiri points out that records still go missing.

He adds that land sellers usually plot (pardon the pun) to deliberately derail the title processing process when officers at the county and national lands offices claim that the documents a buyer submitted cannot be traced. To curb this, he says, it is important to ask all receivers of any related file, including government officials, to sign a document acknowledging receipt. This makes it impossible for them to claim that they cannot find the documents. 

4. Spousal collusion:

Valuer Brian Ondimu  points out  that the law requires that when selling family property, both spouses should consent  to the sale. 

However, Mr Kamiri says he has observed a worrying trend where a man pretends to an unsuspecting buyer that he wants to sell a piece of land. After doing due diligence, the buyer finds that the seller actually owns the plot, just as happened to Ms Gladys Macharia.

However, after the buyer has paid a deposit, or even the full amount, the seller backtracks on the sale agreement, saying his wife is opposed to the sale and that he has already used the money. This often leads to lengthy court cases. And even when the seller agrees to pay back the buyer, they usually do so in insignificant instalments.

To avoid such a scenario, Mr Kamiri advises, visit the seller’s home and ensure that both spouses sign a document indicating that they agree to the sale. 

5 Delays in subdivision:

Some land-selling companies advertise huge parcels of land for sale, which they promise to subdivide and process titles for once a buyer has finished paying for their parcel. However, even after the buyer does this,  the company deliberately delays the subdivision, claiming (and rightly so) that they cannot begin the subdivision until every buyer has finished paying for their plot. This  can take years, Mr Kamiri observes

To prevent this, buyers should ensure that the land they are buying has been subdivided.

“Do not rely only on the beacons on site because some sellers put beacons to deceive buyers that the land has been subdivided. Instead, get a survey map of the area clearly indicating the subdivisions,” Mr Kamiri suggests.

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STAY AHEAD

Your seven-step due diligence guide

Advent Valuers’ Mr Brian Ondimu, breaks down the due diligence process into seven steps:

1. Conduct a title search

Ask the owner to give you a copy of the land’s title deed and use it to conduct a search at the Ministry of Land offices to determine who the real owner is. The search document will indicate  in the encumbrance section whether other institutions such as banks also have a claim to the land.  This helps you avoid buying land which the owner has used to acquire a loan, for instance.

When conducting the search, take note of the land’s leasehold status. Most land in Kenya is owned under a 99-year leasehold, and Mr Ondimu advises that you avoid land whose lease expires in, say five years. 

2. Check land rates payment

Another due diligence process that people might overlook is finding out how much money the county government claims on a piece of land. Some land owners, Mr Ondimu notes, do not paying yearly land rates, thus accruing hefty penalties.

An unsuspecting buyer might buy a piece of land for, say, Sh5 million, only to realise that the county government has a claim of Sh3 million on it in the form of rates.

“Always ensure that you visit county government offices to confirm that the land owner has actually cleared all the rates,” Mr Ondimu advises. 

3. Get a survey map:

According to the valuer, confirming that a specific piece of land actually exists on the area’s survey map is even more important than conducting a title search. This is because while fraudsters easily forge title search results, survey maps are hard to tamper with. 

4. Visit the property:

Seeing is believing, the saying goes. After getting the survey map, go with it to the property site and use it to trace the specific piece of land. You can get a professional surveyor to help you. 

5. Visit the District Land Control Board:

For a land transaction to be completed, it must get a nod from the district land control board. The boards usually sit once a month, and both the seller and the buyer should appear before the board to indicate that they are trading the property in good faith. 

6. Sign a sale agreement:

Never pay any money based on a verbal promise. Involve either a lawyer or a due diligence company and draft a sale agreement that spells out the terms of the transaction. 

7. Trust your gut feeling:

It might not have a scientific basis, but Mr Ondimu says that when it comes to buying land, he has learnt that one’s gut feeling is almost always right.