With fraudulent claims running into the hundreds of millions against attorneys in South Africa over the last couple of years, and a notable percentage of those due to fraud by conveyancers, it’s worth a quick look at which attorneys you as an agency are dealing with and the regulations regarding these relationships.
The Annual Report for the Attorneys Fidelity Fund paints a sad picture. Figures for 2014 show R256,638,827 in claims against attorneys in South Africa, with 39% of the total number of claims notified being conveyancing claims, the value of which amounts to some R124m – 48% of the total value of notified claims. Comparative figures for total claims is R186,060,722 in 2013 and R298,044,329 in 2012. While these figures still reflect a small percentage of all conveyancing work, and in many cases it wasn’t the conveyancer but other staff who were responsible for the losses, it is still worth serious consideration.
WHAT CAN GO WRONG?
Quite a bit can go wrong. Once funds have been transferred to the attorney’s trust account by a buyer, a dishonest conveyancer can misappropriate the money before or after transfer. In cases where it happens before transfer the buyer ends up without money or a property. In those where it happens after transfer, the seller is the loser – no payment and no property – the latter having already been transferred to the buyer.
While there are attorneys who are crooked from the outset, there are also many instances where conveyancers don’t plan to steal funds. Instead they “borrow” money from their trust funds for other purposes, with the intention to pay it back. But sometimes this doesn’t happen, and a buyer or seller is left out of pocket. One warning sign that this could be happening is when the conveyancer starts making excuses about how long the transfer is taking.
Misappropriation of funds is not the only area that the Law Society of South Africa watches with eagle eyes. The relationship between attorney and agent is also subject to a number of very strict guidelines imposed by this society.
DANGLING A CARROT
The most important of these, and the biggest threat – according to some perspectives – is the purchasing of work by attorneys. While many a company woos clients with an ever-expanding selection of gifts and treats, these practices are frowned upon by the law society. While another business may pull out all the stops, conveyancers who offer agents or principals incentives and commission to pass on work, including cash payments, vouchers, all-paid holidays or paying their advertising fees or rent, face harsh discipline in court.
Comments Bruce Forrest of Meumann White Attorneys: “An attorney is a professional who, like a doctor, needs to adhere to a strict code of conduct. We are officers of the court; we need to be honest beyond doubt, and we need to ensure that the high moral standards and independence of the profession is upheld. Without this we would, or could, have a country or a society where no law was upheld, where values didn’t exist and where justice could never be sought or found. The difference between an attorney and a commercial operation such as a bank or a broker is that those are businesses. Ours is a profession.”
This explains why the relationship between attorneys and agents has to be regulated. Conveyancers should be able to offer unbiased opinions and service to the parties involved in the contract they are conveyancing. “If an attorney is beholden to the agent who passed on the work and is paying that person commission, then that attorney is not acting impartially when facilitating the transfer. It would be all too natural to get the transfer through regardless, and at some stage the interests of the seller or buyer could be severely compromised,” says Forrest.
WHEN IT WORKS
The flip side is that having a friendly conveyancer is a great advantage for a real estate agent. Sellers’ and buyers’ questions about the legal aspects of a sale can often be challenging, and instead of having to refer that person back to their attorney, an agent can swiftly call a conveyancer for an answer, thus expediting the sales process and improving their own professional offering.
Added to this is the risk to agents of having clients dealing with fraudulent conveyancers. No agents wants their client to be in this situation, not only because it reflects badly on the agency but because their commission too may be part of the funds that go astray.
Agents should choose attorneys who are reputable and well-known. They should never accept any form of incentive for work, and should maintain a clean and professional relationship with the attorneys. If in any doubt, check the attorney’s Fidelity Fund Certificate (these need to be renewed every year), or advise clients to perform background checks if they choose an unknown conveyancer. If it proves difficult to check the certification, contact the law society in the relevant province, which should have access to their certification.
THE ATTORNEYS FIDELITY FUND
• The Attorneys Fidelity Fund seeks to reimburse legitimate victims of theft of money from trust funds held by attorneys within the borders of South Africa in a fair, economical and expeditious manner, and to promote integrity, trust and high moral principles within the profession.
• The Fund is a fund of last resort, meaning that a client should have followed all other legal recovery processes prior to taking the matter to the Fund.
• The Fund should be notified within three months of a consumer becoming aware of misappropriated funds, whether or not at this stage the amounts can be quantified or the misappropriation proven.
• The Fund is dedicated to instituting proper criminal proceedings against attorneys who are guilty of theft. This is in addition to the guilty party being struck off the roll by the Law Society of South Africa.
• The average turnaround time for a claim is about 30 months. For many people that means their cash flow will be severely compromised during this time, and it may even jeopardise the ownership of the property.
Words: André Fiore
