Trust funds: for some a licence to steal?

Trust funds: for some a licence to steal?

MAIN IMAGE: Former estate agent Mariette Lourens was recently sent to jail after she was found guilty on various charges, including fraud with trust accounts.

The protection of the consumer is one of the principal reasons why the Estate Agency Affairs Act makes keeping a trust account mandatory for all estate agencies, but, in practice, it is no guarantee against fraudulent behaviour by an unscrupulous agent.

The jail sentence of a former estate agent from Gansbaai in the Western Cape recently is a case in point. Two counts of fraud were among the charges brought in against the 58-year-old Mariette Lourens in the Bellville Commercial Crimes Court.

She defrauded a number of clients by R1 million by not paying over trust funds received and/or held on their behalf and failed to open a separate trust account for the deposit trust funds received on behalf of third parties.

Lourens was also found guilty of forgery and of contravention of the Estate Agency Act and was given a suspended sentence of five years in prison. The state asked for a ten-year sentence, but the court considered her age, ill health and that she was a first offender.

Read more here

This is not the first time that fraud had been committed with trust accounts. In 2011 Wendy Machanik Property was closed and 320 people lost their jobs after Machanik was found guilty of theft of misappropriating millions of rands from her company’s trust account to keep her estate agency afloat. Machanik claimed that it had been a victimless crime and no-one of their customers had lost any money. She was fined R1.5 million.

In 2016 the EAAB obtained an interim court order to appoint a curator to take control of the trust accounts of a Cape Town agency after an alleged R6 million ‘disappeared’ from their trust account.

Read more here

A trust account in the wrong hands can become a licence to steal

“Trust accounts by definition are bank accounts specially designated to hold funds that belong to others. Real estate agents and attorneys are required to maintain separate trust accounts for client money and for escrowed funds.” (Source: Trust Accounts – Protection, Safekeeping and Certainty, privateproperty.co.za)

The EAAB enforces the mandatory requirement for all estate agents to keep trust accounts – the primary objective is to protect the customer against fraudulent behaviour by the agent, whether unintentional or otherwise, with the customer’s money. However, the above cases show that requiring an agent to keep a trust account clearly can’t guarantee that no misappropriation of funds will take place.

“This particular case illustrates very well that having a trust account could be said to basically give an estate agent a licence to steal,” says Jan le Roux, chief executive of Rebosa. He explains that a customer will be more inclined to trust an estate agent with his/her money if such agent says the money will be kept in a trust account. If an agent doesn’t have a trust account, a customer may be more wary of entrusting the latter with such funds.

“Having a trust account doesn’t make you more honest, not at all. It doesn’t serve a purpose towards protecting the public and here is proof of this, this agent had trust accounts and she didn’t pay her customers’ money into the accounts,” says Le Roux with reference to Lourens.

Not that he is against trust accounts – he fully subscribes to the requirement being enforced in all cases where an estate agent receives money from a customer for safekeeping. “It is good business and it prevents the negative consequences that would follow should the client and agent’s money be kept in one account,” says Le Roux.

However, his concern is with the 70%-80% of agents who never receives trust money yet must maintain a dormant trust account. In their case it is an unnecessary expense.

The Property Practitioners Bill is very clear about the fact that whenever a property practitioner accepts any money on behalf of a customer, i.e. the money that is not intended for use by that property practitioner, then the money is considered to be trust funds irrespective of the type of account that the money is paid into and that money may not be used except for the purpose it was intended.

At least the new Bill makes allowance for estate agents to apply to the Minister of Human Settlements to be exempted from keeping trust accounts. The Bill also makes allowance for property practitioners with turnover below R2.5 million that their accounting records be reviewed by a registered accountant instead of an auditor.

However, with the Bill’s wide definition of a property practitioner, which include among others bond brokers, valuators and property managers, there will in the near future with the expected passing of the Bill be even more professionals with dormant trust accounts.

Related article: Trust accounts: unnecessary expense or necessity?

Leave a Comment

Start typing and press Enter to search

X