Now you own it, now you don't
Buying and selling real estate is fairly straightforward in Latvia, and conveyancing is usually trouble-free 's provided the parties use appropriately drafted escrow documents and closing procedures and do not get lulled into the false belief that just because they have made their way to a notary's office to sign requests to register the transaction, that it is completed.
But now and again, complaints are heard in the media about fraudulent transactions. What is behind all this, and how serious is it? According to one reputable real estate agent from a leading realty company, "power of attorney fraud is the number one problem in the real estate business."
What is a typical power of attorney real estate fraud scenario? Let's take the recent case of a pensioner in Jurmala, who owned some property. Eventually, she found out that it had been sold 's much to her surprise. Apparently, and unbeknownst to her, she had "issued" a power of attorney to a person who promptly sold the property to a third-party purchaser. The only problem was that she never signed any power of attorney at all. It was a fraud. While the matter is before the Latvian courts, it may still end in tears, as this pensioner, while ostensibly recovering title to her property, has been ordered to compensate the new owners the 84,000 lats they have invested into the construction of two homes on the site.
The legal theory is that third-party purchasers (without notice) acting in good faith cannot under the law be held responsible for the fraud. And as they have invested money into the property, they should be compensated when the chain of title is unraveled to restore the pensioner to her original position.
In another case, a power of attorney was fabricated, apostille and all, from an Australian transferring the Australian's property to a third party.
Aside from the perpetrators of the fraud themselves, who else, if anyone, is to blame? It is easy to blame notaries, but remember: they have a steady stream of people running through their offices and often do not have the resources to accurately determine whether the supposed grantee is a bona fide grantee or not. Typically, a fraudulent power of attorney is presented to the notary, stamps and all, authorizing the "agent" to sell on behalf of the vendor. Then the "agent" shows up with the (usually) unwitting purchasers and signs the request to transfer title before the notary. Unless the notary can determine that the authorizing power of attorney is a fake, there is no reason for her (it is usually a her in Latvia) to withhold notarizing the request to register a transfer of title.
What is to be done to protect yourself as a buyer?
As a buyer, (1) exercise extreme caution with vendors' supposed agents waving powers of attorney around. Although obviously in most cases they are not fraudulent, the fact is that they may be fraudulent, so you or your lawyer had better do some research with the real owners to satisfy yourself that they intend to enter into the transaction. (By the way, this is a good idea anyway given that some power of attorney grantees may be acting under a bona fide power of attorney but in breach of their authority because the power of attorney grantor may have not intended them to enter into the contemplated transaction).
(2) If you are engaging in the services of a real estate agent, it does not hurt to stick to the established firms. They may charge slightly more, but remember the adage: "penny wise, pound foolish." At least the larger reputable real estate agents have a reputation to uphold, and if you are willing to do the research, they usually have a track record for you to consider.
(3) Never stray from the practice of escrow closing. If you can, negotiate a holdback on the transfer of the purchase price pending the discovery of any skeletons in the closet.
If you follow the suggestions above, then as a buyer at least, you are likely to have a greater chance of success with your transaction.
Valters Kronbergs is managing partner of Kronbergs and Cukste, a Riga-based law office.
Kronbergs & Cukste is a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder Glikman & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
