Because of the sheer volume of lightly regulated transactions — measured in the thousands yearly even in a depressed real estate market like the one in Ukraine — it’s hard to know whether illegal scams are common or rare.
Dmitriy Sykaluk, a lawyer with DLF firm, said that while no official statistics exist on how many people have been
victims of fraud, he is confident that the number is large and growing.
And they can be particularly costly when it comes to real estate, with transactions in the tens if not hundreds of thousands of dollars.
According Sykaluk, scams and hoaxes go hand-in-hand with the economic and political turmoil in Ukraine since the EuroMaidan Revolution that drove President Viktor Yanukovych from power on Feb. 22, 2014.
He says that with the economy still sluggish and consumer confidence low, more people are looking to invest in property rather than keeping their money in cash or in bank accounts. At the same time, fraudsters are also looking to cash in.
“Ukrainian law makes it easy to buy and sell property,” said Sykalauk. “The government is trying to simplify the process. But such simplifications also bring new possibilities for fraud schemes. Every seventh deal is troubled.”
Another problem, he said, is “legal illiteracy” of buyers and their unwillingness to pay for expert help. He said the relatively simple step of having a purchase agreement reviewed by a qualified professional would substantially reduce the risk of becoming a victim.
Top schemes
In his years working in real estate, Sykaluk has seen both buyers and sellers fall victim to all manner of schemes.
With new construction, a common trap is the “double sale,” when the same apartment is sold multiple times to different people.
The fraud reveals itself, says Sykaluk, when the buyers attempt to register their ownership with authorities, only to find there are several people with the same claim on the property. Subsequently tracking down the company behind the construction to seek a refund or compensation is a long and often costly process.
The growing use of electronic registers, meanwhile, has helped eliminate scams which flourished in the past. But some still persist, including sellers using forged documents to stake claims to property.
Buyers who make purchases without the help of a lawyer, said Sykaluk, are especially vulnerable.
But even if the signing of contracts goes smoothly, problems can still arise.
A classic scheme is for one half of a couple to sell an apartment and accept payment from a buyer, only for their spouse to then claim they did not consent to the sale.
Such ploys are known as “refusal of transaction.” For a buyer who has fallen to the scheme, getting their money back is far from easy.
“Even though most of the schemes are easy to recognize, they often require a long process of litigation to put right,” said Skyaluk. “But if a scheme has been well-planned and executed, its victims might end up with nothing.”
Bankruptcy of construction companies is also a potential hazard, although this can be counted as negligence and poor management rather than fraud.
“Builders go bust for different reasons,” said Sykaluk. “If you see that a builder has financial trouble, you should find a lawyer and try to get your money back, at least partially. “Though in most cases money is not returned.”
Due diligence
One of the best ways to avoid any troubles associated with buying or selling a property is to have a knowledgeable specialist.
Auditors and lawyers are exactly those who are needed, said Lina Nemchenko, a lawyer with Baker McKenzie. She said different types of due diligence can “reveal legal problem zones and find a way to get rid of them before a contract is signed.”
Lawyers conduct due diligence to independently examine a property or a business. Due diligence is needed for both sellers and buyers.
Part of the evaluation includes checking the property’s court history, possible debts associated with it or rights that belong to third parties. Lawyers also research prospective buyers to check their reputation and financial ability to make the purchase.
“Due diligence is about understanding the risks, problems, and acquisition of comfort towards a potential purchase,” Nemchenko told the Kyiv Post.
Due diligence looks into technical aspects as well, making sure buyers will be able to build on a land plot they buy or refurbish premises on the land.
“There might be underground wires or power lines that will prevent you from building anything,” she said. “There was a situation when a person bought a plot which was included into a city plan for a new circular road.” And examination by lawyers and auditors might have revealed that fact, she’s sure.
Lawyers also look closely at the contract as well.
More about business
Eduard Brazos, head of committee of information systems and analytics at the Ukrainian Association of Realtors, thinks due diligence is especially needed involving business projects.
“You have to dig deep, especially about everything that concerns the tax history of a company to be sure your money is invested safely,” he told the Kyiv Post.
Brazas said he’s never really encountered any fraudulent schemes on the Ukrainian real estate market, nor have his clients.
“Businesses might have problems with unpaid taxes, but I’ve never heard any horror stories when a buyer saved $500 on lawyers and someone stripped him of his property,” Brazas said. “Usually when one hammers out a deal that costs several hundreds of thousands of dollars, one does not try to save some $500.”
