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- Against the "Valley effect": what changes are being prepared for real estate transactions
Against the "Valley effect": what changes are being prepared for real estate transactions
Fraud in the real estate market remains one of the main problems for buyers of second homes. The high-profile decision of the Supreme Court in the case of Larisa Dolina exposed the vulnerabilities of existing protection mechanisms and intensified the discussion about the need for legislative changes. The information about what measures the authorities propose to reduce risks and how effective they can be is in the Izvestia article.
"Cooling-off period": freezing money on a transaction for 7 days
At the end of November, representatives of the Supreme Court of Russia (SC RF), the Ministry of Justice, Rosreestr, the Ministry of Internal Affairs, Rosfinmonitoring, deputies and other experts recommended that the State Duma consider the issue of a "cooling-off period" following the results of the round table "Combating fraud in the real estate market: new challenges and legislative solutions".
The Fair Russia deputies also reported that they had prepared draft amendments on the introduction of this measure to protect bona fide buyers. The legislators propose to amend the law "On State registration of Real Estate." The "cooling-off period" involves the temporary freezing of the buyer's funds for seven days when concluding a real estate transaction.
However, experts interviewed by Izvestia believe that the mechanism of freezing funds is unlikely to help the seller understand that he is being deceived by fraudsters.
— As a result of psychological techniques, attackers gain mental control over the victim and can direct his actions for a long time. Cases of such scams show that criminals lose interest in the victim and stop their pressure on him only after stealing all the money," Nikolai Zyryanov, a member of the legal committee of the Russian Guild of Realtors, explains in a conversation with Izvestia.
In addition, even when real law enforcement officials intervene, the deceived sellers continue to insist that they are not under the influence of anyone, said Alexander Vodolazov, head of the Ministry of Real Estate agency.
Zyryanov believes that the "cooling-off period" can give a positive result if communication with criminals is somehow limited during this time, and qualified psychologists work with the seller to identify the fact of psychological pressure and dispel it.
— The only question is who will do it and how to organize it, since the cooling period is not very long and a prompt response is needed. Formal interviews and phone calls are powerless against qualified criminal psychological pressure," Zyryanov believes.
Natalia Scriabina, a lawyer at Leges Bureau and a member of the Russian Bar Association, says that when a "cooling-off period" is introduced, attackers may be forced to pay in cash.
Compulsory insurance of housing transactions: will the protection of bona fide buyers increase
The participants of the round table also suggested that the State Duma work out the issue of introducing amendments to the legislation providing for mandatory insurance of real estate transactions in the secondary market.
Svetlana Razvorotneva, deputy chairman of the State Duma Committee on Construction and Housing and Communal Services, told Izvestia that lawmakers are considering insurance through insurance companies and the creation of an insurance fund similar to the deposit insurance fund.
— Insurance of a transaction in the secondary housing market is a title insurance that protects the buyer from the risk of loss of ownership if the transaction is declared invalid. The policyholder will receive compensation upon the occurrence of an insured event, which is specified in the policy. Depending on the terms of the contract, the amount of the insurance payment will be equivalent to either the amount that was spent on the purchase or the market value of the property," Scriabina explains to Izvestia.
Denis Odintsovo, a real estate and mortgage broker, notes that insurance has existed in Russia since the 2000s, and anyone can use it when making a deal. The expert believes that a forced approach will increase the cost of transactions, as well as create a loss of vigilance among buyers.
Lawyer Scriabin says that title insurance is not a cheap pleasure. The mandatory introduction of the procedure may create new schemes for fraudsters, for example, to forge insurance contracts.
Realtor Ekaterina Kremneva notes that in 13 years of work, clients have applied to title insurance only a few times. According to her, such a measure is advisable in cases where the object is in doubt, for example, if there is a risk of bankruptcy of the owner or an ambiguous history of acquiring real estate.
— If a legal check has been carried out, the object belongs to the low—risk category, then insurance is an excessive service. If an object is at risk, for example, it was recently inherited and not from the next of kin, then not every insurance company will agree to insure such an object. Or she can charge such a price for the insurance policy that it will simply make the deal impossible for economic reasons," says Vodolazov.
Zyryanov argues that insurance should improve the situation, but it cannot fundamentally affect the criminal situation. In addition, you need to understand that any insurance is valid for a certain period of time, usually one year. This means that the buyer must pay an annual insurance premium to extend the protection.
— The press discussed cases of invalidation of transactions that were made in 2019, which suggests that it makes sense for the buyer to pay for insurance not only for the first three years after purchase, but also for a longer period of time in order to exclude a situation where the insurance was not extended, but the transaction was declared invalid and the buyer did not I received an insurance refund," says Zyryanov.
Title insurance: how it works and when it is needed when buying a secondary
At the round table, State Duma deputies recommended considering the possibility of making changes providing for mandatory notarization of real estate transactions, as well as simultaneously increasing the minimum amount of insurance when certifying them.
— Financial support of transactions in the secondary market is necessary for the notary to be responsible for the results of transactions, — Razvorotneva explained to Izvestia.
According to Zyryanov, mandatory notarization is a way to additionally assess the seller's behavior in a transaction. As an additional measure to prevent the contesting of transactions, it seems reasonable to the specialist. However, mandatory notarization will affect the situation only in combination with other legislative measures.
— An increase in the amount of insurance is a measure aimed at ensuring the formation of a property fund for the payment of compensation and is of an auxiliary nature, but increases the costs of the parties to conclude the contract. The mechanism should be applied taking into account the real solvency of the population," Zyryanov notes.
The certification of a transaction by a notary does not have an absolute nature of protection, each transaction is unique, says Scriabina.
According to current regulations, a notary certifies the identity of the parties to the transaction, verifies their legal capacity and the fact of a conscious expression of will when signing documents, reminds Divers. At the same time, such procedures by themselves do not protect a bona fide acquirer, if there is no direct rule in the legislation on the indisputability of a transaction made with the participation of a notary, on the grounds of the buyer's good faith and the seller's understanding of the legal consequences.
The introduction of a rule that automatically recognizes the buyer as being in good faith when notarizing the transaction would, in his words, be a "super useful legislative reform."
Self-ban on apartment sale and compensation from the state: What other measures are the deputies discussing?
Experts also suggest considering a number of additional measures aimed at protecting bona fide purchasers.
Among the proposed measures are a self—ban on the sale of real estate, a ban on the return of apartments without first refunding the funds paid, and compensation for the cost of housing at the expense of the state for bona fide buyers.
The mandatory deposit of an amount equal to the price of the purchase agreement to the court is also being discussed when filing a claim for invalidation of the transaction and the introduction of a rule prohibiting challenging the transaction if a bona fide buyer participated in it.
How will the decision of the Supreme Court of the Russian Federation in the Dolina case affect the market?
The Supreme Court overturned the lower court's decisions in the case of Larisa Dolina's apartment and confirmed the ownership of the home to the buyer Polina Lurie. The court pointed out that Lurie's rights had been violated, and there were no grounds for invalidating the transaction. In particular, the seller's delusion in itself is not an absolute ground for challenging the transaction.
In addition, the lower courts did not take into account the principle of bilateral restitution, which presupposes the return by the parties of everything received under the transaction in case of its invalidity. The Supreme Court also intends to prepare a review of judicial practice in cases related to real estate transactions.
Sergei Gavrilov, Chairman of the State Duma Committee on Property, Land and Property Relations, believes that the decision of the RF Supreme Court sets an important precedent. According to the deputy, the courts will take into account the position of the Russian Armed Forces.
Dmitry Kashchaev, a real estate lawyer and member of the Russian Bar Association, believes that the Supreme Court's decision has become an important signal for the entire real estate market. According to him, for a long time, the courts, guided by sympathy for the victims of fraud, actually undermined the institution of a bona fide acquirer, which is why any protective measures lost their effectiveness or were devalued in judicial practice.
— The court correctly stated that if a person is active throughout his life and enters into complex contracts, he cannot suddenly turn into an "unconscious subject" just because of a telephone deception. One of the striking details confirming the seller's awareness of the actions in such disputes is his involvement in the nuances of the transaction, for example, bidding on the price, discussing the timing of departure or the requirement to exclude specific interior items from the inventory," says Kashchaev.
According to Scriabina, the resonance around the Dolina case may simplify the resolution of similar disputes in favor of the victims, but each case requires an individual set of evidence and its own defense strategy. At the same time, the lawyer believes, the number of fraudulent schemes in the real estate market is unlikely to decrease, as attackers are constantly finding ways to circumvent the new rules.
— The conclusion of the court will not stop the criminals, since each case of the sale of real estate brings them several million rubles. The decision of the Supreme Court cannot radically affect the situation, only in conjunction with the changes in legislation being discussed," Zyryanov believes.
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