When buying a property, some might say that the buyer has the right to conduct minimal examinations to understand the state of rights in the property, but we say that he has a duty (!!!) to carry out such examinations through a professional to ensure, among other things, whether the seller\u2019s rights are subject to the rights of another: a person, a company or a charge, to establish maximum level of care so that the acquisition will be in good faith and he will be entitled to market ouvert<\/i>\u00a0rule in real estate.<\/p>\n
These examinations are conducted so that in the event a holder of rights in the acquired real estate appears, the buyer of said right can prove that he acted in maximum good faith in inspecting the asset and that there is no other or contradictory holder of rights in the property. Why is this important?<\/p>\n
By proving that he acted in good faith, the buyer will be subject to market ouvert<\/i>\u00a0rule in real estate \u2013 section 9 to the Land Law. However, negligence on the part of the buyer when inspecting the state of the property negates his acting in good faith, and therefore the market rule will not stand in his favor.<\/p>\n
Section 9 of the Land Law deals with contradicting transactions, (market ouvert<\/i>\u00a0rule in real estate) and states as follows: \u201cWhere a person undertakes to effect a real estate transaction and before the transaction ended with registration he undertook again towards another person in a conflicting transaction, the right of the party in the first transaction shall prevail, but if the second party acted in good faith<\/b> and for consideration and the title was registered in his name while being in good faith \u2013 his right shall prevail<\/span><\/b> (emphasis added \u2013 T.R )\u201d.<\/p>\n In this respect and regarding good faith, a case was recently decided in favor of an unregistered holder of rights in real estate property. In a judgment rendered on December 2012 by Judge Rahamim Cohen from the Tel Aviv Magistrates Court discussing a similar issue in motion 32315-01-12 Mazal Ezra v. Bank Mizrachi Tefahot Ltd.<\/b>, where an elderly solitary woman gave her apartment in which she resided as a gift to her niece, stipulating the gift with her residing in the property for the rest of her days. The recipient of the gift mortgaged the property to the bank and did not meet her obligations; as a result the bank attempted to obtain the rights to the property.<\/p>\n In said case, the court concluded that a bank extending a mortgage loan is subject to increased fiduciary duties towards its customers and the public at large, and concluded that the bank was negligent in investigating the rights when extending the mortgage, and therefore is not subject to market ouvert<\/i>\u00a0rule in real estate. Since the bank did not conduct itself according to its own procedures when investigating the rights, as one could see that the rights were given as a gift, a fact that should have raised a \u201cred flag\u201d and the bank should have found out what are the rights of the party giving the gift in the property \u2013 and through an assessor\u2019s inspection and visit to the place could easily have discovered that the party giving the gift continues to reside in the property. In respect of the bank’s contention that the party giving the gift is supposedly a lessee today and its contention to good faith in that the bank asked to see the gift agreement according to which the party giving the gift pays \u201crent\u201d for the property, the court determined that the bank could have easily refuted this claim by checking the bank accounts of the party applying for the mortgage, which were kept at the same bank and even the same branch, where it could see that no rent fees have ever been deposited as allegedly required by the rental agreement.<\/p>\n Thus, despite the fact that in the Tabo extract, the property was free of any charges and clear of warning notes, and despite the fact that the party giving the gift did not register a warning note in favor of its rights in the property, the court concluded that the bank, as having increased fiduciary duties, could and should have discovered that an elderly woman, who was the title holder of the property and who gave it as a gift, is residing in the property, and that she has been living there all her life, and therefore the bank\u2019s rights in the property retreat in light of its negligence \u2013 its lack of good faith, and therefore it will not enjoy the market ouvert<\/i>\u00a0rule in real estate, and its rights in the property shall be subject to the rights of the party giving the gift (but not the rights of the recipient of the mortgage loan).<\/p>\n We believe that the importance of the above ruling is in that when investigating the state of rights in a property, especially when dealing with property given as a gift, attention must be paid to anything that might constitute a \u201cred flag\u201d, regarding unregistered rights. Naturally, warning notes or liens arising from the registry in respect of the property, kept at the Land Registration Office (Tabo) and the Israel Lands Administration, as applicable, must be examined; however, that is not enough (!!!)<\/p>\n As a result of the above, in addition to the \u201cregular\u201d examinations, i.e. an examination of the Tabo or Israel Lands Administration registry, as applicable, an examination of the Registrar of Mortgages, the building portfolio and more, it is appropriate and necessary to find out the sequence of circumstances in which title and possession of the property passed to the seller of the rights in the property, and arrange an actual visit to view the property and the title holders (who live or have possession in practice) in the property. Conforming to the above minimizes the risk that in the event of a \u201clegal accident\u201d or conflicting transactions, it will be determined that the buyer was not acting in good faith pursuant to market ouvert<\/i>\u00a0rule.<\/p>\n However, of course, this ruling, despite its importance, must not be viewed as binding and automatically projecting on every similar situation. We strongly recommend always consulting with an attorney specializing in the field before effecting any real estate transaction, especially in cases where a third party raises certain contentions in retrospect, claiming conflicting transactions etc., so that he examine the facts and circumstances, and instruct on the right and smart course that will bring the desired results. Only such responsible behavior will lead to the purchase of assets and their registration in the registries of rights, in the most professional, efficient and safe manner possible.<\/p>\n