Legal_Landscape

A commentary on law and current affairs

Preventing Land Fraud

Land fraud is a topic generating much discussion in the local scene. Owners, especially those who have been living abroad for long periods of time upon their return home, find to their utter dismay properties held by them for decades fraudulently sold to third parties!

One may ask, how can this be possible? It is possible through the involvement of unscrupulous people who have access to the owner’s land records, either at the Land Registry or at the local government office (i.e. Pradeshiya Sabha). Unless there is a secure registration and document preservation system in place, where only authorized persons have access to official records, land fraud is bound to take place.

It should also be the duty of all Notaries to check the back ground of a seller seeking full disclosure, before taking upon an assignment to execute and notarize a transaction.

Till measures to protect land title are put in place by the Authorities, owners need to take steps to safeguard their ownership of properties. Following are some steps that may help in this process –

1. If you are an owner living abroad and your house remains closed and land unattended, periodically have your lawyer check the registration status of your land at the relevant Land Registry. Has someone already fraudulently acquired the land? The registration details will reveal this. If so, immediately have it reported to the police and to the relevant Land Registrar.

2. A method that could alert you of any unauthorized transaction relating to your property is to register a Caveat on your land. A Caveat is a notice registered at the relevant Land Registry which has a record of your land. As long as the Caveat is in place, the Land Registrar is duty bound to inform the person who registers the Caveat when he receives any document for registration referring to the said land. This can be a sale, mortgage, lease, etc.

But unfortunately, a Caveat cannot prevent the registration of a document relating to your land if it appears to be genuine. In the event a fraudster impersonates your signature in a sales transaction and the Registrar accepts it for registration, since you failed to object as the actual owner in spite of the notice served on you or your registered representative based on the Caveat, then the only remedy left would be to file action to invalidate the fraudulent land transaction through the courts of law.

3. It is in the interest of owners to periodically check their unoccupied land and keep it in a properly maintained condition. Neglected land, especially of owners living abroad, tend to be the target of fraudsters.

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December 9, 2009 Posted by | land fraud | , , , | 1 Comment

Sub prime mortgage crisis and data governance

Sub prime mortgage crisis

The sub prime mortgage crisis in the USA resulted in the loss of billions of dollars for banks, caused hundreds and thousands of foreclosures, rendered millions homeless and in short, caused a severe economic downturn in the USA. The ripple effect of the crisis is felt all over the globe as all major banks and financial institutions have branches world wide and since the US Dollar is the main currency for trade in many international markets.

In a traditional mortgage, there is a direct involvement of the bank in checking the data submitted by the borrower and on the valuation of the house mortgaged to the bank, as the objective is to be risk averse. There is no such involvement of the bank in a sub prime mortgage, where the bank’s objective is not risk averseness in lending but the increase of revenue through investments. The statutes enacted in the USA during the 70’s and 80’s[1] liberalizing regulations in lending operations expanded the mortgage portfolio of lenders and induced them to engage in riskier operations such as the sub prime model. Under this method, checks and assessments in the lending process is performed by independent individuals rather than the lender itself.

Mortgage Brokers, securing borrowers for Banks acting in an independent capacity, are motivated by the Commission from the transaction and collect data to meet their targeted objective. Such a process, without bank supervision, has a lot of room for errors.

In a de-regularized environment, the lender focuses in lending its excess funds as much as possible and would not take the trouble to comb through loan applications in search of errors. This includes lending to all types of borrowers – prime borrowers (i.e. those who have the capacity to pay back the loan and who may give a deposit for the loan apart from the house mortgaged as collateral) and sub prime borrowers (i.e. those who cannot substantiate through documents their ability repay the loan and who do not have any funds to deposit as an advance against repayment.) In the case of sub-prime borrowers, the collateral of the mortgaged house is the only asset the bank can rely on if the borrower defaults. In bank parlance, this is called a “bad mortgage”. The bank thus has both good mortgages and bad mortgages in its portfolio.

Borrowers who cannot show proof of their ability to repay the loan, such as low income sub-prime borrowers, are considered “high risk” and the interest payable on their loans are fixed according to a risk based pricing method[2]. Generally a low fixed interest rate of 8% for 2 to 3 years and thereafter a ballooning interest rate going up to as much as 40%.  In the sub-prime crisis, most sub-prime borrowers were not aware of their exposure to excessive interest rates. Sub prime borrowers also pay other banking charges, which made this category of borrowers the generators of an attractive return for the lender.

Ballooning interest rates on loans after the initial fixed interest period and the ability to transfer sub prime risk by selling both good and bad mortgages packaged together as asset backed or collateralized documents, seems to have been two significant factors which prompted lenders to enter into the sub prime model of lending. The increasing housing prices corresponding with the rising demand for real estate, lulled the lenders to give scant attention to the aspect of risk.

These asset backed securities (ABS) or collateralized debt obligations (CDO) are rated by independent rating agencies, based on historical data and the ability of the issuing Bank to honor interest payments and not by considering the risk embedded within them. The “high risk” element of the bad mortgages are thus, not visible to the buyer investing in bonds. When sub prime borrowers could not meet their loan obligations and Banks started on foreclosures, the interest payments assured on the bonds could not be delivered by the Banks, leading to investors’ lack of confidence in the secondary bond market.

Culture on data governance at the time of the sub prime crisis

An interesting revelation is the culture on data governance that existed in banks at the time of the sub-prime crisis which may have lead to some of the causes highlighted. There was no doubt about strict controls as the Sarbanes Oxley and Basel II imposed tighter control and greater disclosure requirements on banks. But the focus of banks seems to have been more on data breaches[3] as the most serious threat to banking. The TJX breach, where data of millions of bank customers were lost, is a case in point. Banks therefore had a greater bias towards tightening controls to prevent data breaches from hackers, viruses, loss of laptops, etc., rather than maintaining the quality and integrity of data.

Another reason for the lack of focus on data quality was the increasing levels of electronic transactions and business complexity which lead to higher volumes and duplication of data. When the same bank opens in different geographical locations, data on similar matters are viewed in a manner distinct to that location. All of these issues caused ‘duplicative and inconsistent data, spilling over to associate business processes’[4].

Taking into account the banking models and the culture which prevailed, we can identify the following as causes for the sub-prime mortgage crisis:

  1. Statutory and federal regulations broad basing home ownership without stressing on systems of control.
  2. Banks’ failure to self-regulate.
  3. Inadequate implementation of Data Governance Programs or the failure to constantly monitor and update policies, guidelines, rules and procedures to meet the changing needs of the organization.
  4. External independent processes without bank supervision.
  5. Entering of inconsistent and low quality data into the banking system undetected.
  6. Increase in electronic transactions and duplication of data.
  7. Rating agencies considering the liquidity and stability of the service provider rather than the quality of the product sold for rating purposes (i.e. Rating of Bonds by only assessing the issuer of the Bonds rather than the Bond per se)

The above is an extract from my e-book “Preventing a sub-prime mortgage crisis” http://www.lulu.com/content/5279040

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[1] The Community Reinvestment Act of 1977, Tax Reform Act of 1986, Deregulation and Monetary Control Act of 1980

[2] Risk-based mortgage pricing has expanded the types of mortgages lenders offer and increased the number of borrowers that can generally qualify for a mortgage. Alt-A and subprime mortgages, the types of mortgages generally subject to risk-based pricing, are frequently sold by the mortgage originator into the secondary mortgage market, where they typically become part of collateralized mortgage obligations (CMO), asset backed securities (ABS) and collateralized debt obligations (CDO). Risk-based pricing plays a large part in the structuring of CMO, ABS and CDO, enhancing their overall credit rating and making them attractive to wide range of investors (Investopedia)

[3] In 2007, 30% of banks reported data breaches (2007 Deloitte and Touche Tomatsu Global Financial Security Industry Geographical Survey)

[4] Data Governance: Banks bid for Organic Growth (Guillermo Kopp-Tower Group June2006)

December 7, 2009 Posted by | data governance | , , , , , , , | Leave a comment

Sri Lanka, law & governance

December 7, 2009 Posted by | Law & Governance | , , , , , | Leave a comment

Drafting Agreements

December 5, 2009 Posted by | Legal drafting | , , , , | 2 Comments

Condominiums in Sri Lanka

Book : Understanding the concept of Condominiums

CONDOMINIUM_Book_cover.doc

Author: Ajithaa Edirimane
Publisher: [Colombo : Ajithaa Edirimane], 2006.
Edition/Format: Book : English : 1st ed
ISBN: 9559985205 9789559985204
OCLC Number: 80914113
Description: ix, 201 p. ; 22 cm.

Finding libraries that hold this item…

Library Held formats
1. Harvard University, Law School, Library

Cambridge, MA 02138 United States

Book Harvard University, Law School, Library
2. Columbia University Law School, Diamond Library

New York, NY 10027 United States

Book Columbia University Law School, Diamond Library
3. Cornell University

Ithaca, NY 14850 United States

Book Cornell University
4. LIBRARY OF CONGRESS ; CRS

Washington, DC 20540 United States

Book LIBRARY OF CONGRESS ; CRS
5. University of Chicago

Chicago, IL 60637 United States

Book University of Chicago
6. University of Iowa, Law Library

Iowa City, IA 52242 United States

Book University of Iowa, Law Library
Haus Unter den Linden

Staatsbibliothek zu Berlin
Unter den Linden 8
D-10117 Berlin, Germany

http://www.gbv.de/dms/spk/sbb/recht/toc/578166933.pdf [Inhaltsverzeichnis; 2008-12-18]

AVAILABLE IN SRI LANKA –

Vijitha Yapa Bookshops, 99, S de S Jayasinghe Mawatha, Kohuwala, Sri Lanka

http://www.vijithayapa.com/pdesc.php?id=23723

Tel: +94 11 2810714

December 5, 2009 Posted by | Land & Properties | , , , , , , | Leave a comment

Sri Lanka & condominium properties

Before you put down your hard earned money for a luxury condominium, please check the following:

1) Has the building been “registered” as a ‘condominium property’? If its not, you are not dealing with a unit which can be bought or sold!
2) Has the building been issued with a ‘Certificate of Conformity’? This is the most important requirement. If a COC has not been issued, you may even put your life at risk. There can be defective wiring, plumbing, and other defects that remain hidden.
3) Have you consulted an engineer? Only the trained eye of an engineer will be able to detect anything that is not quite right, even though the building outwardly appears ok.
4) Have you consulted a lawyer regarding the title of your condominium property?

These are some of the basic issues you should check before moving into a building attracted by its location, beauty of the facade or the luxury of its internal fixtures and fittings. Its better to be safe than sorry later on!

December 3, 2009 Posted by | Land & Properties | 5 Comments

Sri Lanka and condominium properties

Condominium properties, in the scale that we see currently in Sri Lanka, are rather recent additions to the local property landscape. There are no mandatory disclosures required from Developers. Buyers thus decide on such investments making assumptions based on the exterior facade and the aesthetics of a building rather than on its engineering features.

The lack of knowledge of buyers have, on many occasions, been exploited by Developers of condominium properties. Units are even sold and the full purchase price obtained when the building is not even issued with a Certificate of Conformity. There are ‘good Developers’ and ‘bad Developers’. But how does the unwary purchaser distinguish between these two?

This situation needs urgent attention of the local Authorities. In my book titled “Understanding the concept of condominiums” based on the Sri Lankan Apartment Ownership Law,  “would be buyers” are cautioned against rushing into a sales agreements without checking on certain important elements of the condominium property.


December 2, 2009 Posted by | Land & Properties | , , , | 5 Comments

Profile

Ajithaa Edirimane.

Ajithaa Edirimane has over 25 years of experience in the dual roles of corporate lawyer cum company secretary of commercial establishments dealing in merchant banking, shipping and manufacturing to property development having headed the Legal Departments of the companies in which she served in Sri Lanka. She was a Visiting Lecturer at the Sri Lanka Law College on conveyancing and drafting of commercial contracts and at the Open University on Mercantile Law.  Currently, Ajithaa has her own legal practice.

A book authored by her titled “Understanding the Concepts of Condominiums” is a comprehensive literature on the application of the law relating to condominium properties in Sri Lanka and it is referred by both students and practitioners. She also participates in workshops and seminars as a resource person on this subject.

Her advice is sought by Developers of condominium properties, Management Corporations and owners of condominiums on matters ranging from registering the condominium property to management issues of common elements. These include Trillium Residencies, Crescat Residencies, Monarch at Crescat City, Emperor at Crescat City, Empire, Fairfield Residencies, Ascon Residencies, Havelock City condominiums, Kings Court MC, Liberty Plaza MC, Unity Plaza MC, Premier Pacific MC, Realty Plaza MC, Hedges Court Residencies and several others. She undertook the registration of the 36 st0rey World Trade Center, Colombo as a condominium property, which was the first registration of a major commercial condominium property in Sri Lanka.

She is a life member of the Bar Association of Sri Lanka (BASL) and served as a member of the Editorial Committee of the BASL Law Journal. She is a founder member of the Sri Lanka Alumni Association of the International Development Law Organization (IDLO) based in Rome, Italy and functioned as an Intellectual Property (IP) Resource Person of IDLO in Sri Lanka. She was also a member of the Committee on Title Registration of property appointed by the Minister of Justice & Law Reforms. She was also a member of the sub-committee of the Law Commission appointed in 2013 to revise the condominium property law of Sri Lanka.

 

Mobile  (+94) 777 716 776

December 1, 2009 Posted by | Ajithaa Edirimane Profile | 2 Comments