We all complain about crime that appears to have South Africa firmly in its grip, but judging from a recent report, there are some buyers who are attempting to defraud the banks. Inflating the selling price of a home to incorporate the deposit and transfer fees may not be regarded as a big deal by those who perpetrate the offence, but regardless of what they many think, fraud is a crime and if discovered, those found guilty would have a criminal record.
You may believe that hiking the selling price in order to secure a little spare cash is not really fraud, as the money will be paid back in the form of bond repayments. It doesn't matter - you may not lie to the bank. Fraud is misrepresenting a situation to someone that causes them to act to their detriment.
It's perhaps not that surprising that people are choosing to take the 'illegal’ route, given that banks are demanding that buyers plough more and more money into ever higher deposits. BetterBond's CEO, Rudi Botha recently stated that the average value of the bonds granted in February, at some R745 000, was only 6,7 percent up on the average value in February 2012.
"In other words, the bond value gain is not keeping up with the home price gain - and the discrepancy is explained by the increase in the average deposit required." This, he says, has gone from 16,1 percent of the purchase price a year ago to 16,7 percent. "This has boosted the actual cash requirement for the average deposit from about R129 000 to around R145 000."
That's a lot of money, particularly for first time buyers. The goal posts may theoretically not have shifted much, but to someone who is desperately trying to save for a deposit, the amounts are enormous. Given the sums of money involved, it comes as no surprise that some agents are helping buyers load the sale price of a home in order to make it possible for the buyer to qualify for a bond large enough to cover the deposit and transfer fees.
Tony Clarke, managing director of the Rawson Property Group, warns that although it happens only rarely and is not yet widespread, it remains fraudulent. He says that in these instances, once the seller has been paid in full by the bank, he then reimburses the buyer with sufficient cash to cover the extra upfront costs involved in any property sale transaction.
"When a bank grants a loan," he says, "it will base the amount granted on the purchase price or on its own valuation, whichever is the lower. If the price is then artificially raised as described, the bank is in effect being induced to lend money on false pretences - and the practice is therefore illegal." And it appears that this is not the only way buyers are bucking the system.
Clarke notes that some sellers are structuring the deal so that the seller agrees to allow the buyer to pay the 10 percent deposit in instalments after the transfer, with no real money changing hands at the outset. "This too, is fraudulent because the bank is not aware of the true terms of the contract."
Buyers and sellers who are approached by agents willing to 'fix' the deposit problem - or any other financial problem for that matter - should avoid these agents at all costs. The estate agent has very little to lose in these cases, whereas the buyer, whose signature appears at the bottom of the bond application, is putting himself at huge risk if and when the discrepancy is discovered.