Find out what happens to the deposit that you've given to your attorney when buying a property, and why the money is necessary.
What happens to the deposit that you give to the attorney when you buy a property?
Attorneys hold your money in trust while waiting for the bond registration and transfer of the property. There are three types of trust money, covered by legislation:
- The first two types are for funds that are held in trust, together with other client's funds. These funds are held in a current or an investment account and the interest accrues to the Attorneys Fidelity Fund and not to the individual clients.
- The third type is where an attorney opens an individual bank account in the name of the individual client and the interest accrues to that client.
In earlier days, when individual accounts were required, attorneys used to open multiple accounts at the various banks, by either physically visiting the bank or faxing the relevant information to the bank to open the accounts.
This process was administratively cumbersome and very inefficient. Each account was also managed individually by the bank and often the interest rate paid on each deposit was accordingly low.
Since 1988, when one of the banks introduced a computer system, linking attorneys and the banks, this process has been enhanced and has grown from strength to strength, enabling attorneys to open and manage client accounts more efficiently via this computer linked system. The efficiency of the system meant that the banks could pay more competitive interest rates on the deposits and also have very competitive fee structures.
Attorneys throughout the country use these systems to manage their client's deposits, so when you enter into a property transaction, check with your conveyancing attorney:
- Whether they are using an efficient system to manage your deposit to ensure a speedy resolution of the property transaction?
- Whether they are depositing your funds at a competitive interest rate?
- Whether the interest earned on that account would accrue to you?
- What fees are the banks levying on your account?
If you have any questions on the trust fund process, please discuss them with your attorney.
This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here.