Illegally transferring trust monies out of a trust account can, as it has recently be shown, have dire consequences for a principal and the agents working within the agency.
While the practice may not be as widespread as recently reported, there are undoubtedly some out there who have, at some stage, illegally tapped into these funds. While they may have gotten away with the practice in the past, beware - the real estate have adopted a no tolerance approach and have unleashed a bevy of auditing firms and accountants to investigate agencies across the country. Sadly, the recession and downturn in the property market may just have fuelled the problem, with some agents adopting a rob Peter to pay Paul mentality just to keep their heads above water. That appears to be the case in the Machanik incident and while the charges still have to be proven in a court of law, in a report in a Sunday newspaper, the lady herself didn’t deny the charges, she merely defended her actions by stating that the occurrence of trust account tampering is widespread in the real estate industry.
The one good thing that may still come out of this debacle is the rise in public awareness of what can and what can’t be done with their money. People are beginning to lay complaints. In a recent report, the Estate Agency Affairs Board stated that they had stepped up consumer education. This, they said, had helped a great deal, as people were now more aware of what needs to happen after transactions take place between an individual and an estate agent when they bought or sold property.Perhaps the question that needs to be asked is: do all agencies need to operate a trust account when a conveyancing attorney has the same facility. “It is not really necessary for all agents to have trust accounts,” says Jan le Roux, the CEO of the Leapfrog Properties group. “Agencies managing rental portfolios will need trust accounts, but agencies, especially smaller ones that focus entirely on residential sales, may well advise their clients to directly deposit funds into the trust account of conveyancers. This does make some sense as the conveyancer ultimately needs to disburse the funds.”He says, however, that is it important to remember that all human beings, from time to time, misbehave and that lawyers are as prone to abusing trust accounts as agents, as has been proven extensively in the past. “There is, therefore, no reason to prevent real estate from managing trust accounts should they wish to.
”Attorneys attend university for four years and complete an additional two years’ articles before they are deemed fit to operate a trust account. Before the NQF qualifications were introduced, anyone who passed the EAAB exam could run an office and had to, by law, open a trust account regardless of their professional training. It was, perhaps a recipe for disaster. Tony Clarke, the MD of Rawson Properties says that the new educational levels have raised the entry levels of agents to new heights. “We are now in a situation where every agent will have passed level four on the National Qualification Framework and every principal will have passed level five. These examinations are specifically designed to serve our industry, and they are fostering professionalism among agents that will make them unique in the world.”He also notes that the South African real estate industry is tightly regulated and agents are governed by a strict regulatory code of conduct.
The following points need to be considered by anyone who has a trust account:
The principal is solely responsible for the trust account regardless of the actions of his employees.
The trust account should be reconciled on a monthly basis.• Any irregularities should be reported to the EAAB as soon as they become apparent.
Keep records of every transaction.
Never allow an unauthorised person access to your trust account.
Ensure you have good anti-virus software on your computer.
Trust monies can never be accessed before transfer has taken place – regardless of how positive you are that a sale is going to go through.
Inform the EAAB of every trust account that has been opened under the agency’s name.
If you use your trust account purely for conveyancing purposes, consider allowing the account to lie dormant and encourage buyers to use the conveyancer’s trust account.
The abuse of trust funds is making headlines at the moment, and while the EAAB may reimburse the public’s money, the damage that has been done to the real estate industry as a whole is immeasurable. The fact that a well-known agency is at the centre of the storm hasn’t helped. Reputation in this competitive field is king, and franchisors may well be warned to keep a closer eye on their franchisees. Consumers tend to generalise and if they hear bad news about an agency operating under a particular banner, they could well be induced to regard the entire group as unethical.Adrian Goslett, CEO of RE/MAX of Southern Africa says that the company has launched an internal investigation ensuring that all of the agencies and agents operating under the RE/MAX name have valid Fidelity Fund Certificates. “I believe that the EAAB has a major role to play in the policing of the industry. They are currently putting structures in place to deal with rogue agents/agencies and we welcome the move to ensure compliance in these areas. The task, however, will be a mammoth one due to the number of real estate principals and agencies in South Africa.”