Contradicting Real Estate Transactions – Who Owns the Property if the Seller Resold it?

Yair Aloni, Adv.
January 6, 2016

A real estate transaction is a transaction that may take a long time to complete, mainly because of the need for tax authority approvals for the transaction and often the need for cooperation with the bank to finance the purchase or the seller’s Bank who has a mortgage on the property. However, the purchaser often transfers funds in early stages. What happens if the seller sold the asset again? If both purchasers transferred the seller funds in respect of the same property, which one's right will trump?

The Israeli Land Law sets that land transaction must complete with registration in the Land Registry and until such registration it is considered a contractual obligation only. If a person committed to make a real estate transaction and before the transaction was completed by registration such seller committed again to another transaction which contradicts the first transaction, the right of the a first purchaser will trump unless the second purchaser payed a consideration and the second transaction was completed (i.e. with registration at the Land Registry), all provided that the second purchaser acts with bona fide.

The Courts held that bona fide requires not knowing of the first transaction and the second purchaser cannot shut its eyes and neglect to check whether there is a previous transaction for the property. For example, because a reasonable purchaser should check the land registry before making a transaction, a duly registered cautionary note would prevent the possibility of sale to another purchaser in bona fide. Although the law requires bona fide by the second purchaser, the Courts held that the bona fide requirement also applies to the first purchaser who, in order to safeguard its rights must take all measures to prevent future contradicting transactions. For example, a first purchaser who did not register a cautionary note will be held as not acting in bona fide as such purchaser was able to prevent the “legal accident". It is not always possible to register a cautionary note at the Land Registry, for example, when an apartment is bought from a contractor (sometimes called a "housing company") and the land is under regulation and registration procedures. In such a case it is required, at least, to register the transfer of rights with the housing company which operates as a "temporary land Registry" and such registration will be considered "a caveat" because in this case a reasonable purchaser should check the rights regarding the property in the housing company.

The consideration requirement was held by the Israeli Courts to require more than a symbolic amount but the Courts held that there is no need to show payment of the full market value.

Contradicting real estate transactions are a complex legal issue which often requires the Court to review factual and legal questions related inter alia to the nature of the transaction, timing, good faith of the parties, behavior of the parties and more. Thus, in any transaction for the purchase of real property it is vital to be accompanies from the first stage by an attorney who is knowledgeable in the area and carry out all the necessary checks in order to avoid such kinds of legal accidents. When a suspicion arises that the property was sold gain it is important to act immediately through an attorney who is familiar with this complex issue.