An Escrow in Real Estate – Let’s See You Prove that You Don’t Have a Sister…
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An Escrow in Real Estate – Let’s See You Prove that You Don’t Have a Sister…

Yair Aloni, Adv.
September 17, 2024
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What is the status of an intra-family settlement made orally many years ago in which it was agreed that real estate would be registered under the name of a family member who is not really the owner? For example: a brother decided to register land under his sister's name, due to financial difficulties he was in, in exchange for the sister's oral promise that when the time comes, she would register the rights to the house, built on the land, back to his name. The brother lived with his family in the house for decades and they used it as their own. After the brother's demise, a family conflict broke out and the sister refused to keep her promise to the heirs, contending that the house was registered under her name in the land registry (the "TABU" registry) and therefore belonged to her. The heirs, however, contended that the wording of the land registry does not reflect the true ownership of the house and the sister served only as an "escrow agent" for the deceased brother. Under what conditions can the registration in the land registry be overcome?

Escrow in real estate is an affinity to a property under which an escrow agent holds or acts on it for the benefit of a beneficiary or for another purpose. Israeli law does not impose an obligation to draw up a written document in order to create an escrow in real estate, as opposed to making a transaction in real estate, where the existence of the escrow is not conditioned on recording of any sort. Therefore, there is no obstacle for a real estate asset to be held in escrow for the beneficiary when the rights in the land registry are recorded under the name of the escrow agent, especially when it comes to relationships between family members characterized by special trust relationships that often lead to the conclusion of a binding settlement in informal ways.

However, in the absence of a written settlement or evidence regarding the intent of the parties, things may get complicated over the years as the starting point in the Israeli Land Law is that recording in the regulated land registry faithfully reflects the rights of the parties and is conclusive evidence to its content. Sometimes, the Court may hold after many years that the parties intended to create a fiduciary relationship, even if there is no written arrangement that explicitly states this (as often happens when it comes to intra-family arrangements), and this considering the parties conduct and the nature of their relationship over the years based on evidence and testimonies presented before it. The example at the preamble hereto is a case heard in the Tel Aviv Family Court in May 2024, in which it was held that the sister (in whose name the rights to the house were registered) is not an owner but an escrow agent. The house was purchased for an older brother in a family of Persian origin, where the elder had a respectable status, with the financial assistance of his mother and sisters and the registration in the land registry did not reflect the true ownership of the house, as could also be learnt from the fact that the deceased and his family lived in the house for over 25 years without a rental agreement or payment and treated it as its own, including towards third parties.

There is no doubt that a contention against a recorded right requires an increased burden of proof, even more so when the contention is made by the heirs of a rights holder who died after many years (sometimes after decades), which adds even more evidentiary difficulty, inter alia, due to loss of relevant documents (that were not saved or lost), relevant witnesses who are no longer alive, etc. Therefore, in case of a family dispute concerning the nature of the rights in the land, it is advisable not to bury your head in the sand, but to get a head of this while still can by taking an appropriate procedure, either by submitting a lawsuit to the Court or through an alternative dispute resolution mechanism, for the purpose of regulating the rights.
In any case, before taking a legal procedure of any kind, it is advisable to consult a lawyer who deals in the field for assistance in evaluating the existing evidence or compiling the required evidence, such as: an orderly documentation of all existing records and documents, documentation of the statements of relevant witnesses by various means, a notarial affidavit, the collection of recorded testimony, the recording conversations etc., this is to ensure that when the day comes it will be possible to clearly prove the intentions of the parties and the status of the rights in the land in a manner that corresponds to reality. It is certainly important to use an experienced lawyer when registering rights in the family in the name of someone who is not the owner from the beginning, in order to produce correct documents that will prevent accidents tax or disputes in the future.