Half-a-million homes in limbo
Bureaucracy and contractors' desires to make a profit have caused delays in the registration of numerous homes around the country, leading to more expensive mortgages and sometimes a drop in property values.
For more than a year now, a resident of the Kiryat Sharon neighborhood in Netanya has been trying get a home he bought from Africa-Israel listed under his name in the Israel Land Registry (Tabu ). The construction company, which is supposed to be responsible for the registration of the properties, has stated in various documents that the project has been in the process of registration for some time. Why the delay? The Africa-Israel people have told the buyer that the Netanya municipality and the Israel Land Administration have demanded that the company take a number of steps, among them annexing public land to the built-up areas of the project, as a condition for registering it. As long as this has not happened, the homes will not be registered.
Purchasers of apartments in a south Tel Aviv building have also been fighting to get their properties registered. Their problem, however, is that the developer went bankrupt seven years ago and the construction is not finished. They therefore cannot obtain an occupancy permit (Form No. 4 ), and cannot register the apartments.
"A condition for registering the apartments is that there has to be a parking lot in the building," explain the tenants. "We bought an apartment with a plan for parking, but in actuality the lot was never built. As long as it isn't built, the apartments will not be registered."
A registry deed is an important document that ensures ownership and other rights vis-a-vis a certain property and everything that goes with it (roof, parking spaces, garden, etc. ). It gives the potential purchaser a reliable picture of the property he is interested in buying. Among other things, the deed delineates the area of the lot and/or apartment, and lists the other parties who are partners to the asset like mortgage banks, creditors and so on.
The system in this country for purchasing and transferal of rights to land involves a registration process: Until the property is formally listed in the land registry, the developers must maintain a kind of private registry, noting all the details that will later appear in the official registry. Instead of regular deeds, they issue certifications of rights. This system is called the "little Tabu."
According to Central Bureau of Statistics figures, about half of the 2.1 to 2.3 million homes built in the country are not officially registered.
"That doesn't mean this is acceptable," explains Zvia Efrati, head of the programs department of the Housing and Construction Ministry, who served on the inter-ministry committee that worked to expedite property registration. "Some of the apartments that aren't registered are in Judea and Samaria (the West Bank ), for example." Others are owned by the state and managed by state-owned housing companies like Amigur and Amidar.
It is estimated that the total number of problematic, unregistered dwellings is in the area of 400,000 to 500,000.
The national land registry process has made home buyers dependent on the developers. Why? In 1997 an inter-ministerial committee was established to recommend ways to ensure purchasers' rights after moving into their homes. The committee found that each of the construction companies had set its own fees for dealing with unofficial title deed (the little Tabu ), which were several times higher than the fees set at the land registry.
These findings confirmed the feeling that the companies were deriving real profits from the delays in official registration. In light of this, the committee recommended restricting the developers' ability to profit from managing the unofficial deeds, thus encouraging them to list the properties at the registry more quickly. The panel's recommendations were implemented as part of new, general regulations regarding supervision of prices of goods and services, which came into effect in January 2000. Under the regulations, the maximum sums the companies were allowed to charge upon transferring home-ownership rights were limited.
For example, here is an extreme case that has culminated in a class-action suit for NIS 7.5 million, filed on behalf of tenants by attorney Zvi Gelman, a partner in the Ariel Shemer law firm, against Friedman-Hakshoury Engineering and Construction Ltd. The suit claims Friedman-Hakshoury made real profits from its own little Tabu system, and the case is still under deliberation.
According to the suit, the company charged some 5,600 tenants with homes in its projects NIS 5,082 for alterations in documentation relating to ownership rights and details relating to the apartments.
Other companies have also charged money for dealing with these deed substitutes, but only to the tune of hundreds of shekels. Gelman says that these developers have also angered the authorities, since they are still making profits from the little Tabu system and therefore have had no motivation to list the apartments in the official registry. Since the authorities have begun to deal with this issue, there has been a gradual decline from NIS 600 several years ago to only NIS 100 now in the fees home owners are being charged by the developers for the temporary deeds.
According to attorney Avi Benyaacov, who represents tenanting companies, other factors delay the formal registration of homes: "Large real estate companies like Ashtrom, Shikun & Binui, Azorim and Africa-Israel, which build large neighborhoods, behave like state-owned companies (along the lines of Amigur and Amidar ) and operate sophisticated registration systems similar to the land registry.
"However," says Benyaacov, "there are a number of factors delaying registration. In many cases the land on which the project has been built has not undergone certain stages including parcelization, a very basic process that takes years. Without this, it's impossible to register the land as a unit, the building as a jointly owned structure (similar to a condominium ) and the individual apartment as a sub-lot."
According to outgoing government assessor Eyal Yitzhaki, "Another factor likely to delay official registration is the Israel Land Administration. The ILA is another link in the chain for registering the property and its response time is very long, which delays the listings at the registry."
Other problems include betterment taxes which must be paid to the Israel Tax Authority, and various payments to local authorities. Thus a situation can develop in which an individual or a developer is haggling over debts to the authorities and cannot complete the registration until the matter is settled.
An apartment that is not listed at the land registry is a matter of uncertainty and risk for mortgage banks and thus for potential purchasers, who want to be sure the dwelling is actually listed in the name of the purported owner, and that there are no liens or previous debts involved.
"A purchaser who buys a property that isn't listed in the official registry is exposed to more risks," explains Yitzhaki. "In extreme cases he might even be the victim of a sting. A warning notation does not exist if the building is not listed as being jointly owned, and therefore a buyer will not know that a property like that is flawed."
This flaw also means a decline in the value of an apartment. According to estimates of the government assessors' office, the value of a property not officially listed at the registry could be 2.5% less than that of a similar property that is registered. However, in areas where the population is of low socioeconomic status, the differences are only fractions of a percentage point. In dwellings being built by the large construction companies, and for which the registration process is under way, the value of the asset is hardly affected, because of the existence of the unofficial, temporary registration process.
Banks, too, do not like to give mortgages for apartments that aren't listed in the land registry.
"The banks determine loans on the basis of notations that stipulate a lien on apartments at the registry," explains Gelman. "When the apartment isn't listed at the registry at all, the banks make the conditions for granting a loan even tougher, resulting in a more expensive mortgage."
Benyaacov notes that the cost of dealing with an unlisted apartment, even if a warning notation has been made in the purchaser's name, is higher: "A listing at the registry constitutes evidence of the rights of the person who is listed as the owner. When there is only a warning notation, there is no such certainty. And an examination has to be made of all the deals involved in the asset. While a warning notation indicates only a contractual commitment, the listing at the registry creates ownership, a commitment that cannot be contradicted. As a lawyer, I can say that if I have to deal with a property that is not listed at the registry, I price my services accordingly."
According to Efrati, the state has been acting in recent years to increase the number of listings in the registry. The responsibility, she says, is now being transferred to the developers: "All the branches of the state involved in registration have made an effort to improve the process and now most of the lots have been through parcelization. The next stage is purely the developers' responsibility: They are managing the tenants' files and they know exactly what they have sold to whom."
In recent years the ILA has filed a number of suits against contractors who have delayed listing of apartments in the land registry.
An amendment to the Home Sales Law, which was approved in March, aims to obligate developers to list properties in the land registry and in the files of jointly own buildings within a year of parcelization process. In practice, the law is continuing to give the developers an easy time.
The Finance Ministry recommended establishment of an inter-ministerial committee to accelerate registration even if certain relevant taxes are not yet paid. However, that attempt was shelved with the passage of an amendment to the Economic Arrangements Law, to the effect that in every real estate deal the purchaser will be required to transfer to the tax authority 7% to 15% of the amount he is paying. That sum will serve as a guarantee or deposit to the authority vis-a-vis the taxes owed by the seller. Only after the payment is made will the deal be listed at the land registry.
In the explanatory material for the bill, it was stated that the measure is being taken in order to complete the registration of deals that are delayed because of outstanding debts to the tax authorities. However, the law elicited harsh criticism and its implementation has been suspended for now.
Regularization of the issue of listings at the land registry, then, is moving ahead slowly and the problems are dissipating. Nevertheless, many roadblocks remain and it's still a long way to the listing of all relevant apartments in the country's official registry.