Be careful when buying real estate: Supreme Court names main risks

The Supreme Court named the most common legal risks in the real estate market.

The State Register and the notary system play a key role in acquiring rights to real estate — these two institutions complement each other, serving both to protect citizens’ property rights and to ensure the security and stability of civil circulation.

In the Supreme Court ruling on the application of legislation on the good faith of third parties when acquiring property rights to real estate, it is emphasized that the correct application of the institution of good-faith acquisition depends not only on the behavior of the parties, but also on the proper performance of their duties by the register system and the notary.

What is the role of the registering authority?

The main duty of the registering authority is to carry out state registration of rights to real estate and to ensure the recognition and protection of these rights. The State Register is not just a database, but an institution of public trust.

Participants in civil circulation rely on the register data when making decisions related to property. Therefore, the registering authority should not limit itself to the formal acceptance of documents and the recording of entries. It is obliged to:

- Verify the legal grounds of the submitted documents;

- Investigate contradictory or suspicious circumstances;

- Take appropriate measures when necessary.

Important: Improper performance of these duties that results in harm to citizens may become grounds for liability established by law.

What problems are observed in practice?

Judicial practice reveals a number of problems related to the state registration of rights to real estate. These situations directly affect the security of civil circulation as well as the rights of owners and buyers. In particular, the most common violations are:

- Unjustified registration of rights in the name of a person who is not the owner;

- Delays in registering the rights of persons who acquired property on legal grounds;

- Double registration — registration of rights of several persons to the same real estate object;

- Failure to enter or untimely entry into the register of objections (encumbrances/restrictions) related to real estate.

Such cases not only become the main causes of subsequent court disputes but also jeopardize the rights of both actual owners and persons who acquired property relying on the register data. Therefore, the prompt and accurate conduct of the registration process on legal grounds is of particular importance.

What is the role of the notary in good-faith acquisition?

The notary system is of paramount importance in real estate transactions. The notary’s activity is aimed at preventing future disputes and minimizing legal risks.

Before certifying a contract, the notary must check a number of key issues. First of all, it is necessary to establish whether the person disposing of the property has the authority to sell it. In addition, the following must be clarified:

- The existence of a mortgage, pledge, arrest, or other restrictions on the property;

- Whether the property was acquired during marriage (whether spousal consent is required).

This information, reflected in the register, must be clearly explained to the parties.

However, the notary’s duties are not limited to a formal check. The Supreme Court emphasizes that the notary must establish the true will and intention of the parties to conclude the contract. The notary is obliged to ensure that the parties understand the legal consequences of the document being signed and to refuse certification of the transaction upon discovering any signs of deception, pressure, or threats.

Problems related to the choice of contract type (Sham transactions)

Practice shows that in a number of cases participants in civil circulation do not formalize (or cannot formalize) legal relations in accordance with their true content. This often occurs due to the parties’ lack of legal literacy. In other cases, the problem is connected with the unjustified refusal of notaries to formalize transactions that do not contradict the law but are not widely used in notarial practice.

A typical example from practice:

Registration of real estate (land, house, etc.) belonging to a debtor (or his close relatives) in the name of the creditor under a sale and purchase agreement in order to secure the debt. That is, instead of using legal mechanisms (pledge or mortgage), the debtor formally “sells” his real estate to the creditor, although the true purpose is to provide a guarantee of loan repayment.

At first glance this method seems convenient to the parties, but subsequently it leads to serious legal problems:

- Since the contract is formally concluded as a sale and purchase, the property legally passes into the ownership of another person.

- In the event of a dispute, the debtor usually claims that it was only security for the debt, while the creditor denies this.

In this case, the burden of proof lies entirely with the plaintiff (the debtor). He must provide strong, irrefutable evidence that the transaction was sham. In practice this is an extremely difficult task.

The Supreme Court emphasizes: in such situations the notary should not take a formal position. He is obliged to ascertain the true will of the parties, explain the risks, and propose the type of contract (for example, a mortgage) that actually corresponds to their goals.

Risks related to powers of attorney

The use of powers of attorney is another frequent source of disputes.

The Supreme Court notes that the notary is not obliged to contact the principal again every time a transaction is concluded on the basis of a power of attorney issued by him. Nevertheless, when executing the power of attorney itself, the citizen must be given a detailed explanation of all its legal consequences.

At the same time, if the notary discovers circumstances clearly indicating that the transaction contradicts the interests of the owner, he is obliged to take measures to establish the owner’s real will.

Suspicious markers requiring verification:

- Use of a power of attorney issued by spouses to each other during marriage, already after their divorce;

- Sale of real estate at a price several times below market value;

- Alienation of real estate on the basis of a physical (paper) power of attorney issued in a foreign state.

In such cases the notary must contact the principal by telephone, video link, or other means to confirm his intentions. If the notary sees legal risks, he is obliged to warn the buyer about them. If the buyer, despite the warning, insists on the transaction, he will bear all negative consequences in the future himself.

Notary’s liability

If a notary intentionally or negligently fails to perform his duties properly, as a result of which harm is caused to a citizen, he bears civil (material) liability in the manner established by law.

If other persons are also at fault for causing the harm, joint and several liability arises. The injured party may bring a claim either solely against the notary or against all guilty persons simultaneously.

Since the professional activity of notaries is insured, a claim for compensation of harm may also be brought against the insurance company.

Does the notary bear liability for the hidden intentions of the parties?

In practice there are cases when the parties deliberately conceal their true intentions from the notary. If deception, threats, or other unlawful circumstances were intentionally hidden and the notary objectively had no opportunity to detect them, the subsequent discovery of these facts does not entail liability for him.

The notary is liable only for those violations that were obvious, of which he knew or should have known by virtue of his qualification.

Conclusion

According to the legal position of the Supreme Court, the security of real estate circulation directly depends on the vigilance of the registering authority and the notary.

The registering authority is obliged to ensure the purity and reliability of records, while the notary must thoroughly examine the legal status of the property and the real will of the parties. The register system and the notary are not merely technical executors but the main institutions protecting property rights and public trust in the country.