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©The Sunday Star (Used by permission)
by Joseph Loh

• At the mercy of land scams
• How fraudulent land transfers take place
• Indefeasibility means impossible to be defeated

KUALA LUMPUR: Landowners beware! Your property is at risk. There has been a rising number of land scams in recent years, especially in the Klang Valley. Worse, the scams are targeting higher-value land too.

Government statistics revealed in Parliament recently showed that there were 16 land scams recorded in 2001, 19 in 2002, 22 in 2003, 32 in 2004, 35 in 2005 and 80 last year.

Police statistics also showed that last year the value of land involved in the scams was almost RM4.9mil. This year, up till October, the value of the land was more than RM10.4mil.

Only four people were arrested over the offences last year and just one this year.

National House Buyers Association secretary Chang Kim Loong expressed concern over increasing incidences of land scams and the high number of unsolved cases.

“This could lead to a loss of confidence in the Malaysian property market,” he said.

Chang urged the Government to initiate an insurance scheme to indemnify anyone who suffers loss due to fraudulent land transfer.

Commercial Crimes Investigation Department legal / inspectorate division principal assistant director ACP Tan Kok Liang said that in certain cases it was difficult to get evidence against the perpetrators because they used other people's identity.

The most recent case involves Taiwanese businessman Chen Wei Pin, who found that a private caveat had been entered on his land by a director of Zen Zaman Sdn Bhd, claiming that Chen had sold the land to his company. Chen denied any such transaction.

His plight was brought up by the MCA Public Service and Complaints Department, which has received 18 such complaints involving land worth RM30mil in the past five years.

Assistant professor Dr Sharifah Zubaidah Syed Abdul Kader of the Public Law Department of the International Islamic University Malaysia said the law did not fully protect landowners, especially in cases of forgery.

“Even if they are able to prove the title is theirs, they can still lose their land. The court will inevitably rule against them as long as it can be proven that the purchaser had bought the land on good faith,” she added.

Roger Tan, the Bar Council's Conveyancing Practice Committee chairman, said the onus had fallen on landowners to conduct regular checks on their land title.

At the mercy of land scams

by Joseph Loh and Rashvinjeet S. Bedi

With the growing number of land scams and increased value of property involved, serious measures, including protectioBy the law, are urgently needed to overcome the problem. 

WHEN Taiwanese businessman Chen Wei Pin, 56, acquired a piece of land in the heart of Kuala Lumpur in 1990, he never expected to be a victim of land fraud. 

He was shocked to learn that the Land Office’s computerised records showed that a private caveat had been entered by a director of a company, claiming that Chen had sold the land to his company.  

Chen denies any knowledge of the transaction and although he holds the original title to his land, attempts to retrieve records of his ownership at the Land Office have proved unsuccessful. There is also no memorandum of transfer on the sale to the private company. 

He has since lodged a report with the Anti-Corruption-Agency (ACA).  

Chen’s case is not isolated; there have been numerous other cases of land fraud. In a parliamentary session recently, Deputy Internal Security Minister Datuk Johari Baharum said that 16 cases were recorded in 2001, 19 in 2002, 22 in 2003, 32 in 2004, 35 in 2005 and 40 in 2006. There were 16 cases in the first five months of this year. 

Police statistics however reveal that in 2006, there were 80 cases involving land worth RM4,874,567.30, while this year (up to October) there have been 49 cases involving land worth RM10,402,559.00 (See table on Page 29). 

MCA Public Services and Complaints Department, meanwhile, has received 18 such complaints involving land worth RM30mil in the past five years. 

The department's legal adviser Datuk Theng Book believes that such cases are on the rise. 

“After publicising Chen’s case, we received many more calls from lawyers about this problem. Many of these cases seem to happen in KL and Selangor where the value of land is high,” he said. 

“We are concerned over the numerous unsolved cases. There is a problem; just how are we going to solve the problem then?” said National House Buyers Association Secretary-General Chang Kim Loong. 

The situation where a landowner can lose his land even though he holds a good title is a direct result of the Federal Court's decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit. This case concerned the interpretation of the law as laid out in Section 340 of the National Land Code (NLC) 1965 (see sidebar). 

In this now-infamous case, Boonsom Boonyanit, a Thai national, owned some land in Penang. She eventually discovered that an impostor claiming to be her – and with supporting identification documents as well as statutory declarations – had declared that she had lost the original title and managed to obtain a replacement title from the land office. 

The impostor subsequently sold the land to Adorna Properties, who bought it on good faith, and did not suspect that there was anything amiss in the transaction. 

When Boonyanit sued for the return of the land at the Penang High Court, she was unsuccessful. She appealed to the Court of Appeal (COA), which decided in her favour. However, Adorna Properties then made an appeal to the Federal Court, and won. In essence, Boonyanit – who has since passed away – lost her land without receiving a single sen for it.  

Because it was a decision of the highest court in the land, it has to be followed by every other (lower) court in the country. A subsequent attempt to overturn the previous decision, made by Boonyanit's estate, was also defeated in the Federal Court. 

As a result of this case, assistant professor Dr Sharifah Zubaidah Syed Abdul Kader of the Public Law Department of the International Islamic University Malaysia said: “The law now does not protect landowners – especially in cases of forgery. Even if they are able to prove the title is theirs, they can still lose their land. The court will inevitably rule against them as long as it can be proven that the purchaser bought it on good faith.” 

Roger Tan, the Malaysian Bar Council’s Conveyancing Practice Committee chairman, agreed with this “The Adorna Properties decision has wreaked havoc on every landowner in this country. It not only puts a landowner at risk of losing his property to fraudsters and forgers, but also when the landowner loses his land to these crooks, he loses everything without any compensation or remedy.” 

The root of the problem, according to Tan, is that, “lawyers have always interpreted S340 as outlining the principle of ‘differed indefeasibility’. Our NLC is based on this concept, and this decision has affected that.” 

What is more perplexing, said Tan, is that the Federal Court had another chance to review the law after a recent COA case in July this year (Au Meng Nam & Another v Ung Yak Chew & Others). The COA essentially did not follow the Federal Court's decision in Adorna Properties, and reverted the title back to the original owners. But when the purchasers applied for leave to appeal to the Federal Court, it was denied. 

“They should have granted leave and then dealt with the Adorna case. However, they refused to confront it.” 

As a result of the current situation, the Bar Council submitted a memorandum to the Natural Resources and Environment Minister Datuk Seri Azmi Khalid that listed proposed amendments to the relevant sections of the NLC on July 24. 

However, an amendment bill to the NLC was passed in the last Dewan Rakyat sitting, which concluded on Dec 19.  

“The NLC amendments did not deal with this issue, and the Bar Council is disappointed with this. Also, there appears to be no urgency on the part of the government to look into it,” Tan commented. 

He further stated, “We want to make it clear that the principle under section 340 is that of deferred and not immediate indefeasibility.” 

Given the current position of the law, Tan advised that precautions be taken. 

“The dealings usually involve lawyers, and they must be both diligent and vigilant. They should do a search before they advise their clients to purchase the property or release the money.” 

To that effect, Tan said, the Bar Council is in the process of changing its solicitor account rules to ensure that all withdrawals from the clients' accounts are made by cheque and not by cash so as to ensure it can be traced. 

“Proposals have been made and we hope to have the rule implemented by next year,” he informed. 

But until the NLC is amended or the Federal Court reviews its decision, the responsibility is on landowners to ensure that title to their property has not been transferred without their knowledge. 

“Do regular searches every three months or so, which costs less than RM100 per search. And it is best to go through lawyers whenever they buy or sell property,” Tan advised. 

Chang hopes that an insurance scheme backed by the government is initiated.  

“Indemnify anyone who loses in fraudulent land transfer. The land office is a government agency and the government should be responsible if its house is not in order,” said Chang adding that special squad by the Land and Mines department to identify weaknesses in the national computerised land registration system be set up.  

Chang hopes that it doesn't reach a stage where the Land Office makes buyers sign a letter of indemnity, just as how the Road and Transport Department (JPJ) does when people buy used cars. 

“This means that you are cannot sue JPJ if they make a mistake such as recording the wrong chassis number for instance. I am just worried that this will apply to property as well one of these days,” said Chang.  

Theng, meanwhile, urges the police to set up a special task force made up of forensic and conveyance experts to look into the problem.  

Commercial Crimes Investigation Department legal/inspectorate division principal assistant director ACP Tan Kok Liang at the 14th Malaysian Law Conference had suggested using fingerprinting during land and property transactions as it offered a unique security feature to prevent fraud and to identify impostors. 

Chang urges the government and relevant agencies to solve the problem as soon as possible. 

“It will lead to serious loss of confidence in Malaysian property market and potential investors may well find it easier to invest in property elsewhere,” he said. 

The Land and Mines Department was not available for comment.  

How fraudulent land transfers take place

by Rashvinjeet S. Bedi

PUTTING himself in the shoes of a fraudster, National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong reckons there are many parties involved in fraudulent land transfers.

“There is a lot of work to be done, but it is not something that is impossible,” said Chang, adding that there was a lot of monetary gain for the fraudsters.

Very likely, involved parties would include the related parties (vendor and buyers) and their respective lawyers, the land office, the land valuation department and the stamping office. And usually these transfers take a very short time.

“When the transaction takes two to three weeks, there is something fishy,” he said adding that a “conservative” transaction would take anything from six to nine months.

Chang says that usually idle land owned by foreigners or senior citizens is targeted. The fraudsters would find out details of a plot of land from the land office and survey department.

The fraudsters then either forge the title deed or get a replacement by pretending to be the owner of the land.

They would conveniently lodge a police report. The land office would then need the police report sworn with a statutory declaration and pay a requisite fee (about RM300) for the replacement title deed, which usually takes four to six months to obtain after the requisite gazetting.

Once the deed is obtained, the land is ready to be sold.

“You should be suspicious if it is a cash only deal or the land is being sold below value,” said Chang. If a bank loan is taken to finance the purchase, the bank's lawyers will also conduct relevant searches to determine the vendor is not a bankrupt as well as a valuation report on that landed property.

“When it is time to present to the land office registration, the lawyers do another search to ensure that no documents prohibiting the dealings such as a caveat or a prohibitory order,” said Chang.

When it comes to selling the land, all that is needed is the seller's and buyer's identity cards, the original copy of the Grant/ title deed, up-to-date quit rent bills and assessment receipts, which have to be provided by the seller.

Certified true quit rent receipts can be obtained from the land office for a fee of RM10. Before the final purchase, the stamping office sends the Memorandum of Transfer (MOT) to the nearest valuation department which adjudicates the value of the property and imposes the stamp duty, which is to be paid to the stamping office.

The last item is paying the requisite registration fee to the land office after the buyer shows proof of a paid stamping fee.

“With so many cases being lodged, the prosecution and investigators should be able to work out the modus operandi of the fraudsters,” said Chang adding that he was disappointed with the number of arrests made pertaining to the cases.

Indefeasibility means impossible to be defeated

THE term indefeasibility means that something is impossible to be ‘defeated’ or made void. 

Where fraud or forgery is involved in the transfer of land titles, legal systems around the world adopt either one of two principles – “immediate” or “deferred” indefeasibility. Which one is practised depends on the laws of the respective countries. 

Immediate indefeasibility is a situation where a transferred title is valid, regardless of any element of fraud or forgery involved. Countries such as Australia or Canada practise this, and their respective governments have in place a fund that compensates victims of such cases. 

Deferred indefeasibility, on the other hand, only protects a subsequent purchaser to a title that is defeasible. Therefore, if one party obtains a title where fraud or forgery is involved, this title can be defeated. 

However, if this same party sells it to another purchaser who buys it on good faith, that title is considered to be indefeasible. The indefeasibility therefore “defers” across one transfer of title (the one where fraud or forgery is involved) to the next purchaser who buys it in good faith. 

Indefeasibility under the National Land Code 1965 

The relevant parts that concern the principle of indefeasibility in Malaysia is spelt out in Section 340 of the NLC as follows (omissions made for brevity)  

Section 340. Registration to confer indefeasible title or interest, except in certain circumstances. 

(1) The title or interest of any person or body ... shall, subject to the following provisions of this section, be indefeasible. 

(2) The title or interest ... shall not be indefeasible - 

(a) in any case of fraud or  

misrepresentation ... or 

(b) where registration was  

obtained by forgery ... or 

(c) ...  

(3) Where the title or interest of any person or body is defeasible by ... circumstances specified in sub-section (2)- 

(a) it shall be liable to be set  

aside ... to whom it may  

subsequently be transferred; and 

(b) any interest subsequently  

granted thereout shall be  

liable to be set aside ... :  

Provided that nothing in this sub-section shall affect any title or interest acquired by any purchaser in good faith and for valuable consideration....  

(4) ...  

Briefly explained, 340(1) says that all titles are indefeasible, and 340(2) states that fraud or forgery, amongst other things, can render the title defeasible. 

340(3) states that if a defeasible title – as explained in the 340(2) – is sold to a subsequent purchaser, it remains defeasible. 

However, 340(3) has something known as a proviso (an exception to the rule), and it says that if the subsequent purchaser buys it in good faith, (i.e., thinking that the title was valid and the deal fully legitimate) and paid for it (in money or otherwise), then the title will be indefeasible, and he gets to keep the land – and this essentially spells out the concept of ‘differed indefeasibility'. 

The point of contention here is that the proviso appears to limit itself to ‘this sub-section', which might be taken to apply to 340(3) only. 

Many legal practitioners and academicians are of the opinion that the Federal Court did not arrive at the correct decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit. 

According to assistant professor Dr Sharifah Zubaidah Syed Abdul Kader, there appears to be nothing wrong in the way S340 of the NLC is worded. 

“The law is fine, but it is how the judges have interpreted it. If you were to read the Court of Appeal's decision, it appears that the Federal Court made its decision on the wrong premise. There was no reason for it to depart from the practice of differed indefeasibility,” she opines.  

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