Owning a home is a dream for many Rwandans. The process of transferring ownership from the Seller to the Buyer in Rwanda is simple compared to other countries.

However, sometimes things do not go as planned. A private developer starts a housing project amidst a blitz of publicity. Excited buyers pay substantial deposits to the developer for their house/apartment. Along the way, the developer fails to finish the property due to financial constraints. It emerges that the developer also has a loan with a bank and has defaulted on it.

And the bank has a mortgage over the housing project. Long, messy and expensive legal battle ensue involving the developer, the bank and the buyers.

There are no winners. The buyers’ dreams of owning a home have become their worst nightmare.

Below, I consider a few things first time buyers can do to protect themselves when purchasing a house.

Due diligence

Doing due diligence on the property you intend to buy is probably one of the most important steps you can take to protect yourself. This means doing research on the property to determine that everything is in good order. It is important to establish whether the property is the subject of a caveat, a mortgage or an ongoing dispute.

By simply dialing *651# on your phone and following the prompts, including providing the UPI number of the land where the house is located, you can establish whether there is a caveat or a mortgage over the property.

It is advisable to do an additional search by requesting the developer to write to the Registrar of Land Titles of the province where the land is situated and requesting for the same information. This request can only be made by the developer who is the owner of the land.

A caveat means that somebody who is not the current registered owner of the property has registered a claim with the Registrar of Land Titles over the same property. This claim prevents any transaction on the property from happening until the caveat has been lifted.

This normally arises when there is a dispute over the ownership of the land and then one or several of the parties to the dispute, request the Registrar of Titles or court to place a caveat on the land.

If there is a caveat on the property, this is a red flag and it is not advisable for you to continue with the purchase as you may get entangled in a long, messy and expensive dispute.

If you really must continue with the transaction, it is best to wait until the disputes over the property have been fully resolved and the rightful owner determined.

Even if there is no caveat, it is still prudent to find out the previous ownership of the house so as to reduce the risk of purchasing a property whose ownership is disputed or which has been acquired fraudulently. In Rwanda, fraud cases over property are relatively very low compared to other countries in the region, however, it is better to be safe than sorry.

Mortgage

If your search or the Developer reveals that there is a mortgage, it is an indication that the developer has a loan with a financial institution (normally a bank). This is not unusual as some developers rely on additional financing from banks to undertake their housing projects. A mortgage is a legal agreement which states that in case a borrower fails to pay a loan, the lender will have a right to sell the property which is the subject of the agreement and pay itself first from the proceeds of the sale and if there is any balance, it will give it to the borrower.

In law, a bank which has mortgage over the property has a much greater claim to the property than a buyer who has signed a house purchase contract and has paid the full purchase price for the house. Therefore, if the developer was to default on the loan to the bank, the bank would have a right to take over the property and sell it to someone else even if you, the buyer had already paid the developer the full purchase price.

If you establish that the property is under a mortgage, it is important to ask the developer to have the mortgage released by the bank before you can buy the property. Alternatively, you can enter into a direct contract with the developer’s Bank in which it commits to release the mortgage before or as soon you pay the purchase price.  

Or, you can structure your payments to the developer in such a way that, you pay as little as possible upfront as a deposit and the remaining balance of the purchase price is paid after obtaining the title deed to the house with no mortgage.

That way you only stand to lose your small deposit in case the developer defaults on its loan and the developer’s bank takes over the property. However, the developer may not want to sign over the transfer of title to you before receiving the balance on the purchase price as the developer is not sure that you will pay it after you have received the title deed.

A possible solution is to pay the balance to a trusted third party like your bank, which will keep the balance on behalf of both you and the developer until the title has been transferred to you and then the third party will pay the balance to the developer. This concept is called an escrow. If you are borrowing money from your Bank to finance your purchase, this will provide further comfort to you as your bank will act as the trusted third party and will also facilitate the process of the developer’s bank releasing the mortgage on the title.

Contract

Lastly, it is important to critically review the house purchase contract. Many Buyers think that their contract is written in stone. They do not realize that the terms can be changed. Moreover, sometimes the developer pressures the buyer into signing the contract by claiming that the contract is standard and all other buyers have accepted to sign it without any modifications.

Even if this were true, simply because every other buyer has signed a contract without requesting any changes, does not mean you should too. It is advisable to have a lawyer look at the house purchase contract. 

Many buyers fear to hire the services of a lawyer because they believe lawyers are expensive. They are willing to risk making a mistake worth several million francs in order to save a few hundred thousand francs in lawyer fees which is simply not smart.

Owning a home is the dream for many of us. Taking a few simple precautions can prevent this dream from becoming your worst nightmare.

This article does not constitute legal advice. You should seek legal advice or other professional advice in relation to any particular matters you may have.

The writer is a Partner at Trust Law Chambers where he heads the Banking and Finance and Capital Markets practice.

The views expressed in this article are of the author.