By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Banks and other mortgage lenders will face "a bit of a dangerous scenario" if reforms rendering all real estate transactions as "void" until recorded are passed by Parliament.

Bankers and attorneys yesterday told Tribune Business that this proposed change to the Conveyancing and Law of Property Act threatens to disrupt mortgage lending and, by extension, the wider residential housing market, commercial development and the construction industry by leaving financiers without collateral security for their loans for a potentially significant time period.

Andrew O'Brien, the Glinton, Sweeting & O'Brien attorney and partner, who specialises in conveyancing, called on the Government and Parliament to insert "a cure period" into the Bill presently before the latter so that a real estate transaction's deeds are treated as valid, and legally enforceable, for either 90 or 180 days immediately post-closing.

This, he explained, would give a buyer and their attorneys sufficient time to lodge the conveyance with the Registry of Records, as required by the new Bill, while also maintaining the confidence of banks and other mortgage lenders as they would know their security is still valid and protected. The 90-180 day period would also protect the rights of all parties involved, including buyers and sellers.

"My big concern is I believe they need to add some period during which an unrecorded deed is valid," Mr O'Brien told this newspaper, "because the gap between when one closes a transaction and when you have proof the deed has been recorded can be several months.

"The items that often cause a delay would be if the VAT payment is disputed [by the Department of Inland Revenue], which sometimes arises. That comes with the zero-rated transfer of shares or, sometimes, the commercial value is challenged. Getting replies on some of the more unusual transactions, like zero rating, and home owner questions takes the Department weeks, and could take several months.

"The challenge, if a deed is deemed void until registered, is what security does the bank have after it has released and paid the purchase funds? They've got no security for a gap period. What happens if the home burns down or a hurricane hits before the deed is recorded?"

Mr O'Brien added that the Bill, if passed into law, will likely create difficulties for new homeowners when it comes to obtaining insurance. "An insurance company, from my experience, they won't issue a policy until someone has a legal interest," he explained.

"During a sales transaction, the seller - the existing owner - can add a purchaser on to his policy to cover that. But once the transaction is closed that owner no longer has a legal interest, so that policy no longer applies, and if the new owner is holding a void conveyance for a couple of weeks to months, I don't believe an insurance company will issue a policy."

The Government's move is being seen as an attempt to drive purchasers, and their attorneys, to ensure VAT due on real estate acquisitions is paid in a timely manner and in full because they will be unable to register the conveyance - and prevent it from being treated as "void" - without proof they paid the tax.

The Bill's new section 40, which will repeal and replace the existing one, stipulates that "all conveyances of land, or of any interest therein, are void for the purpose of conveying or creating a legal estate unless made by deed and duly registered".

The reforms have also been backdated, as the Bill mandates that all land and property deals since July 1, 2022, will be treated as "void" and of no effect if the deeds have not been brought forward for recording in the Registry of Records.

Mr O'Brien said he was unsure why the Government had picked that date, and it suggested that persons with unrecorded conveyances for real estate deals which had closed before that date will not be impacted or see their conveyances rendered "void".

Emphasising that he had "no complaints" about the motivations behind the Government's reforms, namely a desire to crack down on VAT-related evasion on real estate sales, he added: "It seems like there are some unintended consequences if they leave the language the way it is now.

"I think it could be resolved by building in some period like 90 days or 180 days. The conveyance would be treated as valid for 180 days. Your conveyance, your mortgage is valid for 180 days after the date of the conveyance and it's void thereafter. That gives people time to take care of most post-closing actions required prior to registration.

"They would also need to build in a time period for those conveyances executed between July 1, 2022, and now which have not been recorded," Mr O'Brien added. "Right now, they are subject to a penalty [if held out] for more than the statutory period, but if this law passes, persons anticipating paying a penalty will now have a void conveyance.

"How do you resolve that? Is it correctable by recording it? Do you start over from square one, trying to find the vendor who may be outside The Bahamas or even dead? If they don't have a cure period such as 90 or 180 days from July 1, 2025, there are going to be people holding conveyances that are unrecorded and put in a very awkward position."

Mr O'Brien said his suggested "cure period" was the same as that contained in the International Persons Landholding Bill 2025, where the Government is introducing reforms that allow expatriate buyers to apply for an extension of their Investments Board permit for up to 180 days to close their land deals.

"Build in a process for how you resolve a matter if someone is holding a void conveyance, or give people a reasonable time to record before their conveyance is void," he added. "Otherwise, come July 1, people who have closed their transactions in the last couple of months and not had an opportunity to record the deeds because of multiple reasons that occur, will be holding void conveyances."

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the Conveyancing and Law of Property Act reforms create "a bit of a dangerous scenario for banks to be in without having perfected collateral" for mortgage lending.

However, while noting that the Government had not consulted the commercial banking industry over the changes, he argued that proposed reforms did not significantly increase the sector's "risk" given the long wait it already endures for mortgage deeds and conveyances to emerge from recording by the Registrar General's Department.

Mr Bowe, who also suggested that it was akin to "putting the cart before the horse", as the Bill appeared to anticipate a switch to the planned Land Registry and system of registered land, a process that could take years to complete, said: "The wider issue is there seems to have been a number of policy decisions built in as part of the Budget exercise that are not clearly laid out to the public at large.

"The matter you raise has not been discussed with the banking community and the concerns are extremely valid. But the banks have long been in a situation where they have had to accept conveyances that are not yet registered or recorded because the recording takes six to 12 months to complete, so if they wait for a recording to complete, the transaction would never have taken place.

"That was a challenge from the get-ho..... This one, where transactions are deemed void until recorded, begs the question of whether there will be an efficient process at the Registrar General's Office before we get to a Land Registry."

Agreeing that the Conveyancing and Law of Property Act reform is designed to drive tax compliance with VAT-related to real estate sales, Mr Bowe added: "The question really being asked is: Does this introduce more risk than is already experienced with a slow registry? Probably not, but the legal fraternity will have to advise."

He said the change is also being introduced in a policy climate where the Government is seeking to increase home ownership, which requires greater access to mortgage financing.