Rising fraud makes land use as collateral for loans untenable

A majority of titles in Nairobi, which is often seen as the embodiment of land fraud, are authentic. [iStockphoto]

You need a loan and your lender will, of course, ask you for collateral. Most loans, like this one, are secured.

Even before you start weighing options, there is a likelihood you are pegging your hopes on that piece of land that should, certainly, convince the lender to extend you the facility. You could be very wrong.

The rate at which fake title deeds keep on popping up means most lenders are now hesitant to trust the authenticity of documents of those seeking loan facilities.

Ibrahim Mwathane, a consultant in Surveying and Land Information Management, says only a naïve lender will lend money just because a registration of title document has been presented to them.

Cases involving land fraud in Kenya, and controversial transactions that could date back to past decades, abound.

In a recent case, a number of landowners who have for years occupied a disputed 25,000-acre farm in Kapseret, Uasin Gishu County were left stunned after the Court of Appeal in Kisumu ratified a decision by the High Court to award the land, their land, to Sirikwa squatters.

Some of these settlers have lived on this land since 2000 when they bought it from the East African Tanning and Extract Company (EATEC).

For those who had obtained all the documents to prove ownership, usurpation of their interests in the land they have called theirs for years could feel like a death sentence.

For creditors who offered lending in exchange for the title deed (documents), it feels as if they are holding onto a mere, useless piece of paper and that their money may be gone for good.

 The mirror principle

Yet that is not how it should be. A title deed, or registration of a title document, is not designed to be another piece of paper that merely proves ownership.

Three principles of registration of title are supposed to make it almost sacrosanct. The mirror principle holds that the register is an accurate and conclusive reflection of the relevant interests of the land registered.

Like you look at a mirror and see just yourself and never another person who is not standing right in front of the mirror, a title should reflect the real situation of property whose details appear on the document. The insurance principle guarantees the accuracy of the register and in the case, there are inaccuracies, then the holder of the title is entitled to indemnification by the State. This means that the document is so hallowed that the State should be willing to take responsibility for any faults in it.

“The ‘curtain principle’ protects the purchaser of land from interests concealed behind the entries on the register, such as trusts affecting the land,” writes law website lawexplores.com.

Stories abound of people contesting a parcel of land while both brandishing what looks like original ownership documents, and buyers being perennially duped into purchasing land whose documents have been fabricated.

While land as a factor of production has several stark differences from the other factors such as lacking geographical mobility and attracting derived demand, it is probably one of those that attract counterfeits - right, left and centre, in terms of documents supposed to represent it being forged.

“It is sad that this happens under the watch of professionals; the same people who are trained to ensure things work are the ones ruining them,” says Mr Mwathane. “Greed and lack of professional ethics have been ruinous for land transactions.”

And indeed. It is a game of wily, shameless players who play cards ever so smoothly and scratch one another’s backs at the expense of buyers they defraud, and the sanity of the industry.

Bernard Wanjohi, a land surveyor, says there are places, mostly in the urban areas, that are known to be hotspots of land fraud. Such areas are well-known by players in the industry and are avoided by lenders, and often by honest land brokers.

These epicenters attract all the fraudsters who pounce on unsuspecting customers and lenders.

It thus behooves lenders to do lots of due diligence, including themselves undertaking the search at registries while often afraid to even trust professionals who should be doing this duty, as many people in the chain may be compromised. 

“Sometimes, maps are not updated and some people inscribe fictional maps of land they intend to sell on such maps. People sent by a lending institution to conduct a search at the registry might encounter compromised officials who have been paid by the ‘land seller’ and end up returning wrong search results to help effect a transaction,” says Wanjohi.

Those in that chain who receive commissions, alongside sidekicks that come out of the completion of a sale, mar land administration, and adjudication.

 More automation

When borrowers default and lenders seek to activate clauses that allow for repossession, they realise there is nothing to sell to recoup their money.

Mr Mwathane says the country can go back to a system that works if only professionals follow the code of conduct they should, and with more automation.

“Computerising records, streamlining allocation of public land, perfecting maps, and the ouster of professionals who are compromised could lead to good land administration. We know what is right; we just need to do it,” he said

Peter Mburu, a property lawyer and lecturer, says a majority of titles in Nairobi, which is often seen as the embodiment of land fraud, are authentic.

There has, however, been an overwhelming focus on cases that have led to people being defrauded. And people have been defrauded to the tune of millions of shillings, again and again, with loss of property and lives often common in altercations involving land, a most emotive topic.

In the rural setting, the community knows who owns what piece of land, and therefore security of tenure is more guaranteed. Even in surveying in rural regions, where general boundary surveying is common, a bigger margin of error is allowed because a consensus on who owns what suffices. “You see in the urban areas because the land is prime, there is bound to be more fraud as people try to take advantage of the money in the land,” he says. “There is more focus on every parcel of land, every boundary, every avenue for making money.”

Dr Mburu says that automation will go a long way in streamlining the sector and eliminating dubious transactions.

“This clears all the fuzzy areas and offers a good account of history, making it easier to transact. The land ministry and related departments know what land and title is good but criminals in the system believe they have a reprieve in law, and sometimes the jury does not look at the issue the same way land experts would,” he says.

Ensuring records, including paper ones, are in order is important as it significantly reduces loopholes that could be exploited by fraudsters. “But we have registries that are not automated and in which there is no corruption,” he says. “In the end, ethics of professionals determine how well the industry runs.”

Fraudsters have also been encouraged by the privacy of landowners. Some landowners do not reveal details of parcels of land they purchase to their next of kin so that when they die or are far away, these wily criminals are swift to illegally seize ownership of land which no longer has a ready claimant.

Dr Mburu says banks are unlikely to be duped by fraudulent registration of title documents as they do lots of due diligence. This, he notes, enables them to detect grey spots to thwart corruption that could paralyses the process.

Mr Mwathane decries the long processes that are necessitated by fraud in the system, and just how expensive conveyancing, and adjudication, get because of fraud.