Taking Your Money and Running: the Horrifying True Story of an Expat Who Almost Lost Big Time

What is the worst that can happen when you purchase a property? You receive it in a worse state than you viewed it? Or the tenants don’t want to leave? Perhaps it’s incredibly loud neighbors?

This is nothing compared to what (could have) happened to one of our clients earlier this year… Buckle your seatbelts, we are going to take you down the rabbit hole. But don’t worry too much, this one has a happy ending!

This is the story of a young expat family expecting a baby. They were in a bit of a rush to purchase a property before the baby arrived, but still had plenty of time to search for the right apartment. After watching the market for a couple of months and viewing dozens of places, they finally found their dream property. The seller was a reputable company with a long track record and all went well… The viewing, the bank valuation, reservation, signing, and paying money.

It all went well until the last part. You might already know that when you purchase a property the money usually goes to an escrow account – a third-party account that holds the money safe until you are the owner then releases it to the seller. It is a common practice to use lawyers and the lawyer which was used in this case was reputable, with years of experience and no indication that anything was wrong.

The money was transferred on its way to the escrow when we got a last-minute call from the seller:  “Stop the transaction immediately.”

“Why? We have the money ready and we have five days to pay the purchase price”

“There are police at the lawyer’s. She is being accused of fraud, the money might not be safe with her.”

“What!? Really? Are you telling me the lawyer is misusing the escrow money?”

I have to say, in ten years of doing this job, that was the strangest phone call I’ve had with a seller.

In fact, I remember the last such case to make news headlines – back in 2012 a lawyer misused 65 mil CZK and was sentenced to eight years in prison.

Now let me skip the hours on the phone with the seller, the bank, and our lawyer and jump straight to the end. The funds our client paid from their savings were “lost” in the lawyer’s escrow account but we saved most of the money as it remained in our bank. We signed an amendment of the purchase contract, redirecting the rest of the cash flow and the seller acknowledged that he will be sorting out the missing money on his own.

With the new setup, the bank continued and sent the money to the new escrow account and the transaction was completed.

You might be thinking – why did the seller do that? Why would they accept the loss of the money? Well, if they would have not done it (or if we would have sent the bank money already), the transaction would have been frozen, we would have to file a court appeal and it would drag out for years. Our client would not have the money as the bank would already have sent it to the fraudulent accounts, the transaction would not have been completed as the lawyer was taken into custody, and we could have been stuck in that middle ground for years until the dispute was resolved.

But thankfully the deal was saved. The client got the flat with only about a month delay and the seller got the rest of the purchase price, the majority of it, so his loss was minimized as much as we could.

What is the conclusion? Could this have been prevented? I was personally meeting the lawyer with the client and the seller and I can tell you, there was zero indication anything was wrong. Two weeks later, the police arrested the lawyer in her flat with her luggage packed and ready to leave the country. As of today, there are 19 damaged parties and missing 120 million CZK from the escrow accounts.

My advice? Always, always and always have a lawyer on your side. Do not rely on the lawyer of the seller/agency. If we would not have involved our one, if we would not have structured the contracts as we did, it would have been way worse! I wish I could say it could have been prevented, but I do not know how… These things are extremely rare and impossible to predict.

With all this being said, please do not get me wrong and start mistrusting the escrow process. The escrow is pretty much a standard of the industry, with about 95% of transactions of second-hand properties going through escrow accounts.

In the end, allow me to thank our lawyer, the client, seller, and the bank for cooperation. This was by far the most difficult transaction I have had in my career and we were very lucky we reacted the way we did.

Safe purchasing to everyone!

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