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The Real Estate Deal from Hell

Last year I had, which can only be described as the real estate deal from hell opposite a lawyer who was nothing short of the devil.

My client found his dream home. The sellers lived in the States. My client was able to pay the first payment with his own money and the rest of the price was to be paid with money he was going to get from a mortgage. His mortgage was approved. We were ready to roll.

The lawyer was an Israeli attorney from another city. Very smart and very devious. His English was weak, so I don’t really know how he was able to communicate with his clients. He was also very busy and communicated with his clients rarely, so the progress of the negotiations was slow.

My client had his money for the down payment in his Israeli bank account.  So therefor the contract stated that the first payment was to be made by a bank check made out to the sellers and the second payment which came from the mortgage would come directly from the mortgage bank to the seller’s account. This is common practice in Israel.

I asked this lawyer if his clients had a bank account in Israel and he answered in the affirmative. As soon as the contract was signed, he told us that it turns out his clients didn’t have a bank account in Israel, and he will have to open one for them or open an escrow account. To open any kind of account where the owners of the account or beneficiaries of the account are American, the Israeli banks require that a W9 form is signed.  This is a form of the U.S. IRS. The sellers refused to sign the form so no bank account could be opened.

I was told this important piece of news the next day. “Don’t worry”, he said. He has a plan. It only requires some cooperation by my client. Now, I am always willing to cooperate to help a deal go forward, however it turns out that his solution was illegal and was money laundering par excellence. His proposal was to have his client make a fictitious loan agreement with some company and mortgage the apartment to that company. When my client’s mortgage bank would give the mortgage money it would pay the money to that company who would then erase its mortgage.  All this, which was illegal and which would have caused major problems for my client with his mortgage bank, needed to be done so that his client can hide from the IRS.

It was obvious to me that he never checked to see that his client had a bank account and the means to accept money in Israel and he did not prepare his client for what it means to open an account in Israel. He knew that the bulk of my client’s money was coming from a mortgage taken from an Israeli mortgage bank.  Israeli mortgage banks pay the money only in to the account owned by the seller or to a lawyer’s escrow account.  They do not pay the money to a foreign account. This all meant that if the seller would not open an account or have his lawyer open an escrow account there could be no deal.

I notified the seller’s lawyer that I can’t agree to his plan because it is illegal. From that point forward this lawyer did everything in his power to kill the deal.

There was no way to make any payments to the seller because he had no Israeli bank account. After a few threatening letters, the seller finally agreed to open the account.

The transaction was supposed to be completed within a month and a half. This little escapade wasted a month. There were many additional issues with the contract, all caused by the seller’s lawyer and his unprofessional behavior.  His chutzpa knew no bounds.

The transaction was finally completed. I registered the apartment in the names of my clients and the transaction has finished despite the behavior of this lawyer.  Now my clients need to decide if they would like to sue this lawyer. If they do, he could lose his license to practice law in Israel.

I am relating this story for several reasons. First, to make you aware of issues of bank accounts and escrow accounts and the Israeli law concerning anti-money laundering. Second, to remind you to prepare for how you are transferring funds to and from Israel for your transactions. Third, pick a lawyer who will stick by you through thick and thin when problems arise.