Common scams in the Bulgarian property market.

When selling from abroad, not being local and not speaking the native language, there is often an ‘information vacuum’ between buyers, agents and sellers. This information gap is an opportunity for unscrupulous agents to impose a greater need for trust and reliance, therefore your risk is greater. Abuse of this trust is sadly commonplace and it can be extremely well hidden.  Anyone considering selling their property in Bulgaria would be wise to be aware of the three main scams:

Upfront listing fees & value deception:

Many Agencies vanished during the Credit Crisis, but some hung on. For those who wanted to stay in business it became essential to change and shift their marketing towards Russia. However, that was both expensive and difficult to achieve. Much easier, for those without any scruples, was to conjure a service that presents itself to owners as capable of selling their Bulgarian property, but actually has no ability to make property sales and is entirely structured to collect upfront fees.

Logically, if you want to sell a property in Bulgaria and wish to find the best agencies to do so, you would research the market from a buyer’s perspective and see which agencies offer the best service, appear in the most places and are the most likely to buy from – listing with them has to give you the best chance. However, that’s easier said than done when you don’t speak the local language, as such most of us naturally resort to searching in English on google.ie .co.uk and .com without thinking much further about how and why certain companies are presented to us given that neither the language or the location are aligned with the property you wish to sell.

While there are genuine agencies appearing in the English search results there are some who only targeting owners / sellers and have no interest or ability to find buyers. These companies have no presence in Bulgaria let alone Russia, they are often one-man bands operating from bedrooms in Ireland and the UK with the sole intention of lifting 500 Euros from your pocket and delivering merely what trade law requires – an ‘advert’ in return. This ‘advert’ appears only on their own website in English, in Ireland and in the UK where few to no buyers exist, it is specifically optimised to appear only to those who are trying to sell a property, not buy one. It’s a nasty scam.

Why do people pay upfront?

Everyone wants to hear their property is worth more, no one can be blamed for enjoying that. The well-rehearsed agent’s pitch suggests they have access to higher paying Chinese investors or alike, that they sold five the same this week and that the fee you pay is an investment as they can certainly deliver you more in return. That has to be worth paying for, doesn’t it? No, sadly not.

With hindsight it seems far-fetched, but plausible enough at the time. The euphoria of finally hearing good news regarding your otherwise annoyingly poor performing Bulgarian property has been momentarily alleviating, but it also catalysed clouded judgement as the temptation to believe the fairy tale cost you 500 Euros as an upfront ‘listing fee’. This is the sole transaction these ‘agencies’ are capable of and the sole reason they appeared in your search engine results. They cannot be found if searching from Russia, in Russian or indeed in Bulgarian. They simply don’t sell any property.

Most owners recognise the scam and quickly walk away before paying. Some pay and realise in the coming weeks, some take months to accept that the agents who spoke of lower values were in fact honest and merely delivered real market figures, albeit not very appealing.

Unlimited POAs and selling for any price you didn’t agree.

The most profitable scam in the Bulgarian property market is for ‘agents’ to offer a fixed net price to the owner and claim that all additional taxes, legal fees and commissions etc are ‘free’. In reality, what is happening is that a willing buyer has been found by another agent (a third party) for a far higher price. It is too risky for the ‘agent’ to explain to the seller why 50% of your property’s value is going to be kept by them, plus it is far easier to convince the owner that the achievable net amount is the current total value and it can’t be sold for more.

You might think that most people would stop there and say ‘no thanks, I’ll try another agent’ and go on to sell for more, well, most do, but many don’t.

Perhaps you urgently need to get it sold for any price, have already paid an upfront fee so feel invested or simply want out ASAP. Regardless of the motivation it is owners who accept very low prices, do not seek independent advice and do not appoint their own legal counsel who are being deliberately targeted by the scammers.

To make this work legally the agent will issue an unlimited Power of Attorney for the owner to sign. It grants them the right to sell the asset on behalf of the owner, which in itself is not unusual or irregular, but in this case the POA fails to mention or refer to any price whatsoever. Technically and legally they can proceed to sell your property for any amount, worse still there is no legal requirement to transfer the proceeds of sale to you as no minimum figure has been agreed. This is the most common and most legal way for a scam artist to legally and legitimately pocket as much money as they like without recourse by the owner.

You are perfectly entitled to insist that a sale price features within a POA, it is a standard practise, should you hear otherwise from your agent or solicitor you must walk away.

Unless ill or implicitly trusting the empowered party, an unlimited POA should never be signed. Stating a minimum sale price is your very best protection against deceptive and fraudulent behaviour as the Notary in Bulgaria cannot approve the transaction for any other amount than stated in the POA. Thus, you can be sure that whatever amount you have agreed will be the official transaction amount and any amount payable to the agent must be openly declared with your full consent. (see further details in Why can’t all the exact costs feature in the POA

Hostile Acquisition: hiked maintenance fees, injunctions and forceful gifting of ownership.

In recent years, particularly in Bansko, there has been an increase in maintenance companies orchestrating the hostile acquisition of privately owned apartments from foreigners. For legal reasons we cannot name the complexes, but if the following text sounds familiar you should seek professional assistance to best protect your assets.

For this scam to work some prerequisite conditions are required, which typically are commonplace in Bansko, but technically could occur anywhere in Bulgaria. The conditions are where a complex:

  • fails to rent particularly well and struggles to be profitable
  • is expensive to heat
  • is largely owned by non-Bulgarian speakers who are abroad / distant
  • has suffered heavy reduction in market value

To best understand this scam some background on Bulgarian owner committees and maintenance companies is required. Under Bulgarian law all apartments are separate legal entities, they might be physically adjoined but do not share a common owner or Freeholder as is typical in the UK, to which there are advantages and disadvantages (see below Freeholder and Leaseholders in Bulgaria). In place of a ‘freeholder’ and in order to maintain a building of multiple ownership, an entire section of Bulgarian law governs each owner and permits them the right operate and maintain their building in accordance with the majority decisions of the owners collectively. This is known as the ‘owners committee’. It is a democratic structure that works well when owners are also resident, speak the same language, share a common interest in making it work efficiently and most crucially are actually present to vote. The owners committee is responsible for appointing a maintenance company, who undertake the common area maintenance and bill each owner accordingly (the amount accepted by the majority decision of the owners committee). Problems arise when a vote is called with the deliberate intention to conceal the pending vote, which is where the scam starts.

Setting the scene for the scam to unfold

Most developers appointed themselves or their own offshoot company as the maintenance company upon completion of the complex. In other cases, a third-party maintenance company has since been elected by a handful of existing owners. In either case, in this example these parties share the deliberate intention to acquire multiple apartments from the foreign owners without paying by hostile acquisition.

They call the owner’s committee to convene a vote for a new proposal, this is done legally and officially. The committee can only be convened by the manager of the owners committee, a group of owners who collectively own not less than 20% of the common area, or any individual owner can call a meeting if there has not been an official meeting for the past 12 months. The latter two are commonly the avenue of choice for this scam.

The law requires owners to be officially notified. Notification must be at least by physical notice in the common areas of the property (reception, car park, corridors etc) with not less than 7 days notice provided. Technically, foreign owners have the legal right to officially inform the owners committee of their correspondence address and only if that has been completed correctly must the owners committee inform that individual by notice to that address. In 99% of cases this has not been done, as such a single notification placed anywhere in the common areas (in Bulgarian) is legally sufficient. If owners were resident the notification would be widely discussed, yet when mostly foreign owned, as in Bansko, any such notice can easily go entirely unidentified.

Once the meeting convenes there must be at least 67% of owners present for any vote to be valid. If an insufficient amount are present the meeting is postponed for 1 hour. If after 1 hour there are at least 33% attending then the meeting can be carried out, if not it is postponed for 1 day. On the third instance of failing to meet the minimum volume of owners, a vote can be taken by whoever is present, even if it is just one person, and it is legally binding.

In the case of largely foreign owned buildings 67% has almost never been achieved, even with many months of deliberate and persistent notifying by email in the languages they speak. Very few take the time and money to travel or appoint a representative via Power of Attorney to vote. The scammers rely on the lack of attendance, amplified by the short 8 days of total ‘notice’, thus ensure an absolute minimum turnout, if anyone at all, having provided official notification by the legally least visible means.

The end result is that the single owner is in attendance, who is a founding member of the scam, they cast a single deciding vote and it is justifiably considered the binding decision of the majority of the owners committee and thus it legally applies to all owners equally and unequivocally.

In this example, the binding decision is typically to drastically increase regular annual maintenance fees, to bill each owner huge sums to make future repairs, to install grossly overpriced heating system, solar panels or any other vastly expensive undertaking. The owners committee instructs the elected maintenance company with its decision to pay it more and it proceeds on this basis.

Every owner is officially billed, but quietly. Effort is made not to distribute invoices effectively, no one is chased for payment. At best, a copy of the decision and the amount payable is pinned to their apartment door.

Once the owner has failed to comply with the new terms, which in the vast majority of cases they are entirely unaware of, a solicitor working for the maintenance company commences legal action to collect the debt. There are various stages required by the courts to officially serve notice to an owner of impending legal action, particularly when they are abroad. However, in all likelihood the end result is the court accepting that the owner is either notified through a pan European mechanism where their official address is known, or their official whereabouts outside Bulgaria is unprovable (such as UK residents who are not required to declare any official or registered address), as such official notice of pending legal action is served to their property in Bulgaria. 

While the overseas owner remains unaware legal action against them continues unchallenged. The court faces no opposition and ultimately awards the case in favour of the maintenance company.  The amount due is now in excess of the costs ‘voted’ upon by the owners committee, it now includes all legal costs, court fees and interest.

When the unaware owner fails to pay the amount awarded by the court, the court has no choice but to grant an injunction against the property. It can now not be sold until the due amount is paid in full, interest is applied daily.

At this point the debt is more than the value of the property, it is only now that deliberate effort is made to contact the owner. Shocked and in disbelief it is the first the owner has heard of any increased annual costs or indeed any legal action against them. The maintenance company’s solicitor will then offer the choice of having bailiffs appointed to sell the property by public auction, which will likely leave the owner with a balance to pay the bailiff. Or, they can cancel their claim and wipe the injunction from the property if they agree to gift the property to them.

The owner reaches out to professionals in the market for help, typically agencies. They discover the value of their property is not more than the injunctions particularly after paying agency commissions and legal fees. Meanwhile, word gets out and forums populate with comments, the buying public becomes aware and achievable values of the complex plummet. As no buyers are likely to be found for any significant amount a sale via an estate agency or bailiff and public auction become impossible.

The conclusion for many owners is to gift the property in lieu of debts owed. The orchestrated deception has taken a few months in total from start to finish.

There are literally thousands of owners impacted by this scam at the moment in at least six complexes in Bansko that we are aware of. In one example a 100sqm furnished 2 bedroom apartment faces 4,000 Euros annual maintenance fees (legally), 16,000 Euros of registered debt and remains available on the market for 5,000 Euros without hope of being sold. Without actions of a hostile acquisition and a market rate annual maintenance fee, the value would be closer to 35,000 Euros.

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