Fake Ukrainian power of attorney, three transfers and lost property: why the owner could not reclaim the land in court

Analysis of the decision of Tbilisi City Court. Why the status of victim does not protect the owner and why the "bona fide purchaser" wins

In Tbilisi, on the territory of the Digomi Educational-Experimental Farm, one person owned a 1010 sq.m land plot since 2002. In 2019, this property was transferred four times within a few months. According to the owner, he did not participate in any of these transactions. On April 19, 2024, Tbilisi City Court rejected his claim and also ordered him to pay the respondent's attorney fees.

This case clearly shows how weakly owners are protected in Georgian law when property is alienated with a fake document and then passes into the hands of other persons.

How events unfolded

May 17, 2019. In Kyiv, at a Ukrainian notary, a power of attorney was certified in the owner's name to a third party. The power of attorney authorized the sale, lease, and further transfer of the property to another person. The owner claims that this power of attorney is fake.

May 29, 2019. Based on this power of attorney, the plot was sold to a third party for 525,000 GEL.

May 30, 2019. The very next day, the new "owner" mortgaged the plot together with other property at a bank. The loan amount exactly matched the sale price, 525,000 GEL. The mortgage was later canceled.

October 4, 2019. The plot was sold with a right of redemption for 68,200 USD, with a 6-month redemption period.

October 22, 2019. In one day, in the same notary office, three things happened. The property was redeemed. Then it was sold to a new buyer for 200,000 USD. And on the same day, the new buyer sold the property, purchased for 200,000 USD, back to the same person with a right of redemption, again for 68,200 USD and again with the same redemption period.

December 2, 2019. The property was redeemed again and ultimately remained registered in the name of the third purchaser.

All settlements were made in cash, with notarially certified deeds. In December 2019, a criminal investigation was launched. In 2021, the owner was recognized as a victim, and the damage was assessed at 699,925 GEL. According to the owner, the first buyer is in hiding.

What the owner demanded

By the claim, the owner demanded the annulment of all four contracts and the return of the property in an unencumbered state. The main argument was that the sales and sales with a right of redemption were, in fact, disguised loan and mortgage agreements, i.e., sham transactions. In his opinion, this was confirmed by several circumstances: selling property bought for 200,000 USD on the same day for 68,200 USD, the same notary, short timeframes, cash settlements, and the buyer's numerous similar transactions.

Why the court refused

The court fully rejected the claim. Four main arguments are outlined in the decision.

First: Victim status does not prove falsity. In the court's opinion, recognition as a victim is only a procedural act at the investigative stage. A crime and the falsity of a power of attorney can be confirmed only by a judgment that has entered into legal force. According to the power of attorney, the owner signed it in the presence of a notary and his identity was established.

Second: Proving forgery is not enough. The court indicated that the claimant also had to prove the buyer's bad faith, that is, that the buyer knew about the forgery of the power of attorney.

Third: Sham transaction was not confirmed. In the court's assessment, one notary, short timeframes, discrepancy with the market price, and cash settlement are not sufficient to consider the transaction as sham. Otherwise, every sale with a right of redemption would be invalidated solely based on the seller's explanation.

Fourth: There is no legal interest. The court considered that even if the first contract were declared void, the owner would still not be able to recover the property, since the subsequent transactions would remain in force. Therefore, even the defendant's acknowledgment of the factual basis of the claim would not change anything.

By the same decision, the seizure on the property was lifted, and the owner was ordered to pay 2,000 GEL in attorney's fees.

The court applied the following norms

  • Article 50 of the Civil Code: Definition of a transaction;
  • Article 54 of the Civil Code: Invalidity of unlawful and immoral transactions;
  • Article 56 of the Civil Code: Fictitious and sham transactions;
  • Article 312, paragraph 1 of the Civil Code: Presumption of the accuracy and completeness of registry data;
  • Civil Code Article 319: Freedom of contract;
  • Civil Code Articles 509 and 510: Sale with right of redemption;
  • Civil Procedure Code Article 102: Burden of proof;
  • Civil Procedure Code Article 180: Legal interest in a declaratory claim.

What this case shows us

The civil court is waiting for the criminal verdict. When the author of the forged power of attorney is in hiding, a verdict may not be issued for years. During this time, the property changes hands. Therefore, the owner must prove the forgery directly in the civil proceedings. For this, handwriting expertise and requesting information from the notarial authorities of Ukraine are necessary: whether this power of attorney was certified at all and whether the owner was in Kyiv on that day.

The legal basis of the claim is decisive. The construction of a sham transaction imposes a heavy burden of proof on the claimant: he must prove the secret agreement of other persons. In a case of a forged power of attorney, it is more natural to focus on the absence of the owner's will, and with respect to subsequent purchasers, to focus on the signs indicating their bad faith. There are many such signs in this case.

The real owner pays the price for the protection of the bona fide purchaser. The presumption of the reliability of the register serves the stability of civil turnover. However, when property is alienated by a forged document and the owner did not express will, under the current model, the only participant who did nothing wrong actually bears the loss. This is a systemic problem of the legislation and requires the attention of the legislator.

Advice to owners

  • If you live abroad, enable the Public Registry notification service to be promptly informed about any application concerning your property;
  • Upon discovering the use of a foreign power of attorney, immediately request verification of its authenticity in the issuing country and keep documents confirming your location on that day (passport stamps, tickets, employment records);
  • Along with initiating a criminal case, immediately apply to the civil court with a request for injunctive relief. Each subsequent transfer makes property recovery more difficult;
  • Determine the grounds for the claim and the evidence strategy in advance together with your lawyer. It is at this stage that it is decided whether you will recover the property or not.

Losing property through a forged power of attorney is not only a matter of crime. It is a question of whom Georgian law assigns the risk of fraud: the owner, the purchaser, or the state that registered the transaction. In this case, the answer was given to the detriment of the owner.

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