REINSW accuse NSW Fair Trading of gross negligence in trust fund bust up

A quarrel has erupted between the state’s peak estate agent organisation and the NSW government over the safety of deposits in trust funds following property sales.

The Real Estate Institute of New South Wales has accused the NSW Fair Trading department of “gross negligence” involving the audit requirements of trust accounts following the state’s largest fraud case.

They have demanded a parliamentary inquiry.

The Minister for Innovation and Better Regulation Matt Kean said it was wrong for the REINSW to say there was had been any legislation which had left consumers exposed, adding that the REINSW did not understand its members’ legal obligations.

“Auditors are required to lodge reports where they identify a financial irregularity,” he said.

Estate agents and solicitors must safeguard buyer deposits in trust funds after any property sale.

But in recent times more estate agents have illegally dipped into their client deposits, sometimes to help keep businesses afloat, or meet their gambling addiction or fund a lavish lifestyle.

The state government guarantees the safe keeping of deposits and offers capped compensation.

“Four years ago, Fair Trading made the decision to remove the obligation for real estate agents to lodge their annual trust account audits in what it claimed removed “red tape,” Mr McKibbin said.

“Removing the obligation to lodge the audit with Fair Trading meant Fair Trading no longer had the administrative burden of reading the audit reports.”

It had created the situation of compensations now costing taxpayers “millions of dollars,” Mr McKibbin said.

A Maroubra real estate agent was sentenced earlier this month to an intensive correction order, which will see him perform 400 hours of community service work, after being found guilty of eight trust account withdrawals totalling more than $425,000 over an eight month period in 2014.

The issue flared when victims of a 2018 estate agency collapse initially found they would not be full compensated because the alleged fraud exceeded the maximum compensation offered by the Property Services Compensation Fund, which is funded by the real estate sector through a levy.

A seller was told a missing $560,000 deposit would not be fully compensated as it exceeded the $500,000 maximum compensation, and the 120 other clients who were owed a $3.6 million total found themselves being told they would share the $2 million compensation limit that applied for any one agency collapse.

McKibbon said Fair Trading has subsequently agreed to full compensation after lobbying by the institute.

“We expressed the view that the consumer’s loss in this case was in a large part attributable to Fair Trading and to refuse to compensate them was unconscionable.

“Pleasingly we have received assurances from Fair Trading that they will now fully compensate.

“But it is the NSW tax payer that has come to the rescue.

“REINSW seeks to work cooperatively and constructively with a competent regulator and minister.

“Sadly neither currently exist,” McKibbin said.

Mr Kean said there were “serious questions over whether the REINSW was fit and proper to provide continuing professional development.”