Free House

Humans love getting something for nothing. Failing that, next to nothing. Picking up a $1-million inner-city Melbourne house for a $15,000 outlay, for instance. No, not by gambling, not in some casino's high-stakes spin-the-wheel game. There's a loophole in the law that allows you to do it. Forget paying market price to catch a ride on the property-boom wave. There's a lurk called adverse possession, where you claim ownership of a property you don't actually own. All perfectly legal. Morally questionable, perhaps. But business is business.

Forensic probate genealogist Sue McBeth became familiar with adverse possession last March. An entrepreneurial investor - we'll call him Mr A - walked into her office and asked her to do a little detective work. He'd heard about a house in Tooronga Road, Malvern, that didn't officially have an owner. There had been no change to the property's title since the 1920s - this, despite house prices in the area regularly topping $1 million. He presumed it was part of a deceased estate but somehow, years ago, had been left off the dead person's list of assets. McBeth's mission was to find out who the rightful heirs were so that Mr A could put a proposal to them. He'd lodge a claim for ownership on their behalf and, if successful, he'd charge 20% of the property's value as a spotter's and administration fee.

Tracking down heirs of rich folk who die intestate or with their affairs in a jumble is McBeth's specialty. She builds up family trees with branches reaching to every cranny of the globe. A few years ago she diversified. Melbourne councils, ever conscious of their revenue targets, employed her to find the owners of properties where no rates had been paid for ages. If the owners were dead, McBeth was to trace their beneficiaries so they could be slugged with a bill.

The exercise was a revelation to the councils. "I found out there was private land all around Melbourne that was no longer actually owned by anyone," McBeth tells me. "In the Altona area, for example, there's lots of land that was subdivided a hundred years ago, when it was worth nothing. The rates hadn't been paid in 70 or 80 years; people named on the titles had died. The land had become very valuable and the council realised it could sell it on the basis of unpaid rates. But first there had to be some effort made to find out if any relatives were entitled to claim the properties - and, if so, whether they would pay the years of outstanding rates."

As it turned out, Mr A was out of luck on the Malvern place. He'd been too slow off the mark: someone even more enterprising - let's call him Mr Z - had got there first. Mr Z had paid all rates owing on the property and then rented the house to tenants. A title search showed he was claiming ownership of the property on the grounds of adverse possession, given that he was now the ratepayer and had established himself as owner by receiving rental income from it.

Adverse possession comes under the Transfer of Land Act 1958. It allows someone who can prove they've had sole possession of a property for 15 years to become the owner. There were 1702 claims lodged with Land Victoria between 2001 and 2007. Most involve public land. Melbourne's alleys and laneways are a case in point: in seaside St Kilda alone there is a 42-kilometre network of them. Over the years many residents have treated the lanes that abut or dissect their properties as their own. They've dug them up for gardens, covered them with carports, fenced them off entirely. This has become known as lane-squatting.

Six years ago councils began to take action - lane-squatters were getting land free and that was intolerable, given soaring property prices. Some were told to rip up their constructions and get back in their boundaries. Others were given the option to buy their bit of lane. A small, innocuous section of lane might set you back $1000; a major lane in South Melbourne, $240,000. Some squatters applied, with varying success, for adverse possession.

Until recently, adverse possession on private property was so rare that even experts such as Phil Nolan, a property-law committee member at the Law Institute of Victoria, can't recall it happening. But it is happening now, as Sue McBeth found out. She tells me Mr Z's Malvern adverse-possession claim was successful. Which means that if the property is valued at $1 million, as is likely, and with rates averaging out at $1000 each year for 15 years, his was a deliciously cheap investment.

McBeth recently had a client who wanted to buy a piece of land in Port Melbourne, enclave of the newly moneyed. A title search revealed the only name on it dated from the early 1900s. The owner, long since dead, had been a wealthy man who neglected to include the property in his will. "Yet rates had been paid on the land for almost 15 years, long enough for the payer to claim adverse possession," says McBeth. "The payer had clearly been wised-up to the law and was paying the rates as a long-term investment."

She stymied that plan, tracing the heirs of the original owner, who were granted probate. It turns out, though, that the payer had also been picking up the rates tab on nine other properties with dormant titles in that municipality. Success can't be far off.

What puzzles McBeth is how people find out about ownerless properties in the first place. Mr A wouldn't reveal his source. Perhaps it was word of mouth: the friend of a friend of a friend. In McBeth's view, more likely a mole in the council's rates office. Victoria's privacy legislation is in some respects the most rigid in Australia - and in the case of adverse possession, that makes the task easier for the claimant. A people-tracker like McBeth can't access registry files unless probate has already been granted to beneficiaries. But probate can't be granted unless all the beneficiaries have first been identified. Often, to do that, those files have to be examined. "It's chicken-and-egg stuff," McBeth complains. "It's promoting adverse possession on private property and denies heirs an asset that's rightfully theirs."

Which makes this story read like a lesson in how to exploit the system. Wish I hadn't written it now.