Once the purchase contract for your new home is signed and the down payment has been made, the first action to be taken by the lawyer representing you is to register a “cautionary note.”
This is a note registered in the Land Registry, or the Israel Land Administration – the Minhal, to warn/alert any prospective purchaser (to whom the seller might, conceivably, try and resell the property, following the signing of the contract) that a purchase contract has been signed for this property and the sale is in progress. The recording of a cautionary note does not in itself constitute a final record of the purchase transaction, but protects the purchaser’s interest, as it prevents any deal being registered which is inconsistent with the buyer’s rights, unless agreed to in writing by the buyer.
A cautionary notice provides immunity to its owners and priority over parties who might attempt to place liens against the property, before the property is registered in the buyer’s name. It also grants its owners priority in the event that the seller declares bankruptcy or enters into receivership. By contrast, if no cautionary notice is recorded, the buyer will not be able to exercise his/her rights to the property in the event that the seller has debtors and declares bankruptcy, or in the event that a lien is placed against the property.
To register a cautionary note, a request form is completed and the original purchase contract between the parties presented to the title registry recording authority, together with a nominal fee.
In accordance with the Israeli Sale (Apartments) Law, a contractor selling an apartment must guarantee the buyer’s money. This can be done via the recording of a cautionary note in favor of the buyer. Other legitimate ways include the provision of a bank guarantee, an insurance policy indemnifying the buyer for the amounts paid to the contractor in the event the buyer does not receive the apartment, or a lien against the apartment in favor of the buyer;
Where the property is not registered with either the Land Registry or the Israel Land Administration, the mechanism of a he’arat azhara does not exist. Instead, a pledge/charge (mishkun) should be registered at the Registrar of Pledges (Rasham HaMashkonot). In addition, notice of the transaction should be sent to the body recording the transaction (e.g. Housing Corporation (Chevra Meshakenet) or the Chativa Le’Hityashvut in the World Zionist Organization (Histadrut HaTzionit Ha’Olamit)).