Those who take bank loans should be more aware of the conditions that could lead to their houses being auctioned off. Borrowers
must educate themselves on foreclosure procedures.
BACK in 2002, V. Jeya and her husband took a bank loan to renovate their home in Kedah.
Several months later, tragedy struck – her husband passed away.
With four young daughters to care for, Jeya was grateful that the Mortgage Reducing Term Assurance (MRTA) he bought was sufficient to cover their home loan of RM30,440.
“The bank told me the insurance was enough to pay up the loan, and everything was settled,” says Jeya, 47, a systems executive. Or so she thought.
In 2011, when attempting to get another bank loan to buy a car, Jeya (who had by then moved to Klang) was told she had an outstanding amount of RM10,000 with the local bank.
“I asked them how this was possible, since the bank had confirmed that my loan was settled by the insurance in 2002.
“They said my oustanding loan was RM4,000 in 2002, but had now ballooned to RM10,000 with interest. The bank said they would investigate the matter. Interestingly, though, they didn’t have any documents on my loan. I had to provide them with my copies,” she says.
Then in May 2012, she was informed by her tenant in Kulim that the house had been auctioned off.
“When I approached the bank in Kulim, they told me they had nothing to do with the auction, and suggested that I check with their headquarters (HQ). When I checked, I was told to file a report with Bank Negara, so I did,” she says.
A week later, the bank confirmed that her house had been auctioned off for RM56,000. They issued her a cheque for RM29,500, after deducting what was due them.
“Firstly, why did they auction my house? If I had owed them RM4,000, why didn’t they say anything? I still lived there (in Kulim) for a whole year after my husband passed away. Why tell me only 10 years later?
“Secondly, where did the RM4,000 come from? They didn’t have my loan documents, or even knew my husband had passed away in 2002 (even though I made the MRTA death claim with his death certificate), so clearly their system has not been updated. They say I owe them RM10,000, why are they taking RM26,500? I keep asking them these questions, but they have not replied,” says a frustrated Jeya.
Jeya is not alone in claiming that her home had been wrongly auctioned off.
National Consumer Complaints Centre (NCCC) deputy director, K. Ravin, says he received about 30 similar complaints last year. (The NCCC is still assisting Jeya with her case.)
“This year, I received another 14 complaints. The numbers are not huge, but it’s significant because you’re talking about some 44 people who claim they have lost their homes unfairly,” he says.
But how can he ascertain if all these complaints are genuine?
“We usually get an indication through the bank’s reply. If they are not at fault, they will state their case very clearly, and reply promptly. If we find that there is indeed no case to be brought forward, all we can do is plead leniency on behalf of the complainant.
“But in many cases, the banks are not able to answer our queries, and they try to buy as much time as possible. Some even try to just brush us off by saying the matter has been settled with the complainant, when it has not... then we know that there may be a genuine problem there,” he says.
Association of Banks in Malaysia (ABM) executive director Chuah Mei Lin, however, says “it is highly unlikely that a borrower will face a situation of not knowing that his home is being auctioned, unless he has failed to keep the bank informed of his mailing address.”
She explains that the process of public auction or sale of a property (in the case of a property with a separate title) is governed by Sections 256 to 269 of the National Land Code.
“The process and procedure for an auction or sale is very strict, and the borrower’s rights are taken very seriously. It has to be demonstrated to the court that every step has been fully complied with on the part of the bank, starting from the service of the default notice.
“The application for an Order for Sale takes at least six months. The auction of the property itself, following from the Order for Sale, will generally take another six to nine months,” Chuah says.
Lawyer Raymond Mah explains that the procedure in foreclosure proceedings is fairly straightforward. (Refer to chart.)
“The court will only grant an Order for Sale once it is satisfied that the legal documents have been duly served on the borrower, to ensure that the borrower is notified of the foreclosure proceedings prior to the auction,” he says.
However, he adds that the service clauses in the charge document usually state that “the service of any notice and/or legal process may be delivered personally or given by any prepaid registered or ordinary post sent to the address for service of the parties as specified in the charge document, and such legal process shall be deemed to have been duly served after the expiration of [x] days from the date it is posted, and if delivered personally, on the day it was delivered”.
“The caveat here is that the borrower has been notified contractually. Whether the borrower was actually notified, meaning whether he was in fact informed of the auction, is a different matter altogether. For example, there could be cases where people think they’ve updated the bank with a new address, but the new address was never effectively recorded,” he says.
It is precisely for such reasons that Mah encourages borrowers to write to the bank to inform them of a change of address.
“It’s best to put it in black and white,” he says.
He adds that where a property has no individual title (with the loan made by way of Deed of Assignment), and there is a default on the loan, then the auction would be a private one.
“The bank can exercise its right by the Deed of Assignment to a private auction, because the borrower would have assigned his rights to the bank, and the bank is in control of the property in the event of a default.
“In such a case, there is no need for the bank to apply for an Order for Sale. The auction would be held in the auctioneer’s office, and not in court,” he explains.
Mah says that there is “very little that can be done once an auction is complete”, but a situation may still be salvaged if the auction is not yet conducted.
“If the order for sale has been granted, but an auction has not been conducted yet, the opportunity still exists for the borrower to negotiate with the bank. The borrower should go straight to the bank, and if an agreement can be reached, the auction can be called off. Usually if you can get the bank to agree, you’re home free,” he says.
Mah adds that if a borrower feels that the allegation of default or any part of the foreclosure process is unfair, he should seek legal advice as soon as possible, especially before the auction is complete.
In the event a borrower runs into financial difficulty, Chuah says he or she can negotiate with the bank although a deferral of payment would be unlikely.
“A reduction of the instalment payment, with the extension of the period of the loan, is a more likely scenario. In fact, borrowers are always encouraged to consult their bankers early when warning signs of inability to pay surface.
“Banks will try and assist in the most reasonable way on a case-to-case basis, and take time to understand their customer’s individual circumstances and find the best possible way to help their customer manage their financial obligations. Borrowers can also approach ABM to see if there is room for us to intercede (via the ABMConnect helpline 1-300-88-9980),” she says.
But prevention is always better than cure, and Mah shares a few key points for potential borrowers to take note of, before putting their signature down on a bank loan.
“Firstly, consider the loan repayment amount, and the period to be paid. Secondly, find out the consequences of late payment – what is the interest imposed on the principal sum, and how long of a delay before the bank enforces its charge,” Mah says.
Ravin concludes: “My advice to people is always this – read the agreement. If you don’t understand it, get someone else to read it and explain it to you. Even if it takes a long time, don’t bow under pressure to sign it fast. If you find something you don’t agree with in the agreement, dispute it.
“The contract is not final until you sign it.”