Property and divorce lawyer Johor Bahru

Foreclosure before auction begins

Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. A mortgage lender (mortgagee), or other lienholder, obtains a termination of a mortgage borrower (mortgagor)’s equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure).

In the Malaysia context, the mortagagee’s right of foreclosure in enunciated by Order 83 of the Rules of Court 2012 & S.256 & 257 of the National Land Code 1965:-

Order 83 Charge Action

(1) This Order applies to any action (whether begun by writ or originating summons) by a chargee or chargor or by any person having the right to foreclose or redeem any charge, being an action in which there is a claim for any of the following reliefs:
(a) payment of moneys secured by the charge;
(b) sale of the charged property;
(c) foreclosure;
(d) delivery of possession (whether before or after foreclosure or without foreclosure) to the chargee by the chargor or by any other person who is or is alleged to be in possession of the property;
(e) redemption;
(f) reconveyance of the property or its release from the security;
(g) delivery of possession by the chargee.

S.257 Matters to be dealt with by order for sale.

(1) Every order for sale made by the Court under section 256 be in Form 16H and shall-
(a) provide for the sale to be by public auction;
(b) require the sale to be held on, or as soon as may be after, a date specified therein, being a date not less than one month after the date on which the order is made;
(c) specify the total amount due to the chargee at the date on which the date on which the order is made;
(d) required the Registrar of the Court to fix a reserve price for the purpose of the sale, being a price equal to the estimated market value of the land or lease in question;
(e) specify that no bidder shall be allowed to bid in the sale unless the officer of the Court is satisfied that the bidder possesses, at the time of the sale, the sum equivalent to ten per centum of the reserve price specified under paragraph(d) ;
(f) specify that where the full amount of the purchase price is not paid after the fall of the hammer by the successful bidder, the sum specified in paragraph (e) shall be paid as deposit to the chargee and forthwith credited into the account of the chargor pending the settlement of the balance of the purchase price;
(g) specify that the balance of the purchase price shall be settled on a date not later than one hundred and twenty days from the date of the sale and that there shall be no extension of the period so specified; and
(h) specify that where the balance of the purchase price is not settled on a date specified under paragraph (g), the sum paid as deposit under paragraph (f) to the chargee shall be forfeited and disposed of in the manner specified under section 267A

Types of auction

A property with title issued will be auction off by public action in court (Judicial Auction/High Court Auction),
whereas a property without title issued such as newly constructed apartments, will be auction off through private auction (Non-judicial Auction/Bank Auction/LACA Auction).

Auction day

The bidders must be at 18 years old or above before qualified for the bidding process. Before the auction begins, a check or bank draft of 10% deposit must be placed in court before the auction begins. Please refer to https://elelong.kehakiman for the qualifications of bidders and the bidding process. for the complete guide on bidding process
*Foreigners will not be eligible unless approved by the state government.

Beware of Proclamation of Sale.

It is also imperative for the bidders to check on the Proclamation (Conditions) of Sale before bidding. These Conditions of Sale are always available before the auction takes place. An individual bidder at the auction ought to obtain and familiarise himself with these terms and conditions before the bid. This is because if the bid is successful, he will be deemed to have entered into a contract on those terms.

An example of a clause in a Condition of Sale which illustrates the risks a bidder must assume when he purchases a property, reads as follows:

“The property is sold on an ‘as is where is’ basis without vacant possession subject to (a) all express and/or implied conditions, restriction–in–interest affecting the Master Land and that which may be imposed/endorsed on the document of individual strata title to the property upon the issuance thereof, (b) all easements, covenants, charges, caveats, liabilities, (including but not limited to liabilities to the local authorities incurred but not ascertained and any rates made but not demanded) and any adverse claims in respect of the Property; and (c) all tenancies, lease, occupiers and rights (if any) of any tenant or occupier, subsisting thereon or therefore without any obligations arising to define the same respectively.”

An example of a Condition of Sale which exonerates the seller from handing over the property with vacant possession has a clause which reads as follows:

“The successful purchaser shall at his own costs and expense take possession of the property after the payment of the balance purchase price. The assignee/lender or its agents have no obligation to deliver vacant possession of the property and the successful purchaser is prohibited from entering the property before the payment of the balance of purchase price and/or late payment interest.”

It is a common and acceptable practice to purchase a property subject to express and implied restrictions endorsed on the document of title. But if there are tenants on the land, the bidder has to take the responsibility of evicting them and bear the costs incurred with the added risk that compensation may not be recoverable. The same would apply in the case of a need to have a caveat removed.

It would be in the interest of the bidder to visit the property and inspect it to familiarise himself with the condition of the property. The photographs in the newspaper or leaflet may not convey the real state of the property which the bidder expects to acquire. It must be said that a valuable property may well be acquired at an auction. However, there is a need to make adequate inquiries and investigations, and consider all the factors in order to end up with a good bargain.

Do check with the outstanding quit rent, assessment and maintenance as well. There are certain limits that the bank would cover such arrears or might not cover at all.

Memorandum of Contract: Payment within 120 days

A successful bidder would have to sign a Memorandum of Contract and pay the balance purchase price within 120 days, failing which the bank has the right to forfeit 10% deposit.

Restriction of interest

Unlike in a private auction (LACA) where the successful bidder is required to obtain consent to transfer where there is restriction in interest on the title, consent to transfer is not required for auction properties by the High Court or Land Office pursuant to Section 301 of the National Land Code 1965.

S.301 When an instrument is fit for registration.

An instrument shall be fit for registration under this Part if, but only if, the following conditions are satisfied:-
Provided that where a certificate of sale has been given to a purchaser in respect of any charged land or lease under sub-section (3) of section 259 or sub-section (4) of section 265, any requirement to obtain the consent of the State Authority relating to the restriction in interest to such land or lease in question shall not be applicable.

Certificate of Sale (Form 16F)

Deed of Assignment

S.259 Procedure at sale.

(3) The purchaser at the sale shall, upon payment to the said officer of the full amount of the purchase price, be entitled to receive from him-
(a) a certificate in Form 16F that the land or lease in question has been sold to him under the authority of this Act (which certificate shall, as provided by section 267, be registrable by the provided by section 267, be registable by the purchaser as if it were an instrument of dealing); and
(b) if deposited with the Court pursuant to paragraph (b) of sub-section (2) of section 258, the issue document of title to the land or, as the case may be, duplicate lease.

In a LACA auction context, a deed of assignment shall be signed once purchase price has been paid.

Legal fees

The legal fees  and stamp duty payable will be subject to current market value of the property, which is no difference when you are buying a house.

Recommended Posts