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How to survive a bank foreclosure
New Straits Times
24 Aug 2012
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How to survive a bank foreclosure?
hope against homelessness: Now is the time to avail yourself of five defences against bank foreclosures
Let me now take us on a journey
In my previous article (NSTRED 17th
August 2012), I asked Malaysian through Malaysia's National Land Code
banks a question:
Can Malaysian banks be relied upon
to self­regulate and to act with caution
and compassion and not to commence
with wholesale foreclosure proceedings
against their defaulting borrowers that
would cause not only the economic
destruction of their borrowers but would
The requirement for strict compli­
of 1965 to understand the respective ance of statutory rules by Malaysian
rights and obligations of Malaysian banks (with penalties for their failure to
comply) provides distressed
banks and their housing loan borro­
borrowers with plausible
defences that they can avail
wers.
themselves to when faced
For many average Malaysians, to
with foreclosure procee­
dings by the banks.
have an encounter with the law can
prove to be an unpleasant and some­
times traumatic experience.
also precipitate a crash of the Malaysian
property market with dire consequences Property as collateral for loans: When
for all Malaysians?"
a person borrows money from a bank,
The worst case scenario: I hope that
normally the bank will require that the
Malaysian banks will voluntarily impo­
borrower provides the bank
se upon themselves a Malaysian­wide
with a security (collateral)
Housing Loan Repayment Moratorium
for durations of between three to five for the loan. For housing
loans, the security is usually
years. I also hope that Datuk Seri Najib in the form of the subject
Tun Razak, Malaysia's Prime Minister
property and the value of
and Finance Minister will intervene
the property should be hig­
and instruct Bank Negara Malaysia her than the amount of the
to impose a Malaysian­wide Housing
loan granted by the bank.
Loan Repayment Moratorium to be
The property that is
implemented by Malaysian Banks for
durations of between three to five offered by the borrower to
the bank as security for the
years.
loan will then be "charged
But, what if none of the above to the bank". The borrower
Borrowers 1st line of
defence: When a borrower
fails to pay the monthly
housing loan instalment for
four consecutive months
and the lending bank com­
mences with, foreclosure
proceedings against him,
before the bank can apply to
the High Court for an "Order
for Sale", Section 254 of the
NLC requires that the bank
issues to the borrower a
"Default Notice" in Form
16D, a form prescribed in the
NLC. This Form 16D must
be served on the borrower
in person.
It is mandatory for the
bank to comply with the
requirements stated in Sec­
happens? Faced with these onslaughts is known as "chargor" while
from Malaysian banks, can the the Bank is known as "char­
thousands of distressed borrowers
defend themselves?
gee".
When the borrower fails
Playing field is not level: Until now,
with a few exceptions, when Malaysi­ to repay the loan, the bank
in order to recover the loan
an banks commenced with foreclosure
proceedings against their borrowers, amount will proceed to
"the field is not level". It is a slippery apply to the High Court or
field for the borrowers. Even when the
the Land Office for an "Order
banks have a weak case, by the sheer for Sale" to sell the subject
weight and power of their money and property that is charged to
their battery of high­powered liti­ the Bank by way of a public
auction. In short, the bank
tion 254 of the NLC. If the
bank fails to comply and did not issue
and did not personally serve on the bor­
rowerthe "Default Notice" in Form 16D,
all subsequent foreclosure proceedings
commenced by the bank, all the way
to the issuance of the "Order for Sale"
by the High Court would be considered
irregular and cannot be enforced on the
borrower.
There have been many previous
gation lawyers, Malaysian banks will
Malaysian court judgments upholding
invariably prevail and win against their will try to auction off the
the doctrine of "Strict Compliance" with
charged property when the borrower Section 254 of the National Land Code
hapless borrowers.
defaults on the loan.
1965.
Justice requires level playfield: This Foreclosure under NLC: The NLC gives
article is not written against Malaysi­ Malaysian banks the right to foreclose Served with a court summons?: When
an banks. The objective of this article on the properties of their defaulting you are served by your bank with a
is to educate and inform the thousands
of distressed borrowers who cannot
afford to pay the lawyers' fees to get
the appropriate advice. They need to
know their rights as provided for in the
borrowers and to sell these foreclosed
properties through public auctions to
recover the loans.
court summons to foreclose your pro­
perty, first and foremost, you should
check your memory and your records to
However, there are very strict sta­ make sure "if you have personally been
served by the lending Bank through
tutory rules that Malaysian banks are
National Land Code of 1965 (NLC) and
their lawyers with the "Default Notice
required to comply with before they
how they can stand up for themselves
in Form 16D". I emphasise the word
and know what to do when they are can foreclose and sell their borrowers'
properties. If they fail to comply with "personally". If you did not personally
faced with foreclosure proceedings.
any one or more of these statutory receive from the bank's lawyers the
Malaysian banks' lawyers always rules, they will fail in their attempts to "Default Notice in Form 16D", even
claim that their clients have solid and foreclose and to sell their borrowers'
water­tight cases against the borro­ properties.
wers. Are the banks' lawyers correct?
though it may have been given to
your wife or left at your house or sent
Headline
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How to survive a bank foreclosure
New Straits Times
24 Aug 2012
Supplement
8,9
English
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to you by post, for as long as you did
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1431 cm²
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When the bank's lawyer applies to in their opinions of value with the dif­
not personally receive from the bank's the High Court for an "Order for Sale",
ference between the lowest value and
lawyers the 'Default Notice in Form the bank's lawyer will have to submit to the highest value ranging from 50 per
16D", the lending Bank did not comply the High Court a copy of the Valuation cent (at the lower range) to 400 per
with Section 254 of the NLC and the Report. The report will state the "mar­ cent (at the higher range). In absolute
consequences for the bank will follow. ket value" of your property as at the figures, Valuer A may value the 50­acre
When you are sure you did not per­ date of the Valuation Report.
land at RM10 Million whilst Valuer B
may value it at RM15 Million (50 per
sonally receive from the bank's lawy­
cent higher) or even RM40 Million (400
Reserve Price of foreclosed property:
er the "Default Notice" in Form 16D,
per cent higher).
immediately get yourself a lawyer and Section 257(l)(d) of the National Land
Code of 1965 states that:
tell him the whole story. Your lawyer
will know what to do next and he will
take care of you from then on.
Borrowers' 2nd line of defence: After
Can either of the valuers be wrong
"Every order for sale made by the or can they both be wrong? Who will
Court under section 256 shall requi­ decide which valuer is right and which
re the Registrar of the Court to fix a one is wrong?
you have ascertained that you did per­ reserve price for the purpose of the
sonally receive from the bank's lawyer sale, being a price equal to the estima­
the "Default Notice", you now have
Overseas­Chinese Banking Corpo­
ted market value of the land or lease ration Ltd vs Kredin Sdn Bhd
to study the form carefully. Is it Form in question."
16D or Form 16E? Why the splitting
This is a foreclosure dispute bet­
ween Overseas­Chinese Banking Cor­
of hairs? Does it matter whether it is
poration Ltd (OCBC) and Kredin Sdn
The definition of "Market Value" as
Form 16D (issued under Section 254) adopted by the Board of Valuers, App­ Bhd (the "Borrower") that was heard
or Form 16E (issued under Section raisers and Estate Agents, Malaysia is and decided by the Kuala Lumpur High
255)? Yes, it does matter if you want
to stop the bank's foreclosure procee­
as follows:
dings against you.
"Market value is the estimated 31­1069­86 between OCBC and
amount for which an asset should Kredin Sdn Bhd (Kredin), OCBC had
In essence, the difference between Form
Court in December 1995.
In the Originating Summons No
exchange on the date of valuation bet­ in November 1988 appointed Encik
ween a willing buyer and a willing seller Sulaiman Mustafa of Jones Lang Woo­
when the loan granted by the bank to in an arm's length transaction after pro­ ton to value five contiguous plots of
the defaulting borrower is repayable by per marketing wherein the parties had residential zoned land located next to
instalments over a period of time, like each acted knowledgeably, prudently the Kuala Lumpur City Centre (KLCC),
16D and Form 16E is:
Form 16D is a default notice issued
a Housing Loan repayable in monthly and without compulsion."
instalments over a period of 30 years.
Right to challenge Valuation Report: As
off Jalan Ampang, Kuala Lumpur (the
subject properties).
Form 16E is a default notice issued
the owner of the property that is being
In November 1988, Sulaiman valued
when the loan granted by the bank to foreclosed, the borrower has the right the 206,531 sq ft (4.74 acres) land at
the defaulting borrower is repayable on to challenge the accuracy and correct­ RM19.000 (RM0.09 per sq ft).
demand in one payment like an Over­ ness of the Valuation Report prepared
In April 1993, the same Sulaiman
by the bank's valuer and to challenge prepared an update Valuation Report
draft granted to businesses.
the valuer's opinion on the "Market and re­valued the land at RM42.000
If you have been granted by your Value" of the borrower's property that (RM0.20 per sq ft).
is the subject of the foreclosure pro­
In July 1993, Kredin appointed Dr
Ernest Cheong of Ernest Cheong PTL
bank a Housing Loan to be repaid in ceedings.
Chartered Surveyors (this writer) to
monthly instalments over a period
In my previous article (NST RED
of say, 30 years, and you personally 10th August 2012), I suggested that value the same land.
In his Valuation Report dated 27th
received the "Default Notice" from when two valuers are instructed at the
the bank's lawyer but it was Form 16E same time to value a residential pro­ July 1993, Dr Ernest Cheong valued
that you received instead of Form 16D. perty like an apartment, terrace house the 4.74 acres land at RM134,245,150
When you did not receive Form 16D, or detached house located in Kuala (RM650 per sq ft).
the Bank did not comply with Section Lumpur, the valuation of the property
After hearing the evidence of
254 of the NLC and the consequences by the two valuers will not differ much both Sulaiman and Dr Cheong, Justice
for the lending Bank will follow.
one from the other. They will likely have Rahmah Hussain held that:
When you are sure you did not adopted the same method, namely the
"I am of the opinion that this Court
receive the "Default Notice" in Form Direct Comparison Method for their can still follow the general guideline as
16D even though you were served valuations. Similarly, the valuation of laid down in that case (Supreme Court
with Form 16E by the bank's lawyer, a valuer appointed by the borrower case of NKM Properties Sdn Bhd v
immediately get yourself a lawyer and to value his house, a straightforward Rakyat First Merchant Bankers Berhad
residential property in Kuala Lumpur [1992] 2 MLJ 349) that is the reserve
tell him the whole story.
is not likely to differ much from the price is a price equal to the estimated
Borrowers' 3rd line of defence: After
valuation of the same property by the market value of the land in question."
you are sure that you personally did
receive from the bank's lawyer the
"Default Notice" in Form 16D, you will
now instruct your lawyer to request
bank's valuer.
However, when these two valuers
"In his valuation report dated 27
are instructed at the same time to value
July 1993, Mr Ernest Cheong gave the
from the bank's lawyer a copy of the a 50­acre plot of vacant land in Kajang, basis of his valuation whereas in Encik
Selangor, they will likely produce Valu­
Valuation Report on your property pre­
ation Reports that are vastly different Sulaiman's update of his 1988 report,
pared by the bank's valuer.
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How to survive a bank foreclosure
New Straits Times
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dated 5 April 1993, it was stated that also the bank s borrower.
even sold your property at a public auc­
the update was undertaken without re­
Do Malaysian banks have the right tion, is this the end of the road for you?
inspection of the subject property and to apply for Replacement Titles on their You still have one last line of defence
available.
conducting title check but was based own?
on information received in the earlier
report."
Section 166(l)(d) of the National
Extension of time to settle balance
Land Code 1965 provides for the "Cir­ purchase price: The usual requirement
As such, I am more inclined to cumstances in which title in continua­ under the Proclamation of Sale is that
accept Mr Cheorag's report. Furthermo­ tion may be issued to land as a whole", the Purchaser at the Public Auction is
re, Encik Sulaiman has totally disregar­ and for the application of Replacement normally required to settle the balance
ded potential advantages of the said
land. Mr Cheong however has given the
fair market value at RM650 per sq ft.
I am of the opinion that this is rather
on the high side and that if I follow the
value as suggested, the reserve price
will be too high and there will be no
bidders and the auction will be aborted.
Titles when the original issue document of the Purchase Price within 90 days
of title "has been lost or wholly or par­ after paying the requisite 10 per cent
tially destroyed, or is being improperly of the Purchase Price.
or wrongfully withheld".
The Chargor (borrower) must
Section 166(2) of the NLC stipula­
be consulted and his consent obtai­
ned if there is any application by the
tes that the person or body to apply for Purchaser for any extension of time to
replacement titles are as listed below: ­ settle the balance of the Purchase Price.
As such to my mind, a reserve price at a) The proprietor of the land in question The Bank cannot on their own, unilate­
RM525 per sq ft is more reasonable in b) Any person or body claimingthrough rally grant the Purchaser the extension
the proprietor
the circumstances".
of time they applied for.
The Court ordered that the Reserve
Section 166(2) of the NLC as quoted
Failure on the part of the len­
ling RM108,428,775 for the 206,531 "Chargee" to be included in the list of ding Bank to obtain the Chargor's
sq ft (4.74 acres) land comprising the person or body permitted to apply for (borrower's) consent to grant the
Purchaser's application for the exten­
subject properties.
the replacement title.
sion of time to pay the balance of the
A summary of the valuations are
Section 168 of the NLC stipulates Purchase Price will render the Sale of
represented as follows (see Table 1):­ that "Before issuing title in continua­ the borrower's property at the Public
Price be fixed at RM525 per sq ft tota­ above did not provide forthe "Bank" or
Auction void (has no legal effect and
paragraph (c) or (d) of subsection (1) unenforceable) (refer to M&J Frozen
you have been granted the housing of section 166, the Registrar or [Land Food Sdn Bhd v Siland Sdn Bhd &
tion in the circumstances described in
Borrowers' 4th line of defence: After
loan and before the loan amount was
Administration] shall:­
Anor [1994] 1MLJ 294 SC).
released to you, you signed all the legal
(a) cause notice of his intention to
Even after your property has been
documents to "charge" your property/
do so to be published in the Gazette in
sold by the bank at the public auction,
house to the lending bank. After the
you will need to monitor the progress
"Legal Charge" was registered by the Form 10D; and
(b) cause copies of the notice to be of the sale. You will know when the
Land Office in the name of the bank,
the "Original Copy" of the title docu­ served on every person or body having balance 90 per cent of the Purchase
ment would be returned to the Bank
a registered interest in the land, and to Price has to be paid by the Purchaser
for safekeeping as your "Trustee and be published in accordance with the (90 days from the date of the public
auction). On the 91st day from the date
Custodian" for the safety of your Title provisions of Section 433
of the public auction, go to the bank
Document.
Request for copy of Title Document
to ask if the Purchaser has paid the 90
from Bank: When you are served by
Have you ever wondered if the "Ori­
per cent of the Purchase Price which
ginal Copy" of the title document to your Bank with a Court Summons to should have been paid to the Bank the
your house is safe in the bank's custo­ foreclose your property, immediately day before.
dy? Did you ever consider it possible the request from your Bank a photocopy
If the bank refuses to answer your
bank would lose the "Original Copy" of of your Title Document that you had
your title document? It is a fact Malay­ deposited with them as your "Trustee query or gives you a vague answer,
and Custodian" for the safety of your immediately get yourself a lawyer and
sian banks have actually lost the "Ori­ Title Document.
tell him the whole story.
ginal Copies" of their borrowers' title
Your bank has to give you what you
Calling all distressed borrowers: If you
documents kept with them as "Trustee
requested for as it is your right to' ask have been served with a court summons
and Custodian".
them to give you a copy of your title to foreclose your property, please write
document.
to DatukSeri Najib and appeal to him to
When your bank gives you a copy of save you and your family from financial
they had lost the "Original Copy" of a your Title Document and you find that ruin. Please request him to intervene to
borrower's title document, they would it is not a copy of your Original Title have Bank Negara Malaysia impose a
instruct their lawyers to apply to the but a copy of a Replacement Title, and Malaysian­wide Housing Loan Repay­
Land Office concerned for a "Replace­ you are sure that you were not involved ment Moratorium to be implemented
ment Title". I am also informed by the­ in the application for the Replacement by Malaysian banks for durations of
se bank officers that their bank did not Title, immediately get yourself a lawyer between three to five years.
inform and did not get the borrower and tell him the whole story.
The Prime Minister's address is:
I am informed by officers of Malay­
sian banks that when the bank realised
concerned to be involved as they consi­
Borrowers 5th line of defence: When Datuk Seri Najib Tun Razak, Prime
der that as the "Chargee", the bank has after you failed to stop the bank and Minister's Office, Blok Utama, Bangu­
the right to apply for the "Replacement they succeeded in obtaining an "Order nan Perdana Putra, Pusat Pentadbiran
Title" without the involvement of the
for Sale" against your property and Kerajaan Persekutuan, 62502 Putra­
property owner (the proprietor) who is
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How to survive a bank foreclosure
New Straits Times
24 Aug 2012
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8,9
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jaya.
Please send me a copy of your let­
ter to the Prime Minister. I will try to
help you get help from "public spirited"
lawyers who may be willing to help you
at reasonable legal fees. Send me an
email at enquiriesiipecptl.com
This column is endorsed by the National
House Buyers Association of Malaysia
(HBA) to educate, inform and empower
house buyers in Malaysia.
Dr. Ernest YY
Cheongholdsa
Doctor of Busi­
ness Administra­
tion (DBA) and
an MBA. He is
also a Chartered
Surveyor, Reg­
istered Valuer,
Auctioneer,
Arbitrator and
Principal of
Ernest Cheong
PTL Chartered
Surveyors.
Contact him
at enquiries@
ecptl.com or visit
www.ecptl.com
Valuer/Court Valuation (RM) ; Value psf(RM) i Times
Sulaiman Mustafa 42,000 0.20 1
Dr. Ernest Cheong 134,245,150 i 650.00 : 3,196
Court ordered Reserve Price 108,428,775 ; 525.00 i 2,581
Headline
MediaTitle
Date
Section
Page No
Language
Journalist
Frequency
How to survive a bank foreclosure
New Straits Times
24 Aug 2012
Supplement
8,9
English
N/A
Daily
Color
Circulation
Readership
ArticleSize
AdValue
PR Value
Full Color
136,530
330,000
1431 cm²
RM 46,507
RM 139,521