FAQ –What rights do you have when purchasing property in Sabah with a loan.

1. What am I signing ?

You will need to sign (execute) at least the following documents: The Facility Agreement (aka loan docs), The Power of Attorney Agreement, The Assignment Agreement, The Memorandum of Charge. Other Forms will for Stamping purposes ie PDS 15 and LSF 1800.

2. What is a Facility Agreement ?

This is a MUST read document. Normally, it is the principal loan agreement which spells out your rights as borrower and how much to repayment every month over a number of years. It also provides for events of default, the Bank’s rights, deeming provisions and interest cost/penalty. This document usually incorporates the offer letter from the Bank. Sometimes Power of Attorney is incorporated inside this Agreement.

3. What is a Power of Attorney Agreement ?

This Agreement is advantageous to the Bank when the property has no Title (being submitted for sub-division by the Land and Survey Dept). Upon signing the agreement which is irrevocable (save with the Bank’s authority), you have voluntarily donated all your personal power to the Bank to deal with the property as set out in the agreement. For example to undertake on your behalf for the sale of the property or to charge the property. Unless stated otherwise, the Power of Attorney allows your “Attorney” to deal with the subject matter of the Title (when issued). The Power of Attorney Act is not applicable in Sabah so we have to rely on common law for the same based on contractual Principal and Agent relationship. In Malaysia, Contract Law is codified under the Contracts Act which is applicable to Sabah. In brief when you are bankrupt or become unsound mind then the Power of Attorney is terminated (Sec 154 of Contracts Act). Also note any Power of Attorney for Native Title is void when the power is donated to NON native (Sec 64(2) of Sabah Land Ordinance – ‘SLO’)). Therefore Banks will not ask for a Power of Attorney when it is a Native Title. The Bank will normally require the Native Title to be deposited.

4. What is the Assignment Agreement ?

This Agreement is most useful to the Bank when the property has no Title (as yet issued by the Land and Survey Dept). Upon signing this document, all your rights and benefits in the property (as contracted with the developer) will be transferred to the bank which will hold it absolute. The term Absolute is critical as it means you have no further rights except for equity of redemption to recover your property upon full payment. Generally, where an assignment is absolute and without Title at the time, then this will be an equitable mortgage. When an equitable mortgage exists then you are merely a licensee on the property at the pleasure of the Bank. This “licensee” clause is found in the Assignment Agreement. In Phileoallied Bank (M) Bhd v. Bupinder Singh a/l Avatar Singh & Anor [2002] 2 CLJ 621 stands for the law that '...a lender may, without obtaining an order of sale from the court, realize his security consisting of immovable property in respect of which there is no issue document of title and no registered charge'. Accordingly, the Bank can sell your property at will upon your default of payment. As it is ‘absolute’, you do not have any rights even to sue the developer (if there is a conflict) unless the Bank (to whom you have assigned all your rights absolutely) agrees. This position is still pertinent in Sabah unlike in West Malaysia whereby legislation (Housing Developers (Control and Licensing) Act 1966 at Section 22C) has override Section 4(3) of the Civil Law Act and the decision of  Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd [1984] 2 MLJ 268 if it involves a homebuyer who is a purchaser of a housing accommodation or has a dealing with a licensed housing developer under the 1966 Act.

5. What is the Sale and Purchase Agreement ?

This Agreement is used by the vendor (developer) with the buyer and usually is the only basis to bring an action against the developer for any breaches. In Besharapan Sdn Bhd & Ors V Agroco Plantation Sdn Bhd & Anor [2006] 4 CLJ 878, says that even though the vendor did not have any registered right or interest in the subject land that does not render the agreement which is otherwise valid and enforceable to be void or invalid. Interestingly, even though the Sale and Purchase Agreement (between you and the vendor) and the Assignment Agreement (between you and the bank) have the same effect of transfer, banks cannot use a Sale & Purchase Agreement as it is in the business of financing the property and not buying or selling. (Noting however in Islamic Banking this is exactly what is being practised). Where the developer is licensed under Sabah’s Housing Development (Control and Licensing) Enactment 1978 and the dispute is not more than RM 40,000 with said Developer, the buyer could raise this through a Tribunal for Housing Purchaser Claims established under Section 19A. There is even a mediation requirement under Section 19O of same.

6. What is the Memorandum of Charge ?

Where Title has been issued then the Bank has to use this Memorandum of Charge which does not involve any transfer of Title or Benefits as in Assignment above. By using a charge, the Bank is required to seek the Collector’s authority to auction the property ( Section 111 of the Sabah Land Ordinance – ‘SLO’). The Banks will always ask you to pre-sign this Memorandum in advance, if you do not have Title document issued. While Charge is explicitly recognised in the Sabah Land Ordinance, the same is not true for a mortgage, hence the difference between the two will also determine how the bank will recover its debt when you default.

7. Concurrent Action for titled property ?

Typically this means the Bank can bring a civil action (in court) AND to seek an order to foreclose your property by auction means as provided by the Sabah Land Ordinance ( Section 111) to recover the debt. However this practise of “concurrency” has been questioned in the case Alliance Bank Malaysia Bhd v Mohamad Yusof Amat Jamlee [2005] 7 CLJ 345. The latest is that Alliance Bank has lost the appeal. You can see this at http://tinyurl.com/74pqql5

8. The Bank told me I do not have to worry about the legal bills ? Why are they so generous ?

In preparing the documents for execution, the Bank is actually paying its own lawyers for its side of the transaction for representing them. Therefore, the Bank is paying its own legal bills as the lawyers are working for them rather than for you. In the past, the fees were paid (indirectly) by the Borrowers although the lawyers were still working for the banks simply because the banks could demand this for decades. With competition, this has become an advertising gimmick but do not expect the lawyers to help/advice you unless you are paying them yourself. As the borrower, it is better to use a different lawyer (one that is not on the Bank’s panel) although the costs may not be justifiable for standard type of loans.

On the other hand, it is customary for borrower to pay the legal fees when the loan is discharged (years from now). This will include a series of agreements such as a Deed of receipt & reassignment of the rights/benefits back to you, consent from developer and revocation of power of attorney. You can negotiate this fee with the law firm which is by default appointed by the Bank or you can choose one based on the fee, although you could find some resistance. It is important that you always give your latest address to the banks so they can get in touch with you.

9. What can I do when the Bank wants to foreclose my untitled property ?

As mentioned in Phileoallied Bank (supra), the lender can without obtaining an order of sale from the court, realize his security. And since you are merely a licensee in an equitable mortgage (ie no Title), you cannot even seek an injunction to stop the Bank unless you can show having fully paid up on the balance. In equity, the Bank will need to give you notice and time to pack your things usually ONE month. The Bank can eject you by force if you do not leave. The Bank also has certain obligation to ensure that they are not negligent in obtaining the best selling price for your property. You can bid for your property. Other than the above, there is nothing else you can do.  

10. What can I do when the Bank wants to foreclose my Titled property ?

Normally, the property would be under a charge (duly registered). The bank will need to apply to the Collector to auction the property when you fail to made payment of the principal sum, interest or periodical payment. The Collector has to be satisfied that such default has been made and has continued for the space of one month after the notice has been served by the Bank to the borrower (Sec 111 of Sabah Land Ordinance, SLO). You can appeal the decision of the Collector to the Director within 30 days ( Sec 41 of SLO) of Collector’s decision. If after you are not satisfied with the decision of the Director, you can appeal to the High Court (Section 41 SLO). In West Malaysia, the bank has to apply to the High Court (Section 256 of National Land Code ‘NLC’) and under Order 83 Rule 1 of the Rules of High Court to foreclose the property as there is no similar Section 111 of SLO by Collector in the NLC.  

11. Buying Foreclosed properties ?

Firstly and very important to read the Proclamation of Sale (for both charged (titled) and untitled properties). This is a document that governs your rights as a purchaser and most likely contained a clause that read the property is sold as it is (including tenants or whoever if any). So, it is the potential purchaser’s responsibility to evict the tenants who may have the right to be on the premises/property by virtual of any lease agreement between the defaulted borrower and the Bank. The prudent buyer will want to check the property (day/night) to ensure it is vacant as the costs to recover/evict is considerable as well as time consuming.

12. I am a guarantor to a loan for my son and his wife. Now my daughter in law is divorcing my son and is not contributing to the loan. I am being called to satisfy the FULL amount now in default, is this fair ?

As guarantor, you have to stand in the shoes of the borrowers when they defaulted. In law, you can recover from your daughter-in-law and son after you have settled the full loan with the Bank. This is fair because you have represented to the Bank to be the guarantor for the loan and on that basis, the loan was disbursed. In short, the reason why the Bank agreed to lend the money is because of you. In defence, you can argue ‘undue influence’ (your son and daughter-in-law asserted undue influence) or you fail to understand the language such that you only agree to guarantee up to a certain amount and the guarantee went beyond amount to your understanding etc. However, these will not excuse the guarantor unless one can show that the Bank knew of the above issues and closed its eye or championed the loan to the borrowers without your knowledge. It is fairly common for the Banks to insist the guarantor to use his own lawyer to explain the obligations and to certify to this as pre-condition to releasing the loan.

13. Why do I need to seek the Developer’s consent when selling/buying property ? And why so expensive, as high as 1 percent of property value ?

This is merely a procedure build into the S&P Contract by the Developer when they first sell the property to you. Given this is the practice in Sabah, the Bank now insists that this consent to be obtained. The main reason for the Developer to remain in the picture is because when individual sub-divided titles are first issued, they will be in the name of the Developer which is then transfer to the purchaser using the said title document and memorandum of transfer. Sometimes if the property has already been further onsell to third parties then one need to ask the Developer to effect the transfer to the third party. Effectively this means the Developer is obliged to keep a running book to track all the untitled transactions. That is where the costs component comes in. Hence, one can say the delay of Title issuance by the Land & Survey Dept indirectly resulted in Developer playing the role of ‘caretaker’ which in turn (rightly or wrongly) charging an administrative fee to satisfy their costs. In another view, using the Developer as a ‘caretaker’ may have some advantages, for example if the seller wish to annul a transaction, then seller could notify the developer not to issue any consent for transfer and provide a reason  (attaching a police report is sufficient in case of theft/cheating cases). If the Developer persists after notification then it could be sued for wilful negligence. Else the seller would cause a caveat on the Master Title to give notice to any potential purchaser so that later cannot claim to be bona fide without notice.  

The solution here is to get the Government to create a centralised system to track all the untitled transactions or to get the Land & Survey Department to pull their socks.

14. I have a dispute with the Developer what can I do ?

Complaint to the Local Housing Ministry, they have a Housing Tribunal to settle small disputes less then RM 40,000 arising from S&P Contract (can raise to RM 80,000 by agreement). This claim must be filed before the certificate of fitness for occupation is issued or not later than twelve months from the date of the issuance of the certificate or before the expiry date of the defect liability period as set out in the S&P. (Section 19N of Housing Development (Control and Licensing) Enactment 1978.) As stated above in Sabah, one has no standing to sue directly unless enjoined with the lender/bank who is the recipient of your absolute assignment of interest in the S&P Contract. If the developer becomes bankrupt without finishing the home/property, there is little hope in recovering any funds but your loan obligations to the Bank remains until satisfied.

The solution is to follow the West whereby properties can only be sold after completion with the proviso that a max 10 % deposit paid for off-plans. Effectively, the Developer must have its own financing to ensure properties are completed.

15. I have a dispute with the Bank what can I do ?

Talk to the Bank Officer first. Remember to take notes and to confirm by writing in Black/White. If this is of no assistance then complaint to Bank Negara but ultimately the issue is between yourself and the Bank. Bank Negara cannot sit as Judge so if the issue is contentious then its better to seek advice from your lawyer.  My experience with the Banks are that they are helpful and open minded when it comes to 'helping' recalcitrant clients as the alternative (ie paying a lawyer) is more expensive.

16. I want to settle ALL my loan obligation now, is there any penalty ?

Newer loan facilities provide a minimum cost even if this is within 5 years. In general, any early settlement of the loan will attract some cost roughly equal to 1.3 % on top of the amount to settle. Obviously the legal cost of settlement is for you to pay and this includes a discharge or drawing up receipt and reassignment of rights and benefits on property back to you.  

17. What is ‘indefeasibility’ means in Land Law ?

This is a legal term found for Land Law in West Malaysia and Sarawak only. Briefly this refers to the owner having conclusive title upon registration and that the title is free of all adverse claims or encumbrances not noted on the register (Muthammah v Masri Mohamed [2000] 5 MLJ 518). There are exception such as fraud and forgery but as an innocent purchaser without notice, your title is indefeasible (See Adorna Properties Sdn. Bhd. v. Boonsom Boonyanit [2001] 2 CLJ 133). In Sabah, we relied on the terms “..valid until it is registered…” as found in the Sabah Land Ordinance (Section 88). Hence, indefeasibility is not recognised in Sabah and we are endowed with what is commonly known as a modified Torrens System.  

18. Referring to Question 17 above, in respect of non-titled Land does this mean it is not valid since it has not been registered ?

All lands that are alienated must have a Title (say Country Lease or Native Title or Provisional Lease). Note that “Provisional Lease” refers to land that are yet to be surveyed by the Land and Survey Department and subject to availability of land, so it could be smaller upon surveyed. When an application is made for the Master title for sub-division, this division including for strata titles (if any) could take years which means the purchaser for the time being will only have an interest in the property derived from the Sale and Purchase Agreement with the seller/developer. And if the purchaser has a loan, this ‘interest’ is usually assigned (absolutely) to the lender.

As mentioned according to Sabah Land Ordinance (Section 88), title and claims are invalid until it is registered. In short, the buyer only have a chose-in-action against the Developer should he fails to obtain the sub-divided title and have it registered in your name by transferring to you. A chose-in-action means, a right to sue the developer or seller to compel them to make a transfer of the sub-divided title to you when it is issued in their names based on the Sale and Purchase Contract. Obviously, this action is contingent to the Land and Survey Dept issuing the sub-title. Remember, Besharapan Sdn Bhd & Ors V Agroco Plantation Sdn Bhd & Anor [2006] 4 CLJ 878, says that even though the vendor did not have any registered right or interest in the subject land that does not render the agreement (between buyer/seller) which is otherwise valid and enforceable to be void or invalid.

19. I have “Undivided Share” in a property, so what is the difference between “Undivided Share” against interest/benefits accorded by the Developer with a Master Title ?

When one says “undivided share” this usually refers to having your name on the Title with the ‘share’ as undivided with others. This undivided share may be transferred or charged as per Section 106 of the Sabah Land Ordinance. In contrast when you purchase a property which is subject to a Master Title being sub-divided (as when purchasing from Developer with Master Title) your name or share or interest/benefits are not found on the Master Title. The only reference to your interest is contractually derived from the Sale & Purchase Agreement between you and the seller/developer. The only rights you have is to sue the developer if he fails to transfer to you the sub-Title in the future subject to issuance by the Land and Survey Department.

20. The Master Title owned by the Developer cum Vendor is already charged to the Bank (bridging financier). Should the Developer cum Vendor defaulted or bankrupted, what will happen to my interest/benefits contracted in the Sale and Purchase Agreement ?

Normally if there is a loan, your lender will redeem that portion of interest/benefits from the Bridging Financier and hence forth Bridging Financier has no interest at all. Bridging Financier is lender to the developer using the land as a charge. Your lender will usually seek a caveat as notice to the whole of its interest but again where the title is submitted for sub division, this is not permitted while the Title is in the Land And Survey Office. To get around this, your lender will also require the Developer cum Vendor to undertake to refund any funds or hold it harmless in the event of a default or sub-division title not issued. Note, however under Section 12 of the Housing Developer (Control and Licensing) Enactment 1978 states the Developer shall not subject the land to any encumbrance without prior consent from purchaser. This clause is now standard in all Developer’s Sale & Purchase Agreements. The main concern here is that you will still owe money to the bank regardless of what happened to the Developer. What is worst is that if the developer fails to complete the project, you will be paying off your loan (disbursed or whole part – depends on Facility Agreement) for unfinished property over the next 20 years. Therefore, this needs to be considered when purchasing off-plan. My view is that the property should be completed (ready for occupation) before offering for sale which is typical in most developed countries (lately in West Malaysia as well).
21. What is this Borneo Housing Mortgage Finance Bhd v Time Engineering Berhad [1996] 2 CLJ 561 (Borneo Finance Case) about in regards to Sabah ?

This is a Federal Court case (highest in Malaysia). In this case, the Chargor (Developer) applied for a bridging loan from Borneo Housing Mortgage Finance on 1 March 1982 and entered into a Sale & Purchase with Time Engineering on 2 Nov 1982. The Charge was created on 28 May 1983. By 23 May 1986, Time Engineering has fully paid the amount to the Chargor. However, Chargor defaulted and subsequently the property was auctioned off to a third party on 30 Nov 1991. This case confirms the requirement for validity of registration (Section 88 of SLO) as paramount. The Charge was registered while the Sale & Purchase was not as there is no Sub-Title. The Developer is not a Bare Trustee until ALL payment is made and gives a registrable transfer (rather than date of Sale & Purchase as argued). (Registrable has special meaning which is the MOT must be signed, witnessed and dated) And this transfer has to be registered if one wants to claim priority (Section 88 of SLO). Arguing the Developer as a Bare Trustee shows equitable interest has transferred to TIME but the Court agreed this only happened in 1986 after the Charge was registered in 1983. Confirmed Sabah uses a Modified Torrens System.

Any Question/Feedback to Chris(at)advocatesolicitor.com

Law as at 3 FEB 2009. FAQ for academic use only and is not legal advice.