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
3. What is a Power of Attorney
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  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 
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
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  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
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  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
 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  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  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  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
Any Question/Feedback to Chris(at)advocatesolicitor.com
Law as at 3 FEB 2009. FAQ for academic use only and is not legal advice.