BUYING A FORECLOSED IMMOVABLE PROPERTY IN A NUTSHELL

(A) Introduction

Generally, foreclosure involves a situation where an immovable property is being put up for sale by a creditor to settle unpaid and outstanding debts by the debtor. Foreclosure may occur either when the debtor failed to pay his or her loan or other obligations in respect of the said property or it may also be a case where the said property is seized and put up for sale by a third party due to a personal debt through a legal process in Court.

The salient features for a foreclosure that occur when the borrower failed to pay his or her loan or other obligations in respect of a property is concerned particularly in Sarawak and mainly by banks/ financial institutions, are as follows:-

(B) Foreclosure Methods & Type of Property Broadly speaking, in Malaysia, foreclosure may be categorised into two (2) categories depending on whether the immovable property concerned are:-:- (1) LACA (Loan Agreement cum Assignment) property which is an immovable property that has not been issued with a separate title (individual or strata) and where the bank/financial institution concerned is the absolute Assignee of the said property pursuant to a Deed of Assignment with the right to deal with and sell the said property to any third party to recover the debt owing by the owner/borrower. Such property may be foreclosed through a sale agent without going to the Courts within the sale agent’s premises or any designated premises; Despite title has been issued, so long as not transferred to the owner yet, can still proceed with LACA sale: Damai Freight (M) Sdn. Bhd. v. Affin Bank Berhad; and (2) Titled property i.e. an immovable property which has been issued with a separate title (individual or strata) and where the bank/financial institution concerned is the registered Chargee pursuant to a registered Memorandum of Charge with the right to deal with and sell the charged property concerned to any third party to recover the debt owing by the owner/borrower. Such property may only be foreclosed by obtaining an Order for Sale from the Courts and the ensuing sale will also be conducted within the Court premises. (C) Mode of Sale At present, the following three (3) modes of sale are commonly used by banks/financial institutions for foreclosure purposes:-

(1) Auction – generally the most popular way to sell and buy foreclosed immovable property where the bank/financial institution fix a reserve price for the said property through a Licensed Auctioneer who conducts the auction on the specified date in the presence of the bank’s lawyer whereby any interested bidder(s) [who have registered for the Auction by paying the deposit thereof] are entitled to raise their respective bid against each other by a show of hands until the highest bid is recorded and the highest bidder be declared as the successful Bidder/Purchaser. The unsuccessful bidders will have their respective deposits refunded without interest at the end of the auction.

The benefit of conducting an auction is that it may result in a higher sale price as there can be a sense of urgency and competition amongst the interested bidders during the course of auction. However, auction runs risk of being controlled by certain syndicate who may attend the auction to interrupt the auction process by stopping or hindering the interested bidders to raise their hands to bid to prevent the increase in the bid and/or to stop others from bidding in order for them to get the property.

Due to the risk of being frequently controlled and interrupted by such syndicate, especially on good prospect properties, for non-LACA property in Sarawak, particularly in Kuching High Court, the Court will no longer grant an order for sale by way of auction since more than 3 years ago and nowadays, the only mode of sale granted by the High Court Judge is by way of Public Tender. On the contrary, it appears that auction is still a popular method adopted by banks for LACA property in Kuching.

(2) Public Tender – is a formal process which is conducted by a Real Estate Agent whereby any interested tenderer(s) have to fill in and submit the Tender Form enclosing the deposit (usually 10% of the tender price, payable to the bank/financial institution (for LACA property) and to “Akauntan Negara Malaysia” (for non-LACA property)) and put it in a sealed envelope before depositing the same into a Tender Box provided. For LACA property, the Tender Box provided by the Real Estate Agent will be kept in the premises of the Real Estate Agent which will be opened during the opening time and date of tender. As for titled property, the Tender Box provided (by the Advocates Association of Sarawak upon payment of the prescribed subscription fee of RM180-00) will be kept in the Chambers of the Registrar of the High Court and will be opened during the opening time and date of tender.

During the opening time and date of tender, the Tender Box will be opened by the Real Estate Agent in the presence of the bank’s/financial institution’s lawyer (as well as the Senior Assistant Registrar and Court Bailiff(s) for titled property) during which all the sealed envelopes in the said tender box will be opened and recorded and the highest tenderer will be declared as the successful Tenderer/Purchaser. The unsuccessful tenderer(s) will have their respective deposits refunded without interest. In practice, sale by public tender provides a fairer and more transparent process as the tender price submitted will only be made known to all the relevant parties during the opening time and date of tender.

On Public Tender conducted through Court, after the full purchase price had been paid by the successful tenderer, the bank’s/financial institution’s solicitors will file an application for an order for payment out of the purchase price and usually, it will take about 2-4 months to complete the payment out process.

For public tender conducted within the Real Estate Agent’s premises, the balance of the purchase price are to be made payable to the assignee bank/financial institution directly.

(3) Private Treaty – is a sale where the property is offered to the market at a listed price and interested purchasers may make an offer to purchase the same. A sale by private treaty is beneficial in that it allow the banks to consider each individual offer from the interested purchaser(s) before deciding whose offer to accept. In Sarawak, Private Treaty is the least popular mode of sale as it could take longer than a public auction or public tender since it involves negotiations, confirmation and finalisation on the terms and conditions before a sale is concluded particularly bearing in mind such Private Treaty sale process must be carried out in a transparent way with integrity.

(D) Advantages of Buying a Foreclosed Property

The main attraction of buying property via foreclosure whether a LACA or titled property is that the property can be purchased at a price below the market value bearing in mind that in the event of an unsuccessful sale, the reserve price for the subsequent sale of a property will be normally reduced by 10% in the next following sale.

However, interested purchasers of foreclosed properties should look out for the following common pitfalls or risks in buying a foreclosed property to avoid unnecessarily taking over liabilities that come with the property.

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