Foreclosure, Auction & Bankruptcy
Auction usually carries negative connotations in society. When it comes to matters relating to auction, it is often referred to as the loss of property owned by the underprivileged, thus an unpleasant event.
But many may not realise that auction also an opportunity to others. When a home or a car is auctioned, it is actually an open opportunity for anyone to have it. The advantage of an auction is to be able to possess the property at below market prices, especially those involving houses for investment purposes.
For someone who experienced a foreclosure, it can be a challenging experience. But there are steps which you can take to get yourself and your family moving forward: to relocate to a new home, to revitalise your credit ratings, and even buy another home in the future.
At the end of the day, it’s all about one’s judgment and the restructuring of asset holdings. It is important because legal proceedings might begin when a debtor fails to resolve the issue with the creditors once the Notice of Bankruptcy is submitted to them.
Furthermore, the creditor will file a bankruptcy petition, and if the debtor still fails to explain the reason why the amount is outstanding, the court will issue a Receiving Order and Adjudication Order (RO & AO) against the debtor.
In the year 2016, Malaysia Department of Insolvency (MDI) handled 293,086 active bankruptcy cases nationwide, with the branch in Kuala Lumpur registering the highest number of bankruptcy cases, followed by Selangor, Johor Bahru, Ipoh, Penang and Kota Kinabalu.
Most of the indebtedness that led to bankruptcy recorded in 2015 were for the purchase of vehicles, which accounted 4,725 cases, followed by housing loans (2,504 cases) and personal loans (5,228 cases).
In the same period, 2,504 bankruptcy cases involved individuals under the aged between 25 and 34, make it almost 30 percent from the total bankruptcy case. In terms of gender, 69.28% of the total bankrupts were men while 30.72% were women.
According to MDI, the government agency that administers bankruptcy cases and bankrupts’ affairs, it is still in the process of preparing a report on the bankruptcy cases in 2016.
All banks in Malaysia have to observe a set of strict procedures and requirements before they declare that a certain property is to be auctioned. There are several steps that need to be done by the bank’s management, beginning with sending a letter of warning to the borrower (homeowner).
Once it enters the second month, the bank will once again follow-up by sending a final warning notice. In the third and fourth month, the bank will send letters from lawyers asking you to pay all remaining arrears within 14 days.
On the last date to settle the debt as stipulated by the bank, the bank will once again send a Letter of Facility Withdrawal from the lawyers, and again requires you to pay up the outstanding balances of the entire loan within a maximum of 14 days.
Normally, if you can’t pay the loan instalment within 3 months in a row, Bank Negara Malaysia will officially categorise your loan as non-performing loans (NPLs). If you still fail to make any payment within the stipulated time, the bank will again serve a notice on the borrower (homeowner).
In the sixth and seventh month, you can be expected to be called to the courts. The court proceedings will depend on the type of property. At this moment, lawyers will apply to get the direction of sales from the courts. They will also appoint an auctioneer to set the date for the auction.
On the other hand, the bank will appoint a real estate appraiser to determine the auction reserve price, based on the market price and the amount of outstanding loan. This process will take about another seven to eight month before your house can be auctioned off.
To avoid your house being auctioned, try to service loan instalments regularly. Granted, it might not be easy during a market downturn like now, with the uncertain economic situation. Some homebuyers might even have been retrenched and lost their source of income due to many unforeseen reasons.
STOP BANKRUPTCY BEFORE AUCTION
Therefore, Malaysian Association for Consumers and Borrowers Solutions, whose abbreviation 4PM was derived from their name in Malay, Persatuan Penyelesaian Pengguna dan Peminjam Malaysia, urged the banks to stop listing the borrowers as bankrupts before the auction of their property.
Its president, Rosland Mohd Arif said the bank must immediately stop such action as it is unethical. “Where are they going to live, if the banks make them bankrupt in advance? If the house is auctioned first, it might still be possible for the borrower to settle the remaining debt and then build a new life. But if they are made a bankrupt before their properties are auctioned, the borrower has no other way to improve their life,” he lamented.
Rosland said they received many complaints about this unethical practice from people, especially those who are less fortunate or suffered a loss in business.
He further elaborated that the banks do not give any prior notice whether or not they would declare the borrowers insolvent. “By law, banks should submit a notice on the upcoming auction on the borrower’s bankruptcy by hand before they can proceed with legal actions.” Sadly, 4PM received complaints that the victims were surprised when she had been bankrupted and her house was auctioned without prior notice.
“The banks cite excuses such as they have already posted the notice by mail to her home address. However, some people claimed that they had never received the letter,” he said. He also revealed that 90% of the more than 30,000 homebuyers across the country whose houses are being or will be auctioned off by the bank are Malays.
In the meantime, he also urged the banks and other financial institutions to stop embarrassing those late payment borrowers. “In case a homeowner can’t keep up with the instalment, thus is in danger of being declared a bankrupt and having his property auctioned off, the borrower should discuss with the lending bank to reschedule or restructure their loan facility, to be allowed a revised repayment schedule. In that case, banks will ascertain the future potential repayment capability or study if they have any other assets, to propose a repayment plan that the borrower can adhere to,” he said.
“Alternatively, these homebuyers who are unable to keep up with their instalment should try to sell their properties in the sub sale market, to avoid foreclosure and the possible shortfall in repayment,” Rosland suggested.
As long as they abide by the rules, homeowner need not worry too much as the borrowers, because Bank Negara Malaysia are always monitoring the lending banks to ensure that they act ethically within their jurisdiction and do not abuse the customers.
In case homeowner needs any assistance to prevent an imminent property foreclosure, Rosland affirmed that consumer associations such as 4PM are the best places to seek help regarding this matter.
While we are assured that the Central Bank of Malaysia is seriously looking into the issue of banks declaring borrowers bankrupt prematurely, another concern is about who should bear the legal and administrative cost in case a property is auctioned.
“When such scenario takes place, the borrower usually bear most of the fees. Besides legal fees, there will also be valuation fees for the purposes of determining the reserve price and other filing fees relating to the foreclosure proceedings incurred.
“The starting price will be the reserve price as determined and fixed by the lending bank, which is stated in the Proclamation of Sale. The forced sale value (which is lower than the market value) and the outstanding amount owed to the bank may be a component of the reserve price,” he said.
Home financing is no doubt a complicated matter for most of us, and to avoid defaults, banks have to ensure that the borrower can afford the repayment terms stipulated. As such, sometimes they are only willing to offer a loan with a less than ideal margin of financing.
“If you have missed several instalments, ascertain alternative funding possibilities before meeting lending bank to discuss possible options. Never at any time resort to money lenders, because you do not want to suffer for the rest of your life since their interest rates are very high,” he said.
COMMUNICATE WITH THE BANK
According to Sky Bridge International Chief Executive Officer, Adrian Un, auction can take place either before or after the banks declaring someone a bankrupt.
“Normally when the instalments have been outstanding for three months, the bank will wait for a couple of months, until the legal document or the court order is mailed to the borrower’s house by the sixth month.
“It is better to have frequent communications with the bank while waiting. There is not much you can do in dealing with bankruptcy or auction. Some even refuse to move out after being declared a bankrupt,” he said.
In addition, Adrian said if the borrower communicates with the bank and has successfully convinced them to agree on the extended time and resources, the owner might avoid foreclosure altogether.
“If the borrower can pay a little or more than half of the outstanding instalment, the bank should agree to call off the foreclosure. It is not good for the banks to have too many foreclosures on their records, because ultimately they also need to submit their report to the Bank Negara Malaysia, who will not like such high statistics on foreclosure and bankruptcy.
“So that the financial institution preferred to give a warning, as they also wish to avoid being questioned by Bank Negara for the high rates or offering loans to applicants,” he said.
However, he also claimed that the financial institutions are now more vigilant than before. “Somehow the banks nowadays are more ‘efficient’ than before. Even if the borrow just miss the instalment for a single month, they will also start calling.”
“To restructure the loan, the borrower should seek the help of the Credit Counselling and Debt Management Agency (AKPK) to represent them. AKPK can propose to the bank to lower the monthly instalment amount, but ultimately it is up to the bank whether they agree to the lowered amount.”
“If the borrower can’t pay all the debt, the best is to meet the bank directly and discuss with their debt collection or debt recovery departments. Most likely, the bank will agree although the amount reduced might be little,” Adrian added.
AVOID AUCTIONED HOUSES
Property investment master Dr Peter Yee also suggested that the best way to avoid foreclosure is to talk with the lending bank.
“Foreclosure can be stopped if you talk to the bank, but it is also depending on the bank, as well as the financial health of the person involved. However, to the banks, their first and foremost concern is about their bottom line. Hence if the borrowers do not pay, the bank will auction their properties off. To be safe, the borrowers have to find additional financial resources to pay off the debt,” he emphasised.
According to him, there’s never a wrong timing for property purchase, but one must first consider the risk of buying to that of renting, he advised. Asked about banks that tend to declare someone bankrupt before auctioning off their homes, Peter stressed that this unfair to the borrower as he would be left with no other way out.
Anyway, Peter also opined that since banks now would give frequent calls and reminders to borrowers who missed the instalment, they cannot claim that they miss the instalments due to negligence, and it could only be due to the lack of financial responsibility and resourcefulness.
“Having one’s home being auctioned off is of course a headache for the homeowner. While some have managed to buy back their auctioned home from the successful bidder at an agreed price, it is generally quite a difficult feat. Usually the bidder would like to make a profit by selling it at a higher price, and there are a lot of such cases in the high court,” he said.
For that reason, Peter also advised homebuyer to consider safer options, because buying an auctioned property could mess up the life of the original owners. “In fact, I prefer to buy vacant homes. Once I buy it, I will get the necessary repair done, fix the problems, clean it up, furnish it, then I will rent it or sell it.”
“My advice for those who deal with this situation is to calm down and think your way out. If you can’t, ask for help with a legitimate agency such as AKPK, instead of resorting to borrow from loan sharks.”
“If you have no other way, just let it be auctioned off and move on in life by relocating to another house, and later find another way to buy a new home. Forget the auctioned house because it was already sold to another person and you can’t buy it back with the same price. You will don’t want to borrow more just to buy it back. Think as it a learning process situation for you to build a new life.”
“There are people who refused to move out even after their house has already been auctioned. Therefore, for those who are considering in buying an auctioned house, first please ascertain whether there is anyone living in the house. If there is, perhaps you should just buy elsewhere because you might not want your home buying process to be further complicated,” he said.
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