Acquiring Auction Properties
The surge in Covid-19 cases few months ago brought about the implementation of the Movement Control Orders in Malaysia. With the extension of the lockdown and the ruling allowing only the operation of the businesses under the essential sectors, one may find it hard to keep up the monthly repayment of loan to the financial institution, which will eventually lead to foreclosure of the property, an action taken by financial institution to recover the debts owed by the borrower by selling the property, most commonly through auction.
More often than not, properties sold by way of public auction are cheaper than those in the secondary markets. For this reason, more and more people are showing interest in acquiring properties sold by way of public auction.
Below are some key points to note when buying auction properties:
Types of Title
Auction proceedings are either conducted by the High Court of Malaya, land administrator or licensed auctioneer, depending on the type of title of the land on which the property is built on.
If the title is registered under the name of the defaulter, more commonly referred to as individual title or strata title, the auction proceedings will be conducted either by the High Court or the land administrator as the procedure is regulated by the National Land Code 1965.
If the title is registered under the name of the developer or the proprietor (in the case whether the developer develops the land and sells the property for the proprietor), more commonly referred to as master title, the auction proceedings will be conducted by licensed auctioneer.
There are instances where the individual or strata title has been issued but still registered under the name of the developer or the proprietor. In such cases, the auction proceedings will be conducted by licensed auctioneer. However, such cases usually come with complications which will be discussed below.
Deadline
It is important to note the deadline as failure to pay within the stipulated deadline would result in the forfeiture of the deposit paid.
If auction is conducted by the High Court or the land administrator, the balance purchase price must be paid within one hundred and twenty (120) days from the date of the sale and no extension will be provided.
If auction is conducted by the licensed auctioneer, the balance purchase price would usually be required to be paid within ninety (90) days. Extension of time is granted at the discretion of the financial institution but such extension is usually granted subject to payment of late payment interest.
Note that in the case where the individual or strata title has been issued but still registered under the name of the developer or the proprietor, such transaction usually takes more time to complete. This is because it depends on whether the developer is agreeable to a direct or double transfer.
In the case of direct transfer, it means that the developer agrees to execute the memorandum of transfer directly in favour of the purchaser but subject to a fee payable to the developer by the successful bidder.
In the case of double transfer, the title must first be perfected in favour of the defaulter before the property can be transferred to the successful bidder. This would usually take more than 90 days to complete and late payment interest issue would arise. More complications and time are expected if the property involved is a leasehold property where state consent is required.
It is also important to ensure that loan can be obtained as deposit will be forfeited if the balance purchase price cannot not paid on or before the expiry of the deadline unless one is prepared to pay by way of cash.
Costs
Other than professional fees payable to the solicitors and stamp duty, one must read the proclamation of sale carefully to determine the charges (for example, quit rent, assessment, and service/maintenance charges) which the financial institution would reimburse.
Generally, reimbursement would only be paid up until the date of the sale and the claim for reimbursement must be given on or before the expiry of the due date stated in the proclamation of sale; failing which, no reimbursement will be paid.
Successful bidder would be expected obtain all the relevant bills and pay off any outstanding charges before reimbursement can be claimed.
In some instances, the proclamation of sale does not provide any reimbursement, in which case, the successful bidder will have to pay off all outstanding charges including those before the date of sale.
Complication arises if the developer has been wound up and in such a case, the successful bidder will have to approach the liquidator and additional costs will be incurred.
Condition of the property
Since the property is sold by way of an auction, one would usually not have a benefit of inspecting the property before bidding. Property is sold on an “as is where is” basis. One would only be able to view the property once the sale transaction has concluded.
Issue arises if the property is occupied. If the occupier refuses to vacate the property, the successful bidder would then need to seek for an eviction order to evict the occupier. Such process takes time and additional costs.
Restrictions
Some properties come with restriction and it is important to know whether or not you are qualified to purchase. For instance, bumiputera properties, low cost properties, Malay Reserved Land. Bumiputera properties can only be purchased by bumiputera.
One may make enquiries with the developer to determine whether the property concerned is a bumiputera property if the property is still held under master title. If the property is held under individual or strata title, one may make enquiries with the land office.
Failure to check prior to the bidding would result in the forfeiture of the deposit paid in the event of successful bidding.
Encumbrances
More particularly for individual or strata title, it is important to conduct independent land search to determine whether there are any encumbrances on the title. One common encumbrance is private caveat.
Private caveat prevents any dealings until such caveat is removed. Non-removal of the caveat would prevent registration of the title in favour of the bidder and release of the loan, if loan is involved.
Conclusion
Acquiring auction properties come with complications and it is advisable to appoint a lawyer to conduct all the necessary due diligence and advise you prior to the bidding.
**This Article was written by Mak Ka Wai and is only intended for general information purposes only and does not constitute legal advice**