"The Bank cancelled the deal!"
"I've bought a house at an auction fair by the bank, but they cancelled the deal two months later! Can they do that?"
This was the question posted to us by one of our client who bought a single storey terrace house at Taman Desa Jaya, during a property auction fair conducted by the bank. For those of you who have read my previous articles on property auction before, you all knew this is what we called a Laca case, i.e. properties without individual titles issued.
After two months signing the contract of sale, and he has signed the loan agreement,and he has started doing the renovation (i would not advise this though) he suddenly got a call from the bank saying that the case need to be withdrawn. Apparently, the lawyer who's incharged of this property for the bank has made a blunder, i.e. this should be a non-laca case, simply because the individual titles has already being issued and registered under previous owner. As a result, the "correct" and "legal" way of disposing this property has to be done through Highcourt , and not by the bank themself. Therefore, the bank has to withdraw this case and re-auction the property through highcourt procedure.
So, in the end of the day, not only this purchaser will lose all his legal fees, he's also going to lose his renovation.
Two lessons we've learnt from this case:
(1) Never start renovating the house before the completion of the conveyancing procedure of your property
(2) When you want to bid for a laca property, and you already knew the titles have been issued, please do a land title search on it. If you find the previous owner's name has already being registered , then voice your doubt to the auctioneer, because this should be a non-laca case instead of a laca ones.
Should I bid for a caveated property?
This is a question posted to me by one of our Tiram blog reader. Apparently, she came across a Proclamation of Sale (P.O.S) of a property in Kuala Lumpur which she's interested in buying. It so happened that the property has been caveated. She then sought advice from few registered estate agents on the issues on caveat, nevertheless she couldn't seem to obtain a satisfactory answer.
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This is what i would do should i come across any caveated properties in auction:
(1) Talk to the P.O.S lawyer on the nature of the caveat in questioned, and the possibility of removing the caveat,
(2) Obtain second opinion from my panel lawyer on the possibility of removing the caveat,
(3) Should i get both negative answers from both lawyers, i won't even market the property to any of my client at the first place
(4) Should i get conflicting answers from both lawyers (and yes, lawyers do differ in their opinions sometime), i will also advise my client not to bid for the property.
I've always told my client that buying properties is a happy thing to do, but it may turn out to be some not so delightful event should you get yourself caught up with some legal predicament.
Always make sure that you know what you are buying.
Is auction property always "cheap"?
Before auction, the bank will always engage a registered valuer to value the property as at Open Market Value (OMV) and also Forced Sale Value
. As a rule of thumb and a rough guide, a Forced Sale value is normally 10% to 15% lower than OMV.
The first auction will normally start using the OMV as the reserve price, in other words, the auctioneer will first
attempt to sell the property using open market value, if unsold, then only the price will start going down. In the case of Laca cases (i.e. properties without individual titles ), the reserve price is going down almost every month
by approximately 5% to 10% from previous auction.
Low pricing is normally the major attract for auction properties, however, other issues such as condition of the property, previous owings and vacant possession should also be taken into consideration whenever you want to bid at the auction. Please also refer to my previous articles on Property Auction.
6 Things to watch out during auction!
(1) Always READ the Proclamation of Sales (POS) carefully, as it will denote few important details such as :
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- the earnest money payable to
- terms and condition
- who's paying the maintenance fees, sinking fund,indah water (IWK), assessment and quit rent and utility bills owed?
(2) Watch out for syndicate
- don't worry about them, just ignore them and make your bid, they are NOT genuine bidder
(3) Watch out for timing
- especially for highcourt cases, always make sure your solicitor can complete the transfer within the prescribed time, usually 90 days or 120 days, if not, your 10% earnest money will be forfeited without questions
(4) Watch out for *caveat*
- always do a title search before auction date, should u find any caveat lodged against the property, the BEST way is to buy CASH. If you are thinking of getting partly funding from the banks for the caveated property, think twice.
(5) Watch out for the previous ownings
- always check and verify the prevous owner's owning to the Management Corporation, Indah Water, assessment , quit rent and utility authority.
- In most cases, the bank will be responsible to maintenance fees, quit rent and assessment,however, this is not automatic, please always check with bankers or POS.
(6) Auction property is always sold without vacant possession
- it simply means that it the property is tenanted, you got to let the existing tenant to continue occupy the premises until the end of the tenancy period, however, i would always advise you to sign a brand new tenancy agreement with the tenant.