Banks Must Give Notice Before Acting Against Loan Defaulters

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Responding to Parti Sosialis Malaysia (PSM) secretary-general A Sivarajan’s claim that all “major banks” in Malaysia had occasion to oppress borrowers, the Association of Banks in Malaysia (ABM) has assured that it is a requirement for banks to provide sufficient notice before action is taken against defaulted borrowers.

Edgar Su/Reuters

In a statement, it said properties without titles would generally be foreclosed through the relevant court process, FMT reported.

ABM added that in such cases, the borrower’s rights to adequate notice and due process are determined by law.

It also said that for properties without titles, it was common practice for banks to obtain a power of attorney from the borrower to allow the bank to sell the property in default.

“This arrangement is a precautionary step to protect the banks in case of such occurrence. However, banks do still provide adequate notice to the affected borrowers in respect of properties without title,” it was quoted as saying.

ABM reportedly stated that banks were also required to engage with borrowers early for alternative repayment arrangements.

“Upon detecting any signs of repayment difficulty, banks will proceed to contact customers promptly and proceed to engage in early discussions towards alternative repayment measures to address financial difficulties.

“Foreclosure on the customer’s property (all types of properties) can only be initiated when other reasonable attempts to reach a resolution have been unsuccessful (including to conduct their own private sale before the bank does so).

“Bank documents such as contracts, agreements and policy documents are required to be presented in plain language so that they are easy for readers to understand.

“In instances where the use of legal and technical terminology cannot be avoided, the meaning of these terminologies would be explained or printed in a glossary for reference,” it was quoted as saying.

Sivarajan had also urged Bank Negara to review the wording of loan contracts between banks and borrowers.

Referring specifically to the deed of assignment and the power of attorney agreement, Sivarajan alleged that all “major banks”, which he did not name, had had occasion to oppress borrowers, FMT reported on Nov 15.

According to Sivarajan, the deed of assignment states that it is the bank’s absolute discretion “to be entitled, without notice, to enter and take possession of the property, to let, to lease, sell, transfer or assign the property”.

“This means that if a banks even senses a whiff of trouble, it can auction the property without informing you even though you have been paying your 30-year housing loan for the past 20 years, but because of some financial crisis, you are late by two or three months with your payments,” Sivarajan reportedly said.

He claimed that PSM had dealt with more than 50 such cases nationwide in the past four years.

“We’ve been able to help with some of the cases, but not all.

“There are some cases where the owner only finds out that the property has been auctioned off when the new owner comes knocking on the door,”  Sivarajan was quoted as saying.

Under the power of attorney agreement, the property owner has to appoint the bank or any of its officers to act “in any manner whatsoever” to enforce all rights and remedies under the sales and purchase agreement, according to Sivarajan, adding that the rights accorded to the buyer under the sales and purchase agreement include rights to public space as well as the apartment’s facilities.

“So with these two agreements, you are in effect signing off all of your rights to the bank just so you can get a housing loan to pay for 80% to 90% of the price of your property.  

“The fact is that you’ve already forked out your own money to pay for the down payment,” Sivarajan was quoted as saying.

It was learned that the two agreements affect only apartment owners and not those who own landed property because the buyer’s name is on the land grant.

“For apartments, because of this deed of assignment, the bank doesn’t even have to tell you before it kicks you out,” Sivarajan was quoted as saying.

For inquiries or complaints regarding housing loan matters, members of the public can contact ABMConnect at 1300-88-9980 or via eABMConnect at www.abm.org.my.