of 3

Making a Bid at a Public Auction

Published on April 2017 | Categories: Documents | Downloads: 4 | Comments: 0
12 views

Comments

Content


Making a bid at a public auction
30/06/2006 The Sun - Law & Realty By Andrew Wong

Generally, there are two types of public property auctions taking place in Malaysia, and anyone
who intends to bid at a public auction should know what additional costs he may have to incur,
over and above the purchase price.

Judicial auction

The first type is regulated by the National Land Code (NLC). This will apply to a property with
title and charged to a bank. When the borrower defaults in his repayment to the bank, the bank
will apply to the High Court (land registry title) or the Land Administrator (land office title) for
an order to sell the property by way of a public auction. This first type is often referred to as a
judicial auction.

In a judicial auction certain statutory requirements under the NLC relating to, the reserve price,
conditions of sale, mode of payment, service on owner and public advertisement of the sale, must
be complied with by the bank, before and after an order for sale is made. The NLC regulates the
application of the purchase money arising from any sale in a judicial auction, in particular,
requiring that the quit rent payable to the State and outgoings payable to the local authority, be
paid from the purchase money. An owner of the property or the purchaser in a judicial auction,
who suffers any loss or damage by reason of any act, omission, neglect, error or default arising
from these statutory requirements, is entitled to compensation.

Non-judicial auction

The second type is not regulated by any legislation and applies to a property for which no title
has been issued. This is usually the case for flats, apartments or condominiums. Since there is no
title, no charge can be created under the NLC. As security for a loan, the purchaser/borrower will
absolutely assign the rights over the property to the bank. When he defaults in his repayment, the
bank is contractually entitled to sell the property by way of a public auction, without having to
apply for an order for sale. This second type is often referred to as a non-judicial auction.

This article will focus on the pitfalls that may be faced by a successful bidder in a non-judicial
auction (the purchaser), as the minimum statutory provisions regulating a judicial auction do not
apply to a non-judicial auction. The bank determines the reserve price and appoints a licensed
auctioneer who will issue a Proclamation of Sale. The auction will be held under the auspices of
the bank's solicitors and the auctioneer. Everything will be contractual and understanding such
contractual obligations and liabilities of the purchaser is of paramount importance.

The Proclamation

The first thing an intending bidder at a non-judicial auction needs to do is to get his hands on a
copy of the Proclamation and Conditions of Sale (the Proclamation). There will be a fine print
that says something like “intending bidders are advised to inspect the property, seek legal advice,
conduct a land search and make enquiries with the developer of the property on the terms of its
consent to the sale.” Herein lies the main problem, as most intending bidders do not bother to do
so, until after they have successfully bid for the property.

Time for payment

The purchaser is usually required to pay 10% of the purchase price immediately after the fall of
the hammer. Some Proclamations stipulate 90 days for payment of the balance, others stipulate
120 days. Some Proclamations also state that no extension of time will be allowed, others will
say that extension may be granted at the absolute discretion of the bank, and if so granted will be
subject to payment of interest.

In a case of property without title, 90 or 120 days is usually sufficient time if the purchaser is
paying in cash. If a loan is required, the 90 or 120 days may not be sufficient, as the
conveyancing procedure is extremely cumbersome, with lots of exchange of undertakings. If the
property is a low cost flat, 120 days is definitely insufficient, as the purchaser will be required to
apply for consent of the appropriate authority, which usually takes more than 90 days to be
obtained. Having to pay interest for an extension will be an additional cost.

Developer's consent

Since the title has not been issued, the developer's consent is important so that when the title is
finally issued, the developer will know who should receive the transfer. Nearly all Proclamations
stipulate that it is the purchaser's responsibility to obtain the developer's consent and to pay any
fee charged by the developer. In some cases, the developer may appoint a solicitor to handle the
consent, and the purchaser may be liable to pay the said solicitor's fees. Such fees will be an
additional cost.

Outstanding service charges, quit rent, assessment and other outgoings

Developers do not usually grant its consent unless all outstanding service charges are settled.
Some Proclamations are quite fair in that any arrears of service charges, quit rent and assessment
up to the date of sale shall be paid out of the purchase money. Many Proclamations stipulate that
arrears of service charges and utilities bills (water, electricity and sewerage) shall be borne by the
purchaser. In one case, a purchaser successfully bid for a property at RM128,000, and
outstanding service charges was about RM40,000. These outgoings will be an additional cost.

Fees payable to bank's solicitors

When the balance purchase price is paid, the bank will sign a deed of assignment in favour of the
purchaser. Most Proclamations will require the purchaser to pay the fees of the bank's solicitors
for vetting or preparing the assignment and this will be another additional cost.

Vacant possession

Most important of all, a bidder really needs to know whether the property is vacant or occupied.
Nearly all Proclamations stipulate that the bank has no obligation to give vacant possession and
that the Purchaser shall take possession at his own cost. In many cases, a bidder would not be
able to inspect the property as the main door would be locked. The auctioneer will say he does
not have the key. Everyone assumes that the property is vacant. After payment of the balance
price, the purchaser will need to break the lock or maybe also the door. Once inside the property,
he may find that someone is occupying it as a tenant. Having to pay for a new lock or a new door
or several other locks and doors, and having to initiate eviction proceedings to obtain possession
from the occupant, can be a very substantial additional cost.

Conclusion

These are some of the more important things which an intending bidder ought to look out for. If
in doubt it is always prudent to consult a solicitor before you make a bid.

The writer is the Deputy Chair of the Conveyancing Practice Committee Bar Council Malaysia
www.malaysianbar.org.my

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close