The process of buying a property can be straightforward enough, as long as you have some professional help from a real estate agent, and even a lawyer.
They’re not only able to make the process smooth for you, whether it’s explaining complicated jargon or dealing with the mountain of paperwork, they might even speed it up with their network of contacts!
In fact, we’ve put together comprehensive step-by-step guides on how you can go about purchasing the home of your dreams, no matter if it’s brand new or a subsale one.
Everything sounds simple enough, until….
What happens if you hit a roadblock just as you’re about to sign on the dotted line?
One example would be when the seller suddenly informs you that he/she is not able to transfer the property to your name YET.
When you ask why, you’re informed that it’s because of something called the ‘redemption’ procedure, which hasn’t taken place YET.
You see, this is where the seller (and the appointed lawyer, if applicable) needs to request for an official statement from the bank which issued the home loan.
This official statement is also known as a redemption letter, and it provides confidential information, such as the borrower’s personal details and account data.
In addition, the borrower would be able to see the total remaining amount which needs to be paid for, if the person wishes to fully clear off the home loan.
PropertyGuru Tip
The total remaining amount is more formally known as the ‘redemption sum‘, which is inclusive of the interest rate and charges, among others.
Now, in order to seamlessly transfer a property to another party, the seller would need to ensure that the home loan he/she took out to pay for it is settled first.
This is because the bank would’ve used the property as a form of security, in case the borrower defaulted on the monthly repayments (it’s more common than you think!).
As such, the homebuyer would not be able to OFFICIALLY claim the property as his/her own, until the rights and property title are released from the seller’s bank.
The only way for that to happen would be for the homebuyer to receive the redemption letter, so that his/her appointed lawyer (if paying by cash) OR bank (if paying by loan) can pay off the redemption sum.
Are you able to carry out the redemption process on your own?
The steps for redemption are normally stipulated in the Sale and Purchase Agreement (SPA) that was signed between the seller and homebuyer.
However, it’s usually a legal professional who will attend to the entire redemption process, which involves the following:
- Requesting for redemption statement
- Preparing the relevant discharge documents
- Payment of redemption sum
- Completion of the sale
These are tedious tasks, and require the lawyer to constantly monitor and follow-up with the relevant parties involved.
In MOST cases, the redemption process and the transfer of the property to the homebuyer can be smoothly carried out within the timeline set under the SPA.
Nevertheless, it’s not uncommon for the lawyer to unexpectedly run into issues that are beyond his/her control, and thus it takes a little longer to complete the SPA.
Below are just some of the more common issues which lawyers have experienced during the redemption process:
1) Delay from seller’s bank
The bank may take a longer-than-usual timeframe to issue the redemption statement, after receiving the request from borrower/lawyer. Some banks may take a few weeks to issue the letter.
2) Delay from homebuyer
The homebuyer can sometimes be delayed when it comes to paying the redemption sum to the seller’s bank. But, it may not be his/her fault!
If the redemption statement lists a redemption sum that’s higher than the balance purchase price, the Sale and Purchase Agreement will usually specify that the seller needs to pay for the differential sum first.
For example, if the redemption sum is RM120,000 whereas the balance purchase price is only RM100,000, then the seller must first pay the difference of RM20,000 to the homebuyer’s lawyer.
After that, the homebuyer’s lawyer will pay the balance purchase price and differential sum (RM100,000 + RM20,000) as the redemption sum to the seller’s bank.
Basically, if the seller has difficulty paying for the differential sum, this may cause the delay.
3) Delay from homebuyer’s bank
The homebuyer’s bank taking an extended period of time to disburse the home loan does happen.
Especially if the purchaser applies for a government loan, it will normally take about 4-6 months to process and disburse.
4) Misplaced documents
Sometimes the original property title could be misplaced or lost. Hence, the person responsible would have to first apply for the issuance of a new property title.
5) Documents accidentally go missing
It’s common for lawyers to engage a runner to deliver documents between law firms, land offices and banks. We all know that they usually travel by motorcycle and accidents do sometimes happen.
When this occurs, and they lose the documents, more time will be taken to locate or replace the documents.
6) Different practice at different land offices
As a result of these minor differences, some land offices may take a longer time to process the documents.
For example, the discharge of charge and completion of Memorandum Of Transfer (MOT).
7) Delay from developer
A longer time might be taken by the developer in issuing the developer’s consent or confirmation (yes, this is a must!).
What this essentially means is that, if a property is still under a Master Title (does not have the individual/strata title issued), it still legally belongs to the developer.
So, if there’s a need for the property to exchange ownership, the rights to do so will lie with the developer. And, the seller would be responsible to request for that!
When this happens, the developer will have the right to impose an administration fee for consent/confirmation requests, pending the issuance of separate titles.
With so much uncertainty going on, and your dream home just sitting there, it’s understandable if you become confused and frustrated.
In times like these, the best thing to do is maintain continuous communication with your lawyer to ensure you’re always in the loop, and to fully trust that they know what they’re doing!
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Allen Khor is an advocate & solicitor in Messrs Allen Khor & Partners. His areas of practice include conveyancing, civil litigation, divorce, probate and administration. The telephone number of the firm is 012-283 0656.
*This column is for your information only and does not constitute legal advice for your specific needs. It cannot disclose all of the risks and other factors necessary to evaluate a particular situation. You should seek and obtain independent legal or professional advice for your specific needs and situation.
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