Taking a loan from a bank to finance the purchase of a property? Make sure you adhere to the loan agreement i.e. faithfully and consistently pay the monthly installment back to the bank, as your property can be possessed and sold to settle the outstanding loan that you are unable or refuse to pay. In legal terms, we call it an order for sale.
What is an order for sale?
An order for sale is a legal process whereby a chargee i.e. the lender takes possession of a chargor’s i.e. the borrower’s property which the chargee holds as security over it and sells it off to settle any existing debt that the chargor is unable to pay back to the chargee.
An example would be where a chargor fails to pay the monthly installment of a housing loan agreement back to the chargee. The chargee, after issuing a notice to the chargor (after the chargor fails to honor the agreement for at least 30 days) requiring the chargor to settle the amount due and if the chargor does not settle the amount due within the period specified in the notice, be it the installment or the full amount, can apply to either the high court or the land administrator office for an order for sale to settle the debt that is due to them.
What happens in order for sale?
In order for sale, the chargor’s property will be put through an auction process where the successful bidder will obtain the title to the property and the property itself provided that:
- The successful bidder must be above the reserve price;
- A deposit has been paid (if required); and
- The balance purchase price has been settled within 120 days from the date of the successful bid i.e. date of the sale.
Once the above requirements are fulfilled, the successful bidder will then receive a certificate that allows him to register his interest in the property and the title/ duplicate lease towards the property. Such title will be free from any encumbrances i.e. free from any liabilities that were owed by the chargor to the chargee.
It must be noted that a chargor can settle the total outstanding debt that is due to the chargee before the auction commences and the order will cease to have its effect.
Can a person set aside an order for sale?
Yes and no. Generally, the court held that if a chargor applies to the court for an order for sale, the court will usually grant the chargee the application. The same applies to an application for an order for sale by the chargee to the land administrator. If the administrator is satisfied (after inquiry) that there is a charge on the title in the register and there is a default by the chargor, he is required to grant an order for sale as well.
In order to set aside the application (in both instances), the chargor has to satisfy the court and the land administrator that there is a cause to the contrary i.e. there is a valid reason to set aside the order for sale. In Low Lee Lian v Ban Hin Lee Bank, the Federal Court held that there are only three grounds that can set aside an order for sale, they are:
- The chargor is able to demonstrate that the charge was created illegally i.e. there was fraud or misrepresentation involved, where the registration of the charge was obtained by forgery or obtained inappropriately, or when it is unlawfully acquired by an impostor claiming to be exercising his power and authority that was conferred by law;
- The chargor is able to demonstrate that the charge has failed to comply with the prerequisites and procedural requirements of filing an application for an order for sale. For example, a charge fails to make a proper and valid demand under Section 254 of the Code i.e. the chargee served the notice requiring the chargor to remedy the breach prematurely/ before the lapse of 30 days as mentioned above; or
- A chargor is able to demonstrate that the granting of such an order would be contrary to some rule of law or equity i.e. justice will not be observed if the application for an order for sale is allowed. However, do note that this is a very narrow ground and the court seldom entertains it unless there is an exceptional reason to do so.
In conclusion, it is prudent for the chargor to ensure that they adhere to the agreement that was made with the chargee. The chargor runs the risk of losing their property altogether, as the court nor the land administrator will ever entertain the pleas or cries of the chargor unless the chargor can satisfy the stringent test mentioned above.