Foreclosure or Mortgage default is a negative and stressful event which may occur if homeowners in Malaysia fail to meet their mortgage obligations. Foreclosure is the legal action by a bank, to take possession of a property because the owner is unable to pay back the loan. As with any type of credit, it is important to know what happens before your property is foreclosed since there are several steps and chances that one can take when they are unable to pay their mortgages.
In this article, we would like to highlight the steps that precede foreclosures in Malaysian properties as well as the legal processes that facilitate it, with an added bonus of useful strategies and courses of actions that you may take to prevent it from happening.
1. Understanding the Mortgage Agreement
Being aware of the terms of the mortgage agreement you have with your bank is the first thing you need to know about foreclosure. If you obtain a loan to buy the property, you then enter into a mortgage agreement that details the payments, interest rates, tenure of the loan and monthly installment. This contract also outlines what will happen if you do not make your payments on time, thus possibly succumbing to foreclosure.
One should note that the bank possesses the legal power to reclaim the property if you fail to pay back the loan. Nonetheless, foreclosure is generally a final option, and the banks might offer a multitude of chances for the homeowners to deal with their issues before taking such action.
Other than mortgage loan monthly installment, you should also be aware of different Malaysia property taxes that you need to pay yearly. This are all part of your expenses that you should consider before buying a property.
2. Missed Payments: The First Warning Sign
There are several stages involved in this process and the foreclosure process usually starts when the borrower fails to make regular payments of his/her mortgage. In Malaysia especially, banks will normally give a period of about 30 days after the due date upon which the payment has to be made. If the payment is not made in this period, the bank will consider the account as being defaulted, and the homeowner will start receiving letters from the bank.
The first notice is the initial notification of the homeowner which can be a polite notice to pay up or a second notice that is basically a warning to make the payment. You should not disregard these notices as those are the first indications that you can be moving towards more severe financial problems. When the payment has not been made on time communication with the bank may be essential in getting a way to handle the outstanding problem may include rescheduling for the loan or even being granted a discount on the payments due.
3. Failure to Pay for 3-6 months
If you fail this for about three to six months, the bank will draw a no-contest declaration of a default on the mortgage agreement. On the same note, the bank will contact the borrower through a notice of default which is a more severe warning that this individual is likely to take legal action against the borrower if he does not pay the outstanding amount in question.
This will state the total sum which is due together with interest charges and other penalties and a date by which payment should be made. In Malaysia this period is known as the grace period and usually takes approximately 3 months or 90 days to the date. The homeowner is still able to pay off the debt and thus prevent any further action being taken against him or her.
4. The Demand Letter
When default is not handled within the grace period, the bank will issue a ‘Notice of Demand’ letter; this is formal legal notice that demands full payment of the loan amount without any reference to the due amount only. The demand letter will set a final payment date after which the payment should be made and this will be within 14-21 days.
This stage becomes more severe as the demand letter is usually followed by the legal process in order to repossess the assets which the borrower pledged as security. This puts the responsibility on the homeowner to act in the manner including by paying the amount in full, or negotiating with the bank or seeking professional advice.
5. Legal Proceedings: Filing for Foreclosure
If the Letter of Demand fails to work, or if the debtor does not pay within the given date, then the bank will go ahead and file for a foreclosure. In Malaysia the foreclosure process entails the filing of a suit in the court whereby the money bank will obtain an order of the court to sell the property in order to recover the balance which is due to him.
The foreclosure process in Malaysia:
- Filing of the Foreclosure Application: In order to proceed with the process of foreclosure, the bank has to make an application to the court. The application will include detailed information of the mortgage, the total outstanding and the homeowner’s repudiation.
- Issuance of the Foreclosure Order: If the court approves the bank’s application then it will grant a foreclosure order. This order enables the bank to seize the property besides ordering for its sale.
- Notice of Auction: After the grant of the foreclosure order the property will be advertised for selling through an auction. The notice of auction will contain information of the property and day of auction which will be published at the local newspapers, Bank official website, property portals. The homeowner himself/ herself will also receive a copy of this notice.
- Auction of the Property: The property is then sold to the highest bidder. The money generated from the sale is applied on the remaining loan balance and the extra money can be given back to the homeowner. Though if the sale does not cover the entire debt, the homeowner may still be liable for the remaining balance
6. Eviction from the Property
It is important to note, once the property is sold at an auction, the new owner is entitled to its possession. If the homeowner still occupies the house, they will have to leave the place in this case. Sometimes the court is forced to order an eviction with an intention of giving possession of the property to the new owner.
The process of eviction can be very stressful, particularly if one has been living in the house for quite some time. There is often a notice where it is given well in advance and therefore, another arrangement can be made.
7. Options to Avoid Foreclosure
The effects of foreclosure can thus persist for a very long time ranging from credit score impairment to the general financial integrity. However, there are several options available to homeowners in Malaysia to avoid foreclosure:However, there are several options available to homeowners in Malaysia to avoid foreclosure:
- Loan Restructuring: Today, most banks have considered restructuring loans for homeowners who have financial difficulties. This may occur in the form of lengthening the repayment period, reducing the agreed rate of interest or occasionally, cutting down the periodic installments for some time. This is why you need to talk with your bank as soon as possible regarding the mentioned options.
- Refinancing: Switching to another mortgage with another bank may come with better offers and more affordable monthly installments that will enable one to honor the installments. Nonetheless, refinancing is normally available only to those having a good credit score, and sufficient home equity.
- Selling the Property: In case you find it difficult to pay for the mortgage, it’s preferable to sell the property before the process of foreclosure begins and thus spare yourself legal procedure and lower overall amount owed. At times, this would warrant getting cash from the sale of the enterprise in order to clear the mortgage and prevent the process of foreclosure.
- Seeking Legal Advice: If you are facing foreclosure it is recommended that you consult a lawyer for professional legal counsel. Lawyer will be able to assist a borrower to explain the law, challenge the bank in the court and advise on different technicalities which may be employed to stop the proceeding at various stages of foreclosure..
8. Conclusion: Take Action Early
The process of foreclosure is a difficult and frustrating one, but it is not an immediate occurrence. Nevertheless, in Malaysia now, some of the measures and chances that one can take in order to turn away foreclosure include the following if done at the early stage and involving the financier. It is important to learn about the foreclosure process and your rights in order to best protect your home and monetary assets.
Anyone in a situation where they are finding it difficult to make the necessary mortgage payments, don’t wait for the worse to happen. You should immediately contact your bank, consult with a specialist, and consider all the alternatives to prevent foreclosure. Although the process of foreclosure might appear daunting, it is possible to avoid it if the right strategies are employed.
