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We might have seen signs about ‘rumah lelong’ or ‘bank lelong’ tacked onto random lamp-posts, but what do they really mean?
‘Lelong’, which means auction in Bahasa Malaysia, essentially means that a home or property is being auctioned off by a bank.
Having your property auctioned off is a terrible feeling. It means losing your family home, and potentially everything else inside – including your valuables, and expensive furniture/fittings!
Not to mention the money you may have spent on beautifying it that’ll go to waste. But before your home can get auctioned off, it goes through a process called 'foreclosure'.
To ensure that you know your rights regarding this process and how best to avoid it, read on to ensure that you never have to face such an unpleasant matter!
How Does A Property Get Auctioned Off?
When you’ve applied for a home loan from the bank, it’s YOUR responsibility to make regular repayments until the amount has been paid off in full.
One thing’s for sure: you should never, EVER default on your loan. Defaulting on your loan means that you've stopped/cannot repay the bank anymore.
Following this, as you're no longer capable of giving them their money back, the property will have to be sold off by your lender (bank) to ensure that the remaining balance of the loan is recovered.
In which case, your home can (and WILL) be put up for sale in order to attract the highest bidder, in either a private or public auction.
To put it simply, a foreclosure occurs when a borrower is unable to pay off his/her debts, and the lender would then have the right to force the borrower to sell off the asset that was used as his/her collateral.
Foreclosure of Property
Here’s what usually happens if your property is about to be foreclosed (bear in mind that there's a specific and STRICT legal process which the banks need to observe):
- Step 1: The bank will issue you (the borrower) with a letter of warning to remind you to pay up... OR ELSE.
- Step 2: In the 2nd month, a follow-up final warning notice will be issued by the bank.
- Step 3: During the 3rd month onward, the bank's lawyers will send you letters requesting for you to pay the remainder of your arrears (basically, a legal jargon that refers to the money that is owed) within 14 days.
- Step 4: If you fail to do the necessary payments in Step #3 by the deadline, you'll be hearing from the bank again! This time, you'll receive something called a Letter of Facility Withdrawal. This requires you to pay the full outstanding loan amount within a maximum of 14 days.
- Step 5: In the 6th to 7th month, that's when you'll be called to appear in court, and the proceedings will depend on your property's type. This is where the bank's lawyer(s) will apply for a direction of sales, and an auctioneer will be appointed. The final step will be when a real estate appraiser is engaged in order to set the auction reserve price. Getting the final figure will be based on the current market price, as well as the amount of outstanding loan.
Disposal and Selling of Property
Now, although your property has been successfully auctioned off, there’s still a small catch as you might not walk off scot-free!
You see, auctioned properties carry a price tag that can be wayyy below market value to make them more attractive. The reason for this is simple: it gets sold off faster, the bank gets their money back faster.
Therefore, the final selling price (when someone has made a successful bid) of your property might be much lower than it's actual value.
The proceeds from the auction will go to the bank to pay off what remains of that loan you took, and any other outstanding payments. IF you’re lucky, any leftover balance will be forwarded to you.
However, if the auction amount doesn’t cover the outstanding loan amount due, you'll need to pay the remaining balance out-of-pocket, and that may also include any extra expenses incurred from the auction!
Know Your Homeowner Rights
Experiencing a foreclosure on your beloved home might be a tricky, sticky situation to handle, but as a homeowner, you should always be aware of your legal rights that could just save you and your property.
- Ensure your billing and mailing address is up-to-date in black and white, as the bank might send you final notices that you wouldn't be able to receive, which could pose a serious problem.
- Make sure that you receive a notice by the bank (required by law) if your property is about to be foreclosed.
- Communicate with your bank to find alternative ways to finance your loan. This can come in the form of restructuring your loan, or renting/selling the property instead.
- Consider selling your home as a sub-sale, if you're unable to afford the instalment and avoid defaulting on your loan (leaves a black mark on your credit history).
- It would be terrible if you chose to suddenly disappear, leaving your family/next-of-kin to handle all the legal and financial mess that you've gotten yourself into.
- Avoid getting into situations that’ll increase the strain on your expenses, as your current finances might not even be enough to sustain your lifestyle and debts/loans.
- In the event you run into financial difficulty, the last thing you'd want to do when talking to the bank, is being shy to ask for help. Even if you're an introvert or you're afraid to admit that you've fallen on hard times, it's important to consult your banker early to begin negotiation. Who knows, you could actually get a reduction of the instalment payment, with an extension of the period of the loan too!
Property foreclosure can be avoided by remembering these 2 key tips: Don't ever take on a loan that you cannot afford to pay back, and always make your repayments on time! To avoid falling into hard times and losing your home, why not check out our PropertyGuru Loan Pre-Approval solution, which tells you instantly how much you can borrow from the bank.