First off, don’t start rejoicing and think that this document comes from a religious organisation that can clear all your sins (it’s far from that)!
The redemption statement or redemption letter is actually a legal document, which you’d usually need once you get involved with the process of buying/selling a property.
We take a closer look at it, and why it’ll have such a significant impact on you.
So, What Is A Redemption Statement?
A redemption statement, or also known as a ‘redemption letter’, is an official statement that’s issued by a bank.
PropertyGuru Tip
Here, redemption in Malay would be translated to ‘penyata tebus hutang‘ or ‘penyata baki hutang‘.
It informs a borrower of the total remaining amount which needs to be paid up, if the person wishes to settle his/her loan facility once and for all. This is referred to as the redemption sum.
What is the redemption sum?
This total remaining amount to be paid is known as the ‘redemption sum’. This sum refers to the entire outstanding sum that you owe the bank for your housing loan. That means the interest rate, charges, fees and any penalties you may have accumulated.
All of this goes into the final redemption sum, and will be calculated up to the stipulated payment date. The banks will also usually charge an administrative fee for each request to issue a redemption statement.
When Do I Need To Get A Redemption Statement or Letter?
If you’re a borrower who wishes to pay off his/her home loan earlier than the end date, then you can ask for a redemption statement / redemption letter from the bank.
In addition, during a property transaction, if the seller’s property is still under the bank’s financing, a redemption statement will need to be requested for.
This is so that the home loan can be settled before the deal is sealed, and the property can be taken off as collateral from the seller’s bank.
PropertyGuru Tip
A collateral is a form of security which a bank would require from someone wanting to take out a loan. So, in case the person were to suddenly stop his/her repayments, the financial institution can seize those assets to pay off the remaining sum owed.
But, Why Is There A Need To Redeem The Seller’s Loan?
When a person first purchases a property from the developer, most of them would get a home loan from the bank of his/her choice.
As security for the housing loan, the property would normally be entrusted to the bank (if it’s a property with title) in the form of a legal charge.
For properties with a master title, as there’s no individual or strata title capable of being charged, the seller would sign a deed of assignment.
This move would basically be assigning all the rights, title and benefits under the property to the bank. Banks need protection too, you know.
In essence, the legal charge or deed of assignment would give the bank a right to sell the property, IF the borrower fails to pay his/her loan instalments on time.
Hence, in order for an individual to sell the property free from encumbrances, it’s important to fully pay the housing loan and redeem the property from the bank.
PropertyGuru Tip
An encumbrance is a situation where someone else holds the rights and/or claims to a property, or even the use of that property.
Otherwise, the seller’s bank would not release the collateral in order for the property to be officially transferred to the buyer.
Who Can Request For A Redemption Statement or Redemption Letter?
A seller can request for the redemption statement or letter if his/her name is stated as the borrower for the housing loan.
If the seller is represented by a lawyer in the sale transaction, then the lawyer is able to request for the redemption statement, but on one condition.
A letter of authorisation from the seller would need to be given, thus allowing the lawyer the power to act on his/her behalf.
This is because a redemption statement contains personal information and account details. The bank will not simply disclose this information to any third party, without proper authorisation and instructions.
If you’re the homebuyer, you can request the seller to provide you with a copy of this redemption statement, if the property is still subject to a housing loan.
It’s NOT your duty or legal obligation to request for the redemption letter from the seller’s bank.
How Does A Redemption Statement or Redemption Letter Function?
It really depends on the bank in question for this one!
Some banks will issue redemption statements with a redemption sum of differing amounts to be paid up at 3 different dates in the following. For example:
A redemption statement issued on 1st June
Redemption sum to be payable on:
Redemption sum to be payable on:
- 1st July: RM100,000
- 1st August: RM105,000
- 1st September: RM110,000
The amounts stated above are different because of the interest rates and charges calculated up to each respective date.
Some other banks will issue redemption statements with only one total amount payable for the redemption sum before a stipulated date, depending on the banks’ practice and the seller’s instructions.
If the redemption sum is not paid by the stipulated date, the redemption statement will lapse. In such a situation, a new redemption statement has to be requested.
When making the request, they’ll normally instruct the bank to issue the redemption statement addressed to the purchaser if it’s a cash-buyer.
Upon receiving the redemption statement, the purchaser’s lawyer who’s holding the balance purchase price will utilise a partial amount of the remainder to pay off the redemption sum.
Any remaining sum under the balance purchase price will then be released to the vendor in accordance with the terms of the Sale and Purchase Agreement (SPA).
If the purchaser is getting a housing loan, then the redemption statement will be addressed to the purchaser’s bank.
Upon receiving the redemption statement, the purchaser’s bank will distribute the money from the loan to pay off the redemption sum at the seller’s bank.
To recap: In a property transaction, it’ll normally be the seller or seller’s lawyer who will request for the redemption statement.
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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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