This is the second part of a story that was posted here.
Documenting a loan is a long and difficult process, and each bank has its own drawdown requirements and steps. Each party involved in the deal has to give their own confirmation and promise, whether they are lawyers for the sale and purchase agreement (SPA), housing loan lawyers, property developers, or banks. So, at the very least, it would take about three months for the loan to be fully paid out, depending on how complicated it is.
In the background
The following is a list of things that conveyancing lawyers have to do for the banks of the buyers, which can vary from bank to bank:
The lawyer must do land searches to make sure that the information about the land in the SPA is correct and to find out if there are any encumbrances, restrictions, prohibitions, or acquisitions on the land where the buildings are built that could hurt a lender’s interest or make it so that the lender can’t register its interest over the borrower’s housing unit or parcel.
There are checks done on the developer and the borrower to see if they can pay back the loan. If the borrower is a business, there is an extra list of things to do, like looking over the board of directors’ resolution and the business’s official papers.
For a property that is still under a master title, the end-financier lawyer must get a letter of undertaking from the developer to assure the financier that the developer will transfer the property to the buyer once the separate strata title is issued, not put any more charges on the land, and apply for consent to transfer and charge.
The lawyer for the lender also writes to the lawyer for the buyer to ask him to make sure the transfer is complete once the separate strata title is given. The responses and documents requested are then looked over to make sure they meet a financier’s needs.
If needed, the lawyer for the financier will ask the developer for more information or clarification. If the master title is charged to a financial institution (bridging financier), the end-lawyer financier’s will also need to ask for a redemption statement and a Letter of Disclaimer, which says that the master charge agrees not to foreclose on the buyer/unit borrower’s or parcel as long as the redemption sum is paid.
Other things to check are the developer’s licences, the project’s approvals, the issuance of the Certificate of Completion and Compliance (for projects that are finished), and whether or not the quit rent and assessment tax have been paid to the land authorities and the local council, respectively. Not all loan processes are the same, because development projects can have different schemes, like a leaseback arrangement or a guaranteed income scheme. A lawyer would also need to advise a lender on the terms of the scheme and how it affects the lender’s interest in the property.
Then, there are the steps for a witness to sign the documents, to endorse them, to affirm the Statutory Declaration, to stamp them, to register them, and to get them back.
The Letter of Advice for Release of Loan that a lawyer sends to the lender is not just one page long. It usually has a lot of pages (some are almost nine pages) of confirmation of facts, information, and certain actions that have been taken, such as lodgment of caveats to protect a financier’s interests, explanation on the land conditions, applicable public policy for special housing schemes, compliance by the relevant parties to the conditions set in the financier’s letter of offer, and loan and security documentation that has been properly signed, affirmed, and stamped.
Once the drawdown requirements are met, the financier’s lawyer tells the financier to release part of the loan amount to the master charge (bridging financiers) for redemption and then to the developer’s Housing Development (Project) Account when the developer sends its progress claims to the end-financier and purchaser. The Letter of Advice may be uploaded onto a financier’s portal or printed in hard copies. The letter from the lawyer who was given the housing loan usually includes a promise from the lawyer to the lender that he or she will make up for any loss or damage caused by negligence, mistakes, omissions, or carelessness.
The list of steps from start to finish is not complete. The process is not as easy and straightforward as people think.
Discounted legal fees
We do agree that the scaled fees should take into account how much work needs to be done, and they do. But if the purchase is governed by the Housing Development (Control and Licensing) Act, 1966 (HDA), or if a loan is used to pay for an HDA transaction, the Solicitors’ Remuneration Order 2005, which was published on March 2, 2017 and went into effect on March 15, 2017, allows for a lower scale of fees, with discounts ranging from 25% to 35% (Table 2).
The legal fees are based on a percentage of the property’s purchase price or the amount of the home loan. This percentage can range from 0.5% to 1% (Table 1):
Such discounts on legal fees are definitely good for the people who buy them. But even though the SPA is a law, lawyers still need to buy professional insurance to cover all possible situations.
We think that the scaled fees help low-income people more. Without the scaled fees, lawyers will probably charge more for low-end properties even though the amount of work is often the same as for high-end properties.
When buying a cheap house, you have to get the formal approval of the state authorities, the land office, and sometimes the local council. You also have to look up the property’s status in the SPA, which is more work than buying a high-end freehold property.
With the required discount, I don’t think buyers of low- and middle-priced homes are being overcharged.
Even though people who don’t work in the legal field may not know much about conveyancing and academics may understand some of the procedures, the tasks are complicated and require a lot of work. Only a lawyer or legal practitioner who works in the field would understand the ins and outs of the processes.
*Professional insurance: Lawyers need to be registered with the Bar Council, Malaysia and given a Practising Certificate (PC) as an Advocate & Solicitor in order to work in the legal field. There is a strict list of requirements that must be met before the PC can be given. One of these is having professional indemnity insurance.
This article is meant to give you an idea of how the conveyancing process works when you buy or sell a home or get a mortgage. If you’re not sure, please talk to a lawyer on your own.