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Q MY WIFE and I jointly purchased a freehold maisonette of 2,350 sq ft in 1996 for $1 million. It was repossessed by the bank in 2001 after my business failed.

To date, this property remains unsold and interest on the outstanding amount owing to the bank is rising.

Recently, we learned that an agent was advertising to sell our property for only $650,000.

Our neighbour sold her 2,290 sq ft unit for $788,000 in 2003.

Is it possible to stop the bank from charging interest as we feel that it is unfair since we are not living there? The amount owing to the bank was $625,000 at the end of 2001 and $827,000 at the end of last year.

The management corporation is also charging management fees and worse, interest on the unpaid management fees. Is it also possible to stop it from charging interest?

Why can't our bank wait for prices to pick up? Is there any way to stop it from selling at so low a price? We bought this property with our CPF funds and the CPF Board has the first charge on the property.

I am 47 years old now. Can the bank wait for me to reach 55 before recovering the amount owing to it?

Alternatively, can I negotiate with the bank, give it one portion of my CPF savings and buy an HDB flat with the rest?

A YOU have a legal obligation to pay the bank interest on the outstanding amount even though you are not occupying the property. The loan agreement between you and the bank continues to be valid and binding though it has repossessed the property.

The bank is entitled to charge you interest on the outstanding amount up to the date of full payment at the contractual rate specified in the loan agreement.

The management corporation is entitled, under the law, to charge interest on the maintenance/sinking fund and management fees payable.

The interest accrues from the expiry of 30 days after the date the fees become due and is payable unless the management corporation decides at a general meeting that any unpaid fees shall be free from interest.

Your bank has a duty to take reasonable steps and exercise its power of sale with prudence.

However, it is not your trustee and does not owe you any fiduciary duty. Hence, it is entitled to consider its own interest - that is, to realise the security and to choose the time of sale.

The bank is not bound to watch the market so as to sell at the highest price.

On the other hand, it has a duty to take precautions to secure a proper price and if it is reckless or does not sell with proper precautions, you can look to it for the resulting loss.

For example, to prevent the bank from selling at an unreasonable price, you can send it updated valuation reports and evidence of prices of recent transactions of similar properties to put it on notice of the estimated market price of the property.

On possessing the property in 2001, the bank should have leased it out and accounted to you for the rents and profits received. If it is unable to lease it out, it has to prove that it tried and failed.

The bank usually has to show that it consistently and regularly made reasonable efforts to lease the property out.

You can certainly negotiate with the bank for an amicable resolution of the matter but I think the bank is unlikely to agree to delay the debt recovery for a further eight years without condition.

As the CPF Board has first charge on the property, the bank has no rights to the sale proceeds until the CPF funds used for the purchase have been fully repaid to your CPF accounts.

If you are willing to use some of the CPF funds to pay the bank, you may consider reversing the priority of the CPF charge from first to second charge so that the bank takes first charge.

If the CPF Board's charge ranks after the bank, the sale proceeds will first be applied towards payment of the outstanding housing loan before being refunded into your CPF accounts.

Thus the shortfall of repayment to the bank from the sale proceeds will be reduced and the bank will naturally be better off.

It will then be easier to explore better settlement terms with the bank.

Note that such an arrangement will be subject to the CPF Board's consent.

Lie Chin Chin
Partner
Lie Kee Pong Partnership