ADVISORY: Suing banks for ‘non-compliance’ in auctions
FORECLOSED: Borrowers can sue banks even after the auctioned property is sold if ‘non-compliance’ by the bank is discovered within six years
Question No. 1
Kelly Yong@KL: I refer to Dr Ernest Cheong’s article “How to survive a bank foreclosure” in NST RED (Aug 24th). What is the situation if the borrower discovered too late that there is non-compliance by the bank on any one of the five defences that he listed down, but the property has already been transferred to the new buyer, say, three years ago? Can the borrower re-open the case and challenge the bank to void the sale now?
Answer: I believe the law recognises the right of the subsequent purchaser to keep the property he purchased for “valuable consideration and without notice”.
The recent Federal Court decision applies only to fraudulent transactions whereby the owner can still go to Court to declare the transfer illegal and get his property back. The recent amendments in the National Land Code (NLC) also addressed this issue.
However, if the purchaser purchased the property at an auction and is not aware of the irregularities, and he is a purchaser for “valuable consideration and without notice”, then the owner/borrower will have no recourse to get his (the owner’s) property back.
However, if within six years (Statute of Limitations) he discovers that the bank has wrongfully sold his property because it did not comply with the mandatory statutory requirements of the NLC, then this becomes a civil matter and the owner/borrower has the right to claim against the bank for monetary damages for the illegal and wrongful sale of his property.
The bank’s action to foreclose and subsequently sell the owner/borrower’s property by Public Auction is only deemed legal and protected by the NLC if the bank has complied with all the mandatory requirements of the NLC. If the bank should fail to comply with even one of these mandatory requirements, then the sale of the owner/borrower’s property becomes an unlawful act of the bank and the owner/borrower will be entitled to seek damages and compensation from the bank for the loss of his property.
The failure to comply with mandatory statutory requirements in my opinion is akin to failure to comply with Court Rules and will attract the same consequences for the party who failed to comply.
Question No. 2
Robert Yang@OUG: What if the borrower due to his financial difficulties “accepts” the bank auction, perhaps by signing certain documents, and he is unaware of the relevant ‘non-compliance’ by the bank at that time? Would these acts of his amount to “acquiescence” by the borrower which the bank can use as its defence?
Answer: The question deals with two separate issues:
1). Due to the nature of the procedures involved in the foreclosure proceedings and public auction sale, there is no need for the borrower/owner to give his consent or sign documents for the foreclosure and public auction sale of his property.
The foreclosure proceeding and public auction sale is an action of the bank through the Courts that is forced upon the borrower/owner. There is no question of the borrower/owner’s “acceptance” of the bank’s action and hence there is also no question of the borrower/owner’s “acquiescence“ of the bank’s action.
The only signatures that are required in a public auction are the signatures of the Auctioneer and the Purchaser. The borrower/owner of the property is not involved in the public auction.
If the bank fails to comply with any one of the mandatory requirements of the NLC and subsequently sells the borrower/owner’s property through a public auction, the consequences for the Bank will be as detailed above in my answer to Question No. 1.
2). The “agreement” of the borrower/owner of the property to a “Private Treaty Sale” of his property to a “Purchaser” secured and introduced by the Bank. When this scenario happens, we are not dealing with the issues of foreclosure proceeding and public auction sale to forcibly sell the borrower/owner’s property.
We are dealing with the issue of “Contract”. The question we need to ask is: Did the borrower/owner willingly and of his own volition agree to sell his property to the “Purchaser” secured and introduced by the bank and at the “price” offered by the “Purchaser”?
The crux of the question is: Was the borrower/owner acting “under duress” from the bank? Was he “forced to sell” to the “Purchaser” secured and introduced by the Bank? Was he given an option and a choice to say “no” to the Bank?
Your question says that the borrower/owner, due his financial difficulties “accepts“ the Bank’s suggestion to sell his property to the “Purchaser” secured and introduced by the Bank and at the “price” offered by the “Purchaser”.
If this scenario is true, then there may be elements of “duress and undue influence” from the bank that leads the borrower/owner to sell his property to the “Purchaser” introduced by the bank and at the “price” offered by the “Purchaser, unwillingly and against his will.
If the borrower/owner signed the agreement with the “Purchaser” secured and introduced by the Bank, he may be able to convince the Court that he did so “under duress or undue influence” from the bank and therefore was not bound by its terms.
Contracts not entered into voluntarily are voidable (not binding and has no legal effect). For example, a company might tell a supplier that it was considering ending their business relationship if, within the next ten minutes, the supplier did not sign a contract to provide materials at a certain cost. If the supplier signed the agreement, it might be able to convince the Courts that it did so “under duress or undue influence”, and therefore was not bound by its terms. In general, contracts created under duress, undue influence, fraud, and misrepresentation are voidable by the injured party.
Questions 1 & 2 are answered by Dr. Ernest Y Y Cheong, a Chartered Surveyor, Registered Valuer, Auctioneer, Arbitrator and Principal of Ernest Cheong PTL Chartered Surveyors.