Contributed by Messrs Eunice Tan & Partners founder Eunice Tan Mui Lee

Non-performing loans of the defaulters have tremendously increased the number of auction properties in the market for the past few years. Believe it or not, some people suffer a loss when they bid an auction property without thorough research.

The first time buyers require some basic knowledge before they decide to bid on a property.

Types of auction properties

There are two types of auction properties. The first type refers to a property with a title and charged to a bank which is regulated by the National Land Code (NLC). When a borrower has defaulted in paying the monthly instalment(s) to the bank, the bank will apply to the High Court or the Land Administrator for an order to sell the property via public auction. In such a scenario, the NLC regulates the process.

The second type of the auction property is not regulated by any legislation and applies to a property for which no title has been issued. However, for security purposes by the bank, the buyers/borrowers shall assign the right over the property to the bank.

When there is a default of repayment, the bank is contractually entitled to sell the property through a public auction. Terms and Conditions of the Proclamation of Sale Each potential bidder should obtain a copy of the Proclamation of Sale (POS) and read through the terms and conditions of the contract. The onus is upon you to conduct your due diligence.

The POS shall become your sale and purchase agreement if you successfully bid for the property during the auction. Therefore, it is crucial to know the terms and conditions of the POS.

Land Search

It is advisable to do an official land search on the title of the property. A land search is required to enable you to know the latest status of the property. This is practical for the properties with the issuance of an individual document of title or the strata title. Please make sure that there is no caveat or other encumbrances shown on the title.

The presence of a caveat on the title will incur a legal cost and is a time-consuming endeavour as you need to apply and obtain the removal of caveat from the court. This should become one of your considerations whether it is worthwhile to purchase the property despite all the hassle and troubles.

Legally speaking, it is not advisable to buy a property with a caveat lodged by the third party unless the caveat is filed by the existing purchaser(s)’ bank.

Property sold on “as is where is” basis.

Auction properties are sold on “as is where is” basis. It means you buy what you see. Therefore, a site visit to the property is required. During a site visit, you should take note of the ulterior conditions of the property. If someone is staying inside, please ask further about the people staying in the property.

If the people who stay inside the property are the tenants, ask them whether there is any tenancy agreement signed and the expiry of the tenancy contract. Upon the completion of the POS, you may need to apply to the court to evict the tenants if the tenants neglect to move out or decline to sign a new tenancy agreement with the successful bidder.

The eviction order may take a few months, and it shall incur further legal cost and expenses. If someone is staying in the property, you should also check the interior of the property with their permission.

If no one is staying or occupying the property, you are not allowed to visit the property if it is locked. As such, you may need to include the estimation for the renovation cost too. Many POS stipulate that the purchaser shall bear the arrears of service charges and utility bills (water, electricity and sewerage). Therefore, there might be substantial arrears waiting for the purchaser to settle it.

Besides, you are required to check the outstanding maintenance fee with the joint management body or the management corporation to ensure that the purchase price you bid is the reasonable purchase price.

You will know the conditions of sale before the auction date. The intending bidder should read the terms of the sale before the bid. If you have successfully won the auction property, you will be bound by the conditions of the sale, and you will be deemed to have entered into a contract
on those terms. Therefore, a close examination of the Proclamation of Sale (POS) is mandatory before you go for auction.

Payment of the Purchase Price of the Auction Properties

On the auction day, the intending bidder has to prepare 5% or 10% of the reserved price of the auction property (depending on the type of auction) before you are entitled to bid.

However, the reserve price may not be the purchase price of the property upon successful bidding. If the purchase price is higher than the reserved price of the property, you have to prepare to issue the differential sum of the balance 10% to settle it on the same day as the POS will form valid SPA.

The time frame of the POS to pay the balance purchase price is usually within 90 to 120 days depending on the terms of the POS. If you purchase the auction property by obtaining a loan, you may need to prepare to pay by cash if the loan cannot be disbursed before the completion date of the sale. Otherwise, the contract will be terminated, and a 10% deposit will be forfeited.

If the auction properties require the consent from the State Authority and you plan to take a loan from a financial institution, you may not be able to settle the balance purchase price within the time frame stipulated in the POS. Therefore, a backup plan is required so that your 10% deposit will not be forfeited.

It is wise to take into consideration the factors above before you bid for the auction property.

About the Contributor

Eunice Tan is the founder of both LegalMakeover and Messrs Eunice Tan & Partners.

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