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Monday, March 31, 2014

LEGALLY SPEAKING: Buying property in public auctions

Source: http://www.thesundaily.my/news/1001884

CONSIDERATIONS BEFORE BIDDING FOR A PROPERTY

Buying property in public auctions may be cheaper than buying property from an owner or a developer. Adequate investigation on your part will reduce risks associated with buying auctioned properties and ensure you are making a sound investment.
Make arrangements to obtain a copy of the Proclamation of Sale with its attached Conditions of Sale from the auctioneer. Scrutinize both; the Conditions of Sale will become the terms of the "sale and purchase agreement" if you successfully bid for the property during the auction.
You may ask the auctioneer to show you the property, but the auctioneer will not have access to its interior. You are strongly advised to make an official land search at the Land Office, as the onus is upon you to undertake your own due diligence to ensure that no mistakes have been made at this stage that will jeopardize the land transfer at a later date.
Viewing the property in person will reveal how much you may actually need to spend on the restoration process. Do not rely solely on the photographs provided by the auctioneer as there may be hidden features on the property that will cause you to incur costs later. For large properties, it is prudent to engage your own property valuer to ascertain if the reserve price is indeed lower than its market value.
PITFALLS TO AVOID
Property sold in public auction is sold on an "as is where is" basis, which is literally "you buy what you see". If successfully auctioned, the property is deemed to be correctly described in the Proclamation of Sale and sold subject to all easements, caveats, tenancies, liabilities and encumbrances. You cannot later annul the sale because of an error in description, and you do not have recourse to compensation if the property is not as you expected it to be.
Common issues faced by successful bidders can be avoided if the bidders made proper inquiries before buying the property. There may be a tenant in occupation that you may want to evict, there may be a private caveat on the title that you will need to remove, or the property may have been abandoned requiring major renovation.
According to the Practice Direction of the Registrar of the High Court 1/2013, the Plaintiff in a judicial auction (the seller of the property, usually a bank) is not obliged to deliver to the successful bidder a vacant possession, and is not responsible for any bills payable on the property. The plaintiff will only pay quit rent and assessment up to date of auction, leaving the remaining bills and their penalties to be paid by the successful bidder. In many cases, these hidden costs are quite hefty.
ATTENDING A PUBLIC AUCTION
On the day of the auction, you must register to be able to bid. Typically, registration closes at 9.30am for court auctions. Before the auction starts at 10.00am, stay alert for any announcements made by the auctioneer. Bring a bank draft or banker's cheque for exactly 10% of the reserved price in favour of the plaintiff, and extra cash to pay for the stamping of the Memorandum of Sale. Put the bank draft and your original IC (or a certified true copy of your IC) into the "Peti Lelongan". Ensure that your full name, IC number, address and the case number is written legibly at the back of the bank draft. This bank draft will be returned to you immediately after the auction if your bid fails.
If you are attending the auction to bid on behalf of a company, the name, registration number, registered address of the company and the case number must be written at the back of the bank draft. In addition to your IC, you are required to enclose together with the bank draft a letter of authorization from the company, the company's Form 49, Memorandum and Articles of Association and a director's resolution signed by all the directors authorizing you to bid on behalf of the company.
You would need to seek permission from the court or Land Office to register as a bidder after 9.30am or to withdraw yourself from the auction after registration. Do not sit in an auction if you decide that you are not going to bid for the property. If the auction is postponed due to you deciding not to bid (e.g. where you are the sole bidder present) you will be blacklisted from bidding in all judicial sales for one year.
AFTER THE FALL OF THE HAMMER
If you succeed in bidding for the property, you will need to sign four copies of the Memorandum of Sale immediately after the auction. Your bank draft for the 10% of the reserved price will immediately go to the plaintiff's lawyer. You must pay the remaining successful bidding price within 120 days. There will be no extension of time to pay. You will forfeit the 10% bank draft to the plaintiff if you fail to pay in full, and the auction process will start over. It is only after you make full payment of the remaining purchase price that you will be granted access to the property. The legal process to transfer the title into your name may take an additional few months but, in the meantime, you are the legal owner of the property.
Contributed by Christina Ang Ee Lin of Christopher & Lee Ong ( www.christopherleeong.com)

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