The Star
ARTICLES OF LAW By BHAG SINGH
A debt must not be neglected else it may evolve into a bigger problem.
ARTICLES OF LAW By BHAG SINGH
A debt must not be neglected else it may evolve into a bigger problem.
WE are no doubt in the midst of a festive season. The event provides an occasion for merriment and enjoyment. However, amidst the celebrations there are people who are confronted with problems that vary from money to health issues.
Health matters are best addressed by medical experts with the end result in the hands of the Almighty. But when it comes to matters of finance, this is a subject that will be discussed in today’s column.
And so it is that a reader faces the festive season that is far from joyous for him. He is unable to pay for his house instalments and the bank is threatening to auction off the property. The debt is in respect of a RM300,000 house for which at least RM3,000 needs to be paid every month. So what should he do?
Health matters are best addressed by medical experts with the end result in the hands of the Almighty. But when it comes to matters of finance, this is a subject that will be discussed in today’s column.
And so it is that a reader faces the festive season that is far from joyous for him. He is unable to pay for his house instalments and the bank is threatening to auction off the property. The debt is in respect of a RM300,000 house for which at least RM3,000 needs to be paid every month. So what should he do?
Based on what our reader says, he has bought the house which he now lives in. But he cannot cope with the instalments. Thus far he has been able to keep up payments but will not be able to do so in the future.
Any default in payment of a loan that has been taken invariably results in costs escalating for the borrower. This is because upon default taking place, interest charges may increase and other administrative charges imposed. The consequences of default, though not always immediately felt, can be serious and costly.
Avoid auction
Following a default in payment, some costs cannot be avoided, but every effort must be made to ensure that the matter does not proceed to auction or even steps in that direction.
Many people in such a situation are inclined to do nothing and leave it to the bank to auction off the property. They perceive this to be a solution to their problem. They think that in this way, they may lose their house but their problem will also end.
However, the reality of the situation is that allowing the bank to auction off the house may not always be the real solution to the problem. Instead, it may be the start of another.
It frequently happens that when the bank auctions off the house, the amount realised may not be enough to pay the entire debt and may leave a certain amount still owing. The bank will usually take further action to recover the balance outstanding through a separate action against the borrower.
Thus allowing the bank to auction off the property does not always mean that it would be the end of the matter. But why, it may be asked, could such a situation arise when the loan taken is sometimes much less than the original purchase price of the property?
Shortfall
The reasons for this could be different. It may be that there has been a drop in property prices across the board and the value of the property is now not only below the purchase price of the property but even below the amount of the loan that was given that is now outstanding.
Or it could be that because of different types of default by the borrower, interest charges, penalties and legal charges as well as other expenses have accumulated and added on to the amount that was originally owed.
In other cases, it can happen that after the default occurred, efforts by the bank to dispose of the property have not been successful even though a number of auctions have been held. When this happens, not only are more legal expenses incurred, there are also the auctioneer’s charges and advertisement costs to be paid.
All this will add up to the total amount owing and could easily exceed the value of the property which is the subject of the auction that is eventually successful. When the property is sold, it leaves the borrower still owing the bank even though the property has also been lost.
Thus it would be in the interest of the borrower to be proactive by taking certain preventive steps even though at the end of the day, he may still not retain the house. However, he could take steps to minimise his loss.
This he can do by accepting the fact that he has to give up the house. Then he can embark on a course of action to sell the house himself. This involves advertising in the newspapers or seeking the help of a real estate agent.
He can also inform the bank that he wants to sell off the property and use the proceeds to repay the loan.
If the sale price is more than what is due to the bank, it would have no right to object to the sale as long as it is assured of repayment of the amount owing.
Emotional element
Of course, there is an emotional aspect to the matter. Selling an existing house under such circumstances may mean having to move to a smaller house or a rented house.
This may be embarrassing because in our materialistic society, a person is always expected to move to a better and bigger house.
However, it is a choice that needs to be made if the matter is to be resolved without aggravating the situation. It is also necessary if the person wants to get back on his feet.
Another option is to obtain temporary loan facilities to cover the immediate need. However, this will only be possible if the person concerned will be able to repay the latest loan that is taken as well as continue to service the monthly instalments of the first loan.
In this connection, the balance transfer facilities of some credit card organisations can be of help. Others give advances on very attractive rates with no upfront charge involved. Yet others even provide a limited no-interest period for such transfer.
However, the catch in this is that once the instalment amount due is not paid, interest charges on the unpaid balance then escalate to ordinary credit card rates. It is therefore important to make a correct anticipation of possible future income that will enable the plan for further payment to be carried out.
Conclusion
In the end, it is a matter of the individual having to make a decision himself. The different approaches would be suitable depending on the circumstances and the capability of the individual to deal with the repayment either immediately or based on future projections.
However, a choice between saving face or bearing the consequences of a default and all that follows, will have to be made.
To all who face such situations, it is hoped that they will find the strength to overcome the challenges in the year ahead.
Any default in payment of a loan that has been taken invariably results in costs escalating for the borrower. This is because upon default taking place, interest charges may increase and other administrative charges imposed. The consequences of default, though not always immediately felt, can be serious and costly.
Avoid auction
Following a default in payment, some costs cannot be avoided, but every effort must be made to ensure that the matter does not proceed to auction or even steps in that direction.
Many people in such a situation are inclined to do nothing and leave it to the bank to auction off the property. They perceive this to be a solution to their problem. They think that in this way, they may lose their house but their problem will also end.
However, the reality of the situation is that allowing the bank to auction off the house may not always be the real solution to the problem. Instead, it may be the start of another.
It frequently happens that when the bank auctions off the house, the amount realised may not be enough to pay the entire debt and may leave a certain amount still owing. The bank will usually take further action to recover the balance outstanding through a separate action against the borrower.
Thus allowing the bank to auction off the property does not always mean that it would be the end of the matter. But why, it may be asked, could such a situation arise when the loan taken is sometimes much less than the original purchase price of the property?
Shortfall
The reasons for this could be different. It may be that there has been a drop in property prices across the board and the value of the property is now not only below the purchase price of the property but even below the amount of the loan that was given that is now outstanding.
Or it could be that because of different types of default by the borrower, interest charges, penalties and legal charges as well as other expenses have accumulated and added on to the amount that was originally owed.
In other cases, it can happen that after the default occurred, efforts by the bank to dispose of the property have not been successful even though a number of auctions have been held. When this happens, not only are more legal expenses incurred, there are also the auctioneer’s charges and advertisement costs to be paid.
All this will add up to the total amount owing and could easily exceed the value of the property which is the subject of the auction that is eventually successful. When the property is sold, it leaves the borrower still owing the bank even though the property has also been lost.
Thus it would be in the interest of the borrower to be proactive by taking certain preventive steps even though at the end of the day, he may still not retain the house. However, he could take steps to minimise his loss.
This he can do by accepting the fact that he has to give up the house. Then he can embark on a course of action to sell the house himself. This involves advertising in the newspapers or seeking the help of a real estate agent.
He can also inform the bank that he wants to sell off the property and use the proceeds to repay the loan.
If the sale price is more than what is due to the bank, it would have no right to object to the sale as long as it is assured of repayment of the amount owing.
Emotional element
Of course, there is an emotional aspect to the matter. Selling an existing house under such circumstances may mean having to move to a smaller house or a rented house.
This may be embarrassing because in our materialistic society, a person is always expected to move to a better and bigger house.
However, it is a choice that needs to be made if the matter is to be resolved without aggravating the situation. It is also necessary if the person wants to get back on his feet.
Another option is to obtain temporary loan facilities to cover the immediate need. However, this will only be possible if the person concerned will be able to repay the latest loan that is taken as well as continue to service the monthly instalments of the first loan.
In this connection, the balance transfer facilities of some credit card organisations can be of help. Others give advances on very attractive rates with no upfront charge involved. Yet others even provide a limited no-interest period for such transfer.
However, the catch in this is that once the instalment amount due is not paid, interest charges on the unpaid balance then escalate to ordinary credit card rates. It is therefore important to make a correct anticipation of possible future income that will enable the plan for further payment to be carried out.
Conclusion
In the end, it is a matter of the individual having to make a decision himself. The different approaches would be suitable depending on the circumstances and the capability of the individual to deal with the repayment either immediately or based on future projections.
However, a choice between saving face or bearing the consequences of a default and all that follows, will have to be made.
To all who face such situations, it is hoped that they will find the strength to overcome the challenges in the year ahead.
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