What to Do Once You Settled Your Property Financing?

WHAT TO DO ONCE YOU SETTLED YOUR PROPERTY FINANCING?

Introduction

Do you know that there is a required process once the borrowers have settled all their repayment obligation to the bank in respect of property financing?  It should be noted that the borrowers are required to complete the discharge process with the bank.  This is in order to release each and every right held by the bank on the borrower’s property which was previously given to the bank as security for the financing.

Firstly, if a borrower intends to settle the financing, he is required to request a redemption statement from the bank.  The redemption statement will show the exact outstanding amount owed by the borrower to the bank.  Usually, a redemption statement issued by the bank provides the amount of outstanding owed by the borrower for at least three (3) consecutive recent months.  However, the redemption statement will expire if the redemption is not paid within the time given and accordingly a new redemption statement is required from the bank.  Once the borrower made the final payment to the bank, hence the borrower’s loan account with the bank will be closed.  Notwithstanding that, the borrower should request a confirmation letter from the bank that the property financing has been fully settled.  Once the confirmation letter has been issued, the borrower shall then proceed with the discharge process.

What should you know about the discharge process upon settlement of financing?

Generally, the borrower’s property will be held as collateral for the financing given to the borrower i.e as security to the bank.  In practice, there are two (2) legal ways for the property to be entrusted to the bank as collateral.  In the event the property has been issued with a legal document title, the owner (chargor) is required to execute a legal charge known as a Memorandum of Charge (Form 16A).  Meanwhile, for a property that is yet to be issued with a legal document title but still under a master title, the owner needs to execute a Deed of Assignment (by way of security) whereby the owner agrees to assign all his rights, titles and benefits relating to the property to the bank as security for the financing.  In short, both a legal charge and Deed of Assignment will give rights to the bank to sell the property in the case where the borrower fails or neglects to settle his financing installment within the stipulated timeline.

Once the borrower has made the final payment and settled all the financing obligations in accordance with the facility agreement with the bank, the borrower is required to engage a lawyer to assist for the discharge process.  This is pertinent in order to ensure that the property is officially transferred to the owner and that the bank will no longer hold any rights to the property.  In a nutshell, there are two (2) types of legal documents in relation to the release of property from the bank which is Discharge of Charge or Deed of Receipt and Reassignment.

  

Discharge of Charge

This process involves the property which has been issued with a specific individual or strata title in order to release the property from a legal charge duly registered at the relevant land office or land registry during the financing term.  In accordance with Section 278 of the National Land Code (Act 828), the lawyer will prepare a Discharge of Charge (Form 16N) and forward the said Form 16N to the bank for execution.  The bank shall then return to the lawyer a duly executed Form 16N and the original document title of the property together with all the financing documents that are in the bank’s possession.  During this time, the borrower or landowner is required to settle any outstanding payment of Quit Rent and Assessment in relation to the property and forward the payment receipt to the lawyer.  The lawyer will thereafter adjudicate and pay the required stamp duty on Form 16N and proceed with the registration of the same at the respective land office or land registry.  Thereafter, the land office or land registry will remove the bank’s name from the title and the lawyer will subsequently return the original title to the landowner (proprietor) of the property upon collection of the same.

Deed of Receipt & Reassignment (DRR)

This document is known as DRR whereby the process will not involve the land office as the property is still under the master title and an individual title or strata title has not been issued.  Initially, during the pre-disbursement of the financing, the owner will execute a Deed of Assignment (by way of security) together with a power of attorney authorizing the bank to act, sign or execute any document related to the property or financing on behalf of the owner in which the power of attorney will be registered at the High Court accordingly.  Hence, upon settlement of the financing, the appointed lawyer will prepare a DRR to be executed by the bank and the owner whereby the bank will reassign all the titles, rights and benefits of the property to the owner.  The DRR then will be stamped and the lawyer will need to revoke the power of attorney at the High Court so to cancel the power of attorney given previously by the owner to the bank.

 

Conclusion

The Discharge of Charge or DRR process will take place upon settlement or redemption of financing by the borrower.  The borrower is required to complete the process to ensure that the rights onto the property which have been transferred or assigned to the bank as security of the financing are returned to the owner.  The borrower also will need to bear the required legal fees including disbursement costs such as the lawyer’s professional fees, stamping fee, registration and other relevant cost related thereto.  In short, it is advisable for the borrower to appoint a lawyer once the financing has been fully settled in order to assist and expedite the process of discharging and releasing the property from the bank.

Sources :        National Land Code (Act 828)

                        Conveyancing Practice Guidelines, Praktis Malaysian Bar

                        FAQ for Conveyancing Transactions, Malaysian Bar

Prepared by,

Nur Hidayah Binti Kamaruzaman

MESSRS MISYAIL OTHMAN & CO

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