|First Party Loan||Third-Party Loan|
|Purchaser||Luke and May||Adam and Hawa|
|Borrower||Luke and May (Joint loan)||Adam only|
|Who signs the SPA documents and loan documents||Luke and May||Adam and Hawa (part of loan agreement).
Only Adam signs the facilities agreement as he is the sole borrower.
In this article, we go over the various paperwork homebuyers will need to complete or sign off when closing a house deal, which includes the Sales and Purchase Agreement, MOT, MC and Deed of Assignment.
Purchasing your first home sounds romantic, doesn’t it? After all, owning a residential property is a major milestone for most young adults. But, the reality of the property purchasing process hits hard when the developer or real estate agent begins to hand you one document after another to act on! The amount of paperwork involved when buying a house is staggering and most buyers often feel intimidated.
What should you know about house buying documents? Is there anything in particular that you should be looking out for? What if you miss a term or condition which might prove unfavourable for you down the road? Fret not, we will go over the relevant documents and highlight information that you should pay attention to. This article will also touch on housing loan documentation.
1. Letter of Offer (LOA)
The first document that you would sign, whether or not it is a new launch property purchase from a developer or a subsale property (purchased in the secondary market), would generally be a letter of offer.
To be more accurate, the developer would give you a letter of offer, indicating their willingness to sell you the house and you will sign it to signify your acceptance. At this stage, you would typically pay a 2% earnest deposit. In subsale property purchases, this may manifest through a simple form provided by the property agent or sometimes, there is no letter of offer at all.
What is in the Letter of Offer
The LOA will contain details such as:
- names of property seller and buyer
- Property address
- Agreed-upon property price
- Deposit amount
- Any items such as fixtures and fittings included in the property.
The LOA will stipulate the latest date the buyer must sign the Sales and Purchase Agreement (SPA) – this is usually within 14 days from when the LOA is issued.
2. Sales and Purchase Agreement (SPA)
The next stage is usually the signing of the SPA. This is usually done in the presence of a conveyancing lawyer, who will explain the core terms of the contract to you. If you are engaged in a subsale property purchase, your lawyers will usually hash out the terms of your agreements until both you and the seller agree to the final contract. However, when buying a house from a developer, their SPA usually follows the template set out in the Housing Development (Control and Licensing) Act 1966 and the Housing Development (Control and Licensing) Amendment Regulations 2015.
What to check before signing the SPA
Regardless of which kind of agreement it is, there are several important clauses that you need to take note of or ask your lawyer about.
Check the title
Your agreement should list down the details of the title to the house. The title is one of the most important parts of the agreement because it tells you if the seller is the actual owner of the property and whether it is currently charged to any other bank. To put it simply, a house is charged when it is used for security for loans.
The agreement should also contain a clause that the seller promises to deliver the title to you – in other words, the seller promises that he will transfer the property ownership (stated in the title) from his name to your name upon completion of the agreement.
It is free from encumbrances
This means that there must be a clause to clarify that the property delivered to you will be free from any other claims. For example, if the property is currently charged, the seller must promise to clear the charge beforehand.
This is when you would get the keys to your house. The date is not the only important consideration here, you must also find out the manner in which vacant possession would be delivered. Common conditions for delivery of vacant possession include the house coming with a certificate of completion and compliance (CCC), which certifies the house is safe to live in and has the necessary water and electricity connections.
Defect liability period (DLP)
This is the warranty for your house where during that time, the developer would be responsible for defects arising in the house. The DLP lasts for a period of 24 months from when you received the property keys. Find out what to do if your “new” property has defects.
In contrast, subsale homes are typically sold on an as-is basis, meaning you get what you get.
Late payment charges and Liquidated Ascertained Damages (LAD)
The first relates to any late payment interest that you would be liable to if you fail to pay the developer/seller within the stipulated time. Meanwhile, LAD is applicable when the developer or seller fails to deliver vacant possession at the agreed time and has to pay you compensation for the damages.
Area of your house
This may sound trivial but the house area is especially important to discern when purchasing a new launch property. Unknown to some, the measurements that you would see in your SPA’s schedule is subject to final measurement and should there be any significant reduction in size, an adjustment sum should be paid by the developer.
On that note, you should also look over the House Plans which can be found in the First Schedule of the SPA for new launch property purchases. This part will show you the layout of your house and the related designs.
Progressive Payment Schedule
This is typically found in the Third Schedule of the SPA (for new launch property), where it details when you have to start servicing your loan instalment and how much you have to pay at each stage. If you have a 90% housing loan, you won’t have to worry too much as the lending bank and their lawyers will be responsible to arrange the payments. Nevertheless, it is prudent for you to be aware of such information.
In the event that your developer gets bankrupt and abandons the project halfway, find out what to do when your housing development changes ownership.
3. Memorandum of Transfer (MOT)
A memorandum of transfer is used to transfer the ownership of the house from the property developer or seller to you. Usually, if a housing loan is taken out to finance the house purchase, the MOT is prepared and signed together with the SPA and loan documents.
For new launch properties, however, it may or may not happen at the time you purchase the house because properties that are still under construction may not have their titles issued yet. However, it is not a cause for worry because when the title is issued, the developer will contact you to sign the memorandum of transfer.
Find out more about the MOT or Form 14.
4. Bank’s Letter of Offer (LO)
The bank’s letter of offer is similar to the developer’s letter of offer and it is issued when the bank approves your housing loan application and offers you a certain loan sum, at a certain interest rate, to be repaid within a certain number of years.
5. Facilities Agreement (FA)
A facilities agreement is the main loan agreement and it doesn’t relate to the facilities you will receive at your new home. It basically refers to the money that the lending bank will loan to you.
Generally, the bulk of its terms does not vary from borrower to borrower. The distinct terms that may apply for your loan will generally be found in the letter of offer and this document will be attached to the facilities agreement.
6. Deed of Assignment (DOA)
The deed of assignment is a document that assigns your rights and interests in the property over to your financier for the duration of the loan. This is where the everyday understanding of security in return for money comes from. The money aspect is found predominantly in the facilities agreement while the security aspect is in the deed of assignment.
NOTE: If there is one borrower but two purchasers, both the purchasers will still have to sign the deed of assignment and power of attorney. You might be wondering why does your wife/husband/sibling/co-owner have to sign the bank documents too when you are the one taking out the loan? Does this make them liable to the bank too?
The logic behind it is – because the property is being used as security, all the owners of the property must consent to the house being used as security and, subsequently, they must also agree to transfer their rights and interests under the property to the bank. This is known as a third-party loan. Where the purchasers are the same people as the borrowers, it is called a first-party loan. Refer to the illustrations below:
7. Power of Attorney (PA)
A power of attorney is essentially a document that allows the bank to deal with your property on your behalf. This is to facilitate the bank having security in return for the housing loan they have provided to you. Similar to the deed of assignment, all purchasers must sign this document.
8. Memorandum of Charge (MOC)
Looking back at the MOT mentioned earlier – it is signed only when the property title has been issued. Similarly, whether or not a memorandum of charge or MOC is signed at the point of purchase depends on whether the title to the property has been issued.
If a title has been issued, then you will sign a MOC in lieu of the deed of assignment and power of attorney.
In essence, the MOC has the same purpose as the DOA and PA, where it is an instrument for you to provide security to the bank with. The MOC is where your charge the property over to the bank in return for the money they will give you.
If you have made it this far, rejoice because all the major documents involved in a land sale have been dealt with. Before we dive into the last section, here is a summary of what documents you have to sign with and without the title.
Documents to sign with property title
With the title, you will sign both the letters of offer, SPA, DMC, MOT, FA, and MOC.
Documents to sign without property title
Without the title, you will sign both letters of offer, SPA, DMC, FA, DOA, and PA. The MOT and MOC will be signed at a later period when the title has been issued.
9. Statutory Declarations
You would possibly sign a few statutory declarations in the course of buying and getting a housing loan for your house. Statutory declarations are declarations you make officially and in a way, carry more clout than a normal declaration. Common declarations in this transaction will be declarations that you are not bankrupt or declarations that you would use the property for your own occupation.
10. Stamp duty
This is not a document you have to sign but it is what you have to pay when you stamp your documents. If you are utterly confused, stamping a document is not the stamp you affix on a letter to send it out.
Stamping is a process you do to make sure that if you ever get involved in a dispute, your documents can be admitted as evidence in court. The amount you have to pay for stamp duties varies with the documents. For example, the nominal fee is usually paid for statutory declarations while the stamp duty for the facilities agreement depends on your loan sum.
There is also stamp duty to be paid upon signing the MOT, which would depend on the value of your house. For more information on the charges, read our guide to the latest Property Stamp Duty.
The documents and information listed above are the essential things you need to know as someone who is buying a house in Malaysia. If you have any uncertainties, don’t forget to direct them to your conveyancing lawyer as it is their legal duty to explain and point out any special clauses/terms in your contract.
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*This article was originally published as Have you ever bought a house in Malaysia and had no idea what you signed? by Asklegal.my and is written by Denise C.