Hi all,

I would like to ask if anyone know how will this actually goes around..

Let's say I am a property developer. I got a piece of land, and that land is being charged to a bank (Say A bank) for bridging loan finance of the project.

Let's say the property is RM 1million (new development properties), and let's say it takes 3 years to be completed.

The question here is this.

Let's say a buyer, MR C, comes and buy this new under-construction property from me at a price of RM 1million, borrowing 90% of loan.

SPA and Facilities agreement all signed..

The construction begins and developer start to claim bank for the progressive billing on the construction status.

Let's say after 2 years, claiming 40% which is 400k, the purchaser start to default already..

Now the question is...

1. When the purchaser default with bad payments, will it affect the developer in claiming the remaining 50% of the sum ?

2. When the purchaser bankrupt, will it affect the developer in claiming the remaining 50% ?

Anyone had any knowledge on this?

Dam.. post in wrong thread.. Can Moderator help me to shift this to Finance Business Investment general section?

wow bone gor sejak bila u shift to property section

Die...property bust signals sighted

I shift to property section?

Lolz.. I was in property segment 3 4 years ago already till now also lor.

Where got die??

Got die ah???

People still rushing to buy 1k psf REVO suites at bukit jalil ma

My fren in property field...

20-30% discounts are commonplace...

Even got 1 developer, buy a house (about RM1mil), free Honda Civic!

now when u buy property.. u not only buy property..

U buy along...
Personal loan - free cash
Hire Purchase - free car

Well.. if u need cash and car.. thats a good option, because leveraging the borrowing from property, it is a lower interest charge..

hahaha..

Ohhh... I want learn with u liao..
Bila u free? Want lunch with u leh

This post has been edited by djhenry91: Nov 2 2015, 12:52 PM

i do sales and financing only..

recently want to know about developing a little bit only..

my leg patah already lor.. wont be able to move around for at least 1 mth.. haha

lol..suddenly leg patah..want lunch or yamcha with u..
u tak boleh move pulak..sien lo

Easy. Just go to his house and have free food on the house. Healthy home cook food some more.

hope so he will let me go his house haha

Need to see the letter of undertaking exchanged between the developer & bank. Usually the bank will want to have their undertaking to release the loan amount subject to purchaser having not defaulting in conditions of loan agreement. If developer accepted this, then bank has the right to stop further loan drawdown.

However, if the developer did not agree to that proviso, then bank is bound to release the loan and go after the purchaser for any default.

In event of bankruptcy, the SPA will terminate. In this case, the termination clause will kick in, There will be a forfeiture sum and any balance after deducting all outstanding will be refunded.

I am not a lawyer, but my understanding is as per above.

This post has been edited by ??!!: Nov 2 2015, 04:14 PM

Wah.. based in your first scenario.. that is scary.. so if the project many bankrupt/default kaki, the whole project might be affected because of those kaki lor ?

In the event of bankruptcy, spa not valid.. but bank got disbursement towards tat unit. So how ? The property is bank punya or developer can resell the prop ?

Need a lawyer that really does this before to comment a bit

parking dulu

but from my understanding, if the buyer loaned from bank to buy, bank should take up the unit and go for auction right? since bank has been paying up till the day Mr.C bankrupt. unless the buyer didnt take loan...

waiting for more replies.

Legally..........if a purchaser declares bankruptcy in the middle of a purchase, then the Letter-of-Undertaking will be the first point of reference on how this matter will be treated. Second stop will be the Department of Insolvency, who will decide the stage at which the progress payments have been released, then from there provide judgement on which party has right to the proceeds recovered from the property that is indicated in the Sales and Purchase Agreement.

The Sales and Purchase Agreement will reference the property in-question, though one party in the agreement has given up his rights to the property because of a bankruptcy filing, and judgement that has been passed down by the courts.

Hope this helps.

It's the risk one bears when one buys a property that is under construction.
You don't need bankruptcy to present this 'scary' scenario.
Buyers can opt out anytime by refusing to pay progress bills and force developers to terminate the SPA. Of course, they lose the forfeiture sum in the process. In a bad downturn, we see many of such cases.
Therefor, it's prudent to select development by strong developers who have the holding power to finance the project during the bad times, irregardless of low sales and/or buyers' default. Also may want to avoid developments that encourage speculators with no holding power.



The property belongs to the buyer, but the bank has a lien on it.

The SPA is signed between buyer and developer. The bank is like an agent of the buyer paying on behalf of the buyer.

As i remember seeing in many agreements, a bankruptcy event will bring the agreement to an end.


if the property is not fully paid up at time of bankruptcy, the ownership rights has not fully passed to the buyer.
Banks are not interested in holding property. they are in the business of lending money.

Hansel has explained the position of parties involved in the event of bankruptcy.

thanks for many good input..

however, i would still want to seek more input on the disbursement part of it..

If the buyer default and unable to pay up...

A. Bank will freeze all future disbursement in relation to the unit
B. Bank will continue to disburse until completion

If scenario is A, that would be a tough game for developer. Developer cannot claim progressive billing to complete the unit. But however, if SPA voided, means Developer can resell the unit, that might solve the problem looking at it on surface.

But the issue is.. If Bank A had a certain disbursement amount in the under con unit, and Buyer B come and buy with financing from Bank B, how would it be ah? The under con unit cannot be charged to 2 banks right? Unless Bank B settle Bank A outstanding and pass it to the purchaser B ?

If that is the scenario that Bank B settle Bank A, then Purchaser A (default purchaser) jao no more liability on this undercon property ad???

Can be arranged like this one ah?

haha

This post has been edited by Bonescythe: Nov 2 2015, 11:46 PM

I stay under the bridge one wor, u sure u want to come visit me under the bridge beside klang river?

Whether scenario A or B..depends on content of Letter of Undertaking exchanged between Developer & Bank.

Most banks want to get away with L/U that says developer has to refund the loan amount disbursed in event of purchaser defaulting on their loan terms, which is unfair. Developers' staff who agree to this ought to be shot as developer does not have to agree to this variation to the SPA as it compromises their position as the title would have been transferred to buyer's name and charge to bank effected prior to full purchase price being paid. So in scenario A, developer has to refund whatever loan already disbursed and have no more further loan release. technically, bank A is then supposed to discharge the charge and buyer A to transfer back ownership back to developer. But in reality, this will probably not happen as likely buyer A will be in no financial position to make this happen.



This is sub-sale case for completed unit.
For unit under construction, tak boleh leh...due to undertakings exchanged between parties...a bit lengthy to explain in detail.
BUT...just for academic discussion, I think it's possible but in practice, no bank and developer will want to get into all these legal hassle.

if want to change hand, bank A must be paid off before bank B comes into the picture.

Alright. So in line of what you had said.. how does the purchaser know if the developer has such undertaking tat if in the event the purchaser default, the developer need to repay back everything to the bank ?

Does the spa signed indicated this clause which is between the developer and the bank ?

Wah...sounds like someone looking for loophole to get out of a purchase

* joke..joke*

No, not in SPA.

Ask for a copy from the end-financing lawyer. All letters exchange via them.

Actually, you are referring to default case or buyer want to sub-sell to another buyer?

Haha.. no loophole la. These are possible scenarios that can happen ma.. since economy no good, is good to know a bit on this, especially developer and financier agreement.

My case study never refer to subsale cases. Subsale cases is completed property, and it will not be so complicated as usually subsales cases are quite straight forward.

Not straight forward case is this under construction property where payment are progressive, and house is not ready, no vp no title (for strata case). So it is very confusing at some point of time when this kind of things happen.

So to get it straight from the feedback..

The project (developer) might had signed an undertaking with the bank to stop financing and also to reverse back all monies to the financier.

If there is no such undertaking, i assume tat the financier will continue to disburse till full VP and lelong it. Then claim anything excess from the defaulter (purchaser)

I will check with some end financing lawyer to ask and see as well. Haha.. very rare question, but it happens.

As far as I knew.

It has nothing to do with SPA between purchaser and developer. But loan undertaking between developer and financing bank.

Financing approval and undertaking condition of it is another set of agreement outside of SPA.

If purchaser wants to know the condition, then can read from the loan agreement signed, it should have clauses stated inside the agreement.

sure bo

When i asked "sub-sale" was referring to a sub-sale of the unit which is under construction. ie Buyer A tries to get Buyer B to take over his unit.

The other scenario is Buyer A defaults in loan interest payment and bank refuses to release further loan drawdown and the developer opts to terminate the SPA.




Exchange of letter of undertakings is part of the loan documentation required. However the content of these letters will vary from case to case. So for specific case, best to ask the end-financing lawyer for copy of the letter for that particular unit; Not any random letter of undertaking from any unit/bank/developer.

Oo.. refering to your question, primarily, i am more keen to know about the consequences of being a developer and the consequences of having a defaulting client.

Now on subsale of the undercon, As far as i know, this special kind of subsales arrangement is very very complicated, unless the new purchaser is willing to take up the same financier. But it would be great to know how the exact process is.


And for the last part. U mean different purchaser have different clause in the facility agreement ? Waw.. like this mah very very headache ??? It shud be a standard arrangement one ma..

Even if new buyer goes to the same financier, tak boleh assign the loan aje lor...or strike off A's Name and replace with B.
New loan agreement must be signed with B..Anyway, most times , it's a non starter as most developers are not going to agree to the subsale.

Any developer worth its salt, should bring experienced people on board to help manage all the intricate issues involved. Not so simple to explain here.



While most loan facility agreements will be pretty much similar for a particular bank, However,the letter of undertaking exchanged between bank and developer may vary. Bank will have their so called "standard" format. So does the developer. In reality, both these "standard" formats will differ . So depending on nego power, they have to come to an agreement on what is acceptable to both parties. Hence the final "not- so - standard" format.