Bank Negara sets time frames for release of documents for certain real estate loans

Bank Negara Malaysia (‘BNM’) issued a policy document, namely the Issuance of Redemption Statement and Release of Original Title of Immovable Property (‘Policy Document’) on 26 February 2020, which came into effect immediately.
The Policy Document applies to –
  • licensed banks under the Financial Services Act 2013 (‘FSA’);
  • licensed Islamic banks under the Islamic Financial Services Act 2013 (‘IFSA’);
  • licensed insurers under the FSA carrying on life insurance business;
  • licensed takaful operators under the IFSA carrying on family takaful business; and
  • prescribed financial institutions under the Development Financial Institutions Act 2002 (‘DFIA’),
 (each a ‘FSP’).
The aim of the Policy Document is to promote business efficacy and improve the delivery of services in the financial services sector by setting out the requirements for a FSP to expedite the issuance of the redemption statement for a housing loan/home financing and the release of the original title to the immoveable property via work process improvement.
The Policy Document requires a FSP to comply with the following time frames in ‘non-complex cases’ –
  1. issue the redemption statement for housing loan/home financing within two working days commencing from the next working day from the date of receipt of instructions from the customer or the customer’s solicitors; and
  1. release the original title of the immoveable property within five working days commencing from the next working day from the date of receipt of the redemption sum.
In the case where the redemption sum is paid by cheque, payment is deemed received only upon the clearance of the cheque.
The Policy Document sets out a non-exhaustive list of examples of non-complex cases –
  1. the housing loan/home financing account is performing and has no record of impairment history;
  2. the immovable property is not used as a collateral for other loan/financing facilities;
  3. complete security documents are in the custody of the FSP or its panel lawyer;
  4. complete information is provided by the customer and no further clarification is required;
  5. the terms of the housing loan/home financing contract have not been changed during the tenure; or
  6. all outstanding charges for housing loan/home financing account have been settled.
It is believed that the Policy Document was issued as a result of discussions between BNM and the Conveyancing Practice Committee of Bar Council Malaysia.
The imposition of time frames by BNM under the Policy Document is welcomed and will assist to expedite the completion of a sale or refinancing of an immovable property which is subject to an existing housing loan/home financing.
The Policy Document suffers two major drawbacks which should be rectified by BNM as soon as possible –
  1. the definition of ‘original title to immovable property’ should include the original sale and purchase agreement and, where applicable, the deed of assignment in relation to the immoveable property where a separate issue document of title has yet to be issued; and
  1. the obligation to release the original title to immovable property should include the release of a duly executed discharge of charge and the duplicate charge or, where a separate issue document of title has yet to be issued, a duly executed receipt and reassignment within five working days of receipt by the FSP of the discharge of charge or receipt and reassignment (as appropriate) from the vendor’s solicitors or the redemption sum, whichever is the later.
In addition, it is suggested that BNM reviews the scope of the examples in paragraphs (a) and (e) of its examples of non-complex cases. In the case of paragraph (a), a more equitable requirement would be that there is no unresolved impairment before the request for redemption is received as there may be cases where an impairment occurred and had been resolved a long time before the proposed redemption. BNM should also consider amending paragraph (e) to cover only cases where there is a pending request by the customer for any change of the terms of the contract. This is to avoid the clause being used upon by a FSP in cases where the terms of a housing loan/home financing contract have been changed some time ago (especially one which has subsisted for a long time) and has no bearing on the redemption process.

With the introduction of the Policy Document, it is imperative for a FSP to ensure that its work processes relating to the issuance of redemption statements and release of security documents are able to meet the prescribed time frames. A FSP which is subject to the FSA, the IFSA or the DFIA may be subject to administrative actions under section 234 of the FSA, section 245 of the IFSA or section 106A of the DFIA, as applicable, if it is persistently unable to comply with the requirements set out in the Policy Documents.

Alert by Oon Hooi Lin (Partner) and Melody Ngai (Associate) of the Banking and Finance and Real Estate Practice Groups of Skrine.