Couple sue NTUC Income over reverse mortgage deal gone sour

http://www.businesstimes.com.sg/sub/...43511,00.html?

Published July 28, 2009

Couple sue NTUC Income over reverse mortgage deal gone sour

By CHEW XIANG


(SINGAPORE) A couple are suing NTUC Income - in what is seen as a test case - over a reverse mortgage deal in which their property was sold amidst falling property prices.

Derek Chua, who is in his 70s and his wife Colleen Ng, who is in her late 50s, claim they lost their matrimonial home at Upper Serangoon in 2006.

NTUC Income demanded repayment of a loan procured in 1997 under a reverse mortgage, and the couple claim they had to sell their home to repay it, according to a writ of summons filed earlier this month and seen by BT.

The company's chief financial officer Jeffrey Lee said in an emailed statement that NTUC Income had been 'more than reasonable' in trying to help the borrowers and that the couple had been advised on the terms of the deal.

The couple claimed that the 1997 reverse mortgage valued their house at $2.1 million, and based on a loan to valuation ratio of at most 80 per cent, they were given $495,000 cash to pay off their previous mortgage and payments of up to $2,000 a month.

In May 2004, the couple were told the value of their house had dropped to $1.1 million and they were in breach of the 80 per cent loan to valuation limit, based on the outstanding loan amount of $926,000.

According to the couple, they were told to top up $46,400 to bring the ratio down to the 80 per cent limit, and their monthly payments of $2,000 were reduced in steps to $1,500 from October that year.

A year later, in October 2005, NTUC Income said the outstanding loan, at $1.014 million, exceeded the 80 per cent limit based on the property value of $1.15 million. The couple were told they would get just $300 a month until June 2006, after which the company would 'exercise (its) right to recall the property for auction sale'. The couple could also procure a buyer on their own or find another place to stay, according to a letter from NTUC Income, the couple said.

By then, the couple owed $1,045,802.91. On June 30, solicitors for NTUC Income sent the couple a letter demanding repayment or else face legal proceedings

The couple handed over possession of their property on Aug 31, according to their writ.

The property was later sold for just over $1 million, leaving an alleged shortfall of about $55,000, which the couple were asked to pay.

They claim that if not for NTUC Income's letter, they would not have sold the property - which in 2008 was again sold for about $1.5 million, the writ says.

NTUC Income has yet to file its defence.

The couple have engaged senior counsel Michael Khoo through legal aid. NTUC Income is represented by Rodyk & Davidson.

http://www.straitstimes.com/Singapor...ry_408865.html

July 28, 2009 Tuesday

Couple sue over reverse mortgage

Damages sought from NTUC Income over alleged contract breach

By Jessica Cheam


REVERSE mortgages - launched with much fanfare over a decade ago to help retirees unlock the cash value of their homes - will, for the first time, be at the centre of an upcoming court case.

Mr Derek Chua, 72, and his wife Madam Colleen Ng, 57, have filed a suit against insurer NTUC Income after their reverse mortgage turned sour.

In the writ of summons obtained by The Straits Times, the couple claim that the reverse mortgage scheme entitled Mr Chua to live in the property until he died or sold the property.

They also claim that Income was not entitled to force them to repay the loan if the loan exceeded 80 per cent of their property's market value.

When the reverse mortgage scheme was launched in 1997, it was seen by the Government as a way for the elderly to get some income from their homes without having to move out.

It offered an income stream for cash-poor but asset-rich retirees. They could use their homes as security for a loan that would be dispensed in monthly cash payouts.

Under the scheme, the lender would usually recover the cash it had paid out through the sale of the property after the borrowers had died. Any surplus would go to the estate.

Mr Chua and his wife signed up.

The property, which they bought in 1975, was valued at $2.1million in 1997. This allowed Income to lend them up to 80per cent of the valuation or about $1.68million.

Income also settled an outstanding overdraft of $495,000 that the couple had taken out from a bank using the house as collateral.

Income paid out $2,000 a month.

But things went wrong for the couple when property prices crashed after the Sars crisis in 2003. Their home's valuation virtually halved to $1.1million in 2004 and they were told by Income that the loan was reaching its 80per cent limit. As a result, the couple's monthly payouts were cut successively from $2,000 in 2004 to $300 by 2006.

In June 2006, the couple were told that their loan amount had exceeded 80per cent of their property's market value at the time. The monthly payouts stopped the following month.

By then, the couple owed Income almost $1.05million - comprising the $495,000 to clear their overdraft, plus the monthly payouts and the compounded interest on these payouts.

It became necessary to sell the property to recover the sum.

According to the couple, Income found a buyer who paid $1.05million in November 2006, but there was still a shortfall of almost $55,000, which the couple were to pay off in monthly instalments over the next 10 years.

The couple started making these payments and kept them up until recently when they decided to take legal action.

Mr Chua, a retired flight engineer, and his wife, a housewife, who now rent an HDB flat, will be represented by Senior Counsel Michael Khoo. The appointment of a lawyer was made by the director of the Legal Aid Bureau, after the couple passed a means test.

Mr Khoo said the case was 'the first of its kind', and declined further comment as the suit has been filed.

In the writ, the couple are seeking damages for an alleged breach of contract to be assessed, and costs.

Both Income and OCBC Bank - the only other institution to offer reverse mortgages - stopped offering such loans last year as their take-up was not high. Income has issued 500 such loans since 1997 but only 134 remain active.

Property consultant Nicholas Mak, former head of research at Knight Frank, said it was not surprising that the scheme fizzled out as its success relied on 'many factors, including the size of the market and its culture'.

A recent HDB initiative called the lease buyback scheme has broadly replaced the reverse mortgage, he said.

But this is available only to elderly folk who live in three-room or smaller flats. It monetises their flats to create annuities.

[email protected]