April 18, 2007

Bankruptcy cases: New deal, new home-loan pact

I REFER to the letter by Mr Leong Sze Hian, 'New loan agreement puts owners at a disadvantage' (ST, March 24).

We would like to make the following clarifications:

# Banks do not insist on a new loan agreement being executed when one of the joint owners is made a bankrupt, as stated by Mr Leong. It is usually done at the request of the remaining mortgagor(s).

# When a mortgagor is adjudicated a bankrupt it is deemed a major event of default, and the bank has the right to recall the credit facilities and repossess the mortgaged property.

# However, if the remaining mortgagors are able to continue servicing the loan, and seek the bank's consent to continue with the loan, banks will consider such cases on a case-by-case basis, depending on the merits of each case.

In the event that the bank is agreeable, based on its assessment, to restructure the loan with the non-bankrupt mortgagors as borrowers, the bank will issue a new letter of offer and a new loan agreement for the customers to accept and sign. Hence it is a new business deal with no coercion on the part of the bank and a new loan agreement is needed to effect this.

As a condition for the new loan, the bank may request additional securities/guarantors and the reversal of the CPF charge, which would require the consent of the Official Assignee and approval of the CPF Board.

To sum up, banks do not insist on new loan agreements being executed. The bank is within its right in case of bankruptcy to recall the loan and foreclose the mortgaged property. Only as a negotiated settlement with the non-bankrupt mortgagors would a new loan be given and a new agreement signed.

Ong-Ang Ai Boon (Mrs)
Association of Banks in Singapore