March 25, 2007

Bank can sell home if owner can't meet loan payments

Q I AM 53, unemployed and servicing a bank loan for my private apartment. I'm afraid I might not be able to service the loan soon and the bank might start bankruptcy proceedings against me.

Can the bank do this and can it wait till I am 55 to take the Central Provident Fund (CPF) amount that I have contributed to the house?

A If you do find yourself unable to repay your monthly housing loan, the bank would be entitled to repossess the property and dispose of it to recover the loan amount and outstanding interest.

The bank is not obliged to sell the property immediately; it can hold on to the property if it thinks prices will rise. Given the property climate, this might be better for you.

When the property is sold, the bank might not be entitled to the entire sale proceeds. This depends on when you bought the property.

Typically, a property is encumbered by a bank mortgage and a CPF charge. Before Sept 1, 2002, the CPF charge always took greater priority, so any proceeds went first to your CPF account; the balance then went to the bank mortgagee.

Now, the bank usually takes priority. If you bought your property after Sept 1, 2002, the proceeds would first be used to pay off the mortgage; any surplus would then go to your CPF account.

You fear that if the bank sues you now and repossesses and sells the property, the amount it recovers would be still be insufficient to satisfy the outstanding loan and interest.

The bank can start bankruptcy proceedings only if the shortfall exceeds $10,000.

Next, assume you are made a bankrupt before you turn 55. The law says you can apply to withdraw your CPF savings at 55, but you have to first set aside the following three amounts before withdrawing the excess in one lump sum:

An amount to meet your living expenses between ages 55 and 62.

An amount to meet your retirement needs from age 62 (that is, the Minimum Sum).

An amount to meet your hospitalisation expenses (that is, the Medisave Required Amount or the Medisave Minimum Sum, whichever is higher). Check the CPF website for further details.

Under the CPF Act, the bank cannot lay claim to the money in your CPF account; neither can any other creditor.

Vijai Parwani
Parwani & Co

Advice provided in this column is not meant as a substitute for comprehensive professional advice. E-mail questions to [email protected]