400 House Buyers Cheated

How could this happen? Who should be punished?

In my Article (NST RED 21^st September 2012) on “BTS cure for abandoned housing projects”, I stated that the primary causes for abandoned housing projects are:

“From 1983, when the first abandoned housing project was recorded, until 1997, the year the East Asian Economic Crisis hits Malaysia, due to over certification of progressive payment claims by the respective Project Architects and over-payments by the Banks from the respective borrowers housing loan accounts, many housing projects with funding inadequacies ceased construction activities thereby resulting in an increasing number of abandoned housing projects being recorded with corresponding increases in the incidences of “Non Performing Loans (NPLs)” affecting Malaysian Banks”.  

400 conned into buying non-existent houses around Klang

I refer to a report in The Star of Tuesday, 23 October 2012 where on page 6 it was stated that “Five property agents have conned at least 400 people into buying non-existent houses priced between RM150,000 and RM280,000”

As extracted from the newspaper report, the “facts” as reported by The Star of Tuesday, 23 October 2012 are as follows:-

1.0       These 400 house buyers had booked the houses during a property fare in 2006 in Kuala Lumpur

2.0       Some of the victims were made bankrupts by the banks for not settling any of their payments

3.0       These 400 house buyers paid 10% Deposits to the property agents

4.0       These 400 house buyers signed the Sale and Purchase Agreements without the presence of lawyers

5.0       The Selangor Police Chief, Deputy Commissioner Datuk Tun Hisan Tun Hamzah was quoted by The Star in the same report as having said “a check showed that the supposed projects in Meru and Banting do not exist at the mentioned location” 

6.0       DSP Datuk Tun Hisan was also quoted by The Star as having said that Police had identified six banks that had approved loans for the non-existent projects.

7.0       After waiting for almost 6 years, some 138 of the 400 house buyers lodged a Police Report

8.0       The Star of Tuesday, 23 October 2012 reported that Police are investigating the possibility of involvement of parties from local banks suspected of collaborating with the so-called agents.

Malaysian house buyers’ worst nightmares

This Report The Star of Tuesday, 23 October 2012 represents the realization of Malaysian house buyers worst nightmare.

Safeguards, checks and balances?

How could these 400 house buyers have been cheated? What happened to the Rules and Regulations in the Housing Development (Control and Licensing) Act 1966 that were intended to protect house buyers from being cheated?

Who should be held accountable?

According to the The Star report, the main characters involved in this episode include the 400 house buyers, the five “property agents”, the “absentee lawyers” and the six banks. We shall examine their actions and conduct individually:

i)          The “Property Agents”

Section 22c (1) of the Valuers, Appraisers and Estate Agents Act 1981 (the Valuers Act) stipulated that:

“No person shall unless he is a registered estate agent and has been issued with an authority to practice under section 16 practise or carry on business or take up employment under any name, style or title containing the words ‘Estate Agent’, ‘House Agent’, ‘Property Agent’, ‘Land Agent’, ‘House Broker’ or the equivalent thereto”.

Legal status of “Property Agents”

In the light of section 22c (1), we now ask this question: “are these 5 ‘property agents’ Registered Estate Agents and are they legally permitted to act as ‘property agents’?”. If the answer is “no”, then these five “property agents” had committed offences against the Valuers Act and they should be reported to the Board of Valuers, Appraisers and Estate Agents to be prosecuted under section 30 of the Valuers Act and if convicted to be punished under section 31 of the Valuers Act.

ii)         The “absentee Lawyers”

The Star report stated that the 400 house buyers signed the Sale and Purchase Agreements “without the presence of lawyers”. If true then the lawyers who prepared the Sale and Purchase Agreements are guilty of negligence and dereliction of their professional duties if they subsequently signed the respective Sale and Purchase Agreements without having personally verified the signatures of each of the 400 house buyers by having them (the house buyers) sign the Sale and Purchase Agreements before them (the Lawyers).

Validity of Sale and Purchase Agreements

Are the Sale and Purchase Agreements signed by the 400 house buyers without the presence of lawyers legally valid? If these 400 house buyers did not sign their respective Sale and Purchase Agreements in the presence of lawyers, then unless their signatures were witnessed by another adult person, their respective Sale and Purchase Agreements are at risk of being declared invalid and unenforceable.

iii)        The Banks

 

The six Banks’ role in this unfortunate episode can be defined as follows:-

a)         The six Banks’ role in processing and approving the respective housing loan applications from the 400 house buyers.

b)         The six Banks’ role in disbursing the housing loans granted to the 400 house buyers.

            Adequate Safeguards

There are sufficient safeguards in the Housing Development (Control and Licensing) Act 1966 and the Banking and Financial Institutions Act 1989 that could have protected the 400 house buyers/borrowers and saved them from being conned and cheated.

We shall examine these safeguards and discover where the six Banks had failed to perform their fiduciary duties to the 400 house buyers/borrowers.

a)         Loan application stage

When the six Banks received the Applications for Housing Loans from the 400 house buyers, did the Banks require the Loan Applicants to submit to the Banks their respective Sale and Purchase Agreements?

If the Banks did require and the Loan Applicants did submit their Sale and Purchase Agreements, did the Banks ask the Loan Applicants if they had signed their respective Sale and Purchase Agreements in front of the Lawyer?

If the Loan Applicants told the Banks that they did not sign the Sale and Purchase Agreements in front of the Lawyer, the Banks should have immediately rejected the house buyers Loan Applications.

If the Banks did not require and the Loan Applicants did not submit their Sale and Purchase Agreements, on what basis did the Banks approve the Applications and grant the Loans to the 400 house buyers?

If the Banks knew the 400 house buyers did not sign their respective Sale and Purchase Agreements in front of the Lawyer and if the Banks did not require the Loan Applicants to submit their Sale and Purchase Agreements, and the Banks still went ahead to approve the Loan Applications and still granted the Housing Loans, the Banks would have failed to perform their fiduciary duties to the 400 house buyers/borrowers.

a)         Loan disbursement stage

Even if the Banks, either through negligence or oversight granted the Housing Loans to the 400 house buyers and subsequently realized their mistakes, the Banks could still rectify their mistakes at the Loan Disbursement Stage.

The Banks could delay the loan disbursement process and require the Loan Applicants to submit their Sale and Purchase Agreements. From the facts now known to us, the Banks did not delay the Loan Disbursement process. They went ahead to disburse the loans.

Detection of non-existent houses

Even if the Banks had commenced with their loan disbursement process, there are provisions in the Housing Development (Control and Licensing) Act 1966, that when complied with, would allow the Banks to be alerted to the fact that the houses purchased by their 400 borrowers did not exist.

Clause 4 (1) and the Third Schedule of Schedule G {Sale and Purchase Agreement (Land and Building)} of the Housing Development (Control and Licensing) Regulations 1989 provides for the “Schedule of Payment of Purchase Price”. At every stage of the “Schedule of Payment”, such payment is contingent on the execution of the specified works by the Developer. 

Whilst Clause 4 (2) states that “Every notice referred to in the Third Schedule requesting for payment shall be supported by a certificate signed by the Vendor’s (Developer’s) architect or engineer in charge of the housing development and every such certificate so signed shall be proof of the fact that the works therein referred to have been completed” the Banks do have the fiduciary duty to their 400 house buyers/borrowers to at least verify the existence of the houses purchased by their 400 house buyers/borrowers.

From the facts now known to us, it is apparent the six Banks did not take steps to verify the existence of the houses purchased by their 400 house buyers/borrowers.

Relationship of Trustee and Beneficiaries

After the six Banks had approved the Loan Applications and granted the Housing Loans to the 400 house buyers/borrowers who had accordingly signed their respective Housing Loan Agreements with the Banks, the Loan Sums so granted to the 400 house buyers/borrowers are NO LONGER THE PROPERTIES of the Banks. The Loan Sums belong to the 400 house buyers/borrowers. The Banks are merely TRUSTEES to the 400 house buyers/borrowers who are the BENEFICIARIES.

The disbursement/release of the Loan Sums from the house buyers/borrowers Loan Accounts with the Banks is subject to both the provisions of the Housing Development (Control and Licensing) Regulations 1989 AND the Trustee Act 1949.

From the facts now known to us, the Banks did not disburse/release the Loan Sums from the house buyers/borrowers Loan Accounts in accordance with the provisions of the Housing Development (Control and Licensing) Regulations 1989 AND the Trustee Act 1949.

From the facts now known to us, because they did not disburse/release the Loan Sums from the 400 house buyers/borrowers Loan Accounts in accordance with the provisions of the Trustee Act 1949, the Banks DID NOT PERFORM their fiduciary duties to their customers, namely the 400 house buyers/borrowers.

iv)        Liability of the Banks

It is apparent that the Banks, due to the negligence and their failure to perform their fiduciary duties to their customers, are liable for the losses and damages suffered by the 400 house buyers/borrowers.

v)         Acts of corruption and/or fraud?

It is suggested that the Police, when they investigate the possibility of involvement of parties from local banks suspected of collaborating with the so-called agents may consider looking into the causes and/or reasons why the six banks did not comply with the provisions stipulated in the Housing Development (Control and Licensing) Regulations 1989 AND the Trustee Act 1949 for the disbursement/release of the Loan Sums from the house buyers/borrowers Loan Accounts with these Banks. Were there financial incentives provided for the staff of local Banks to act in contravention of the Law when they disburse/release the Loan Sums that amounts to acts of corruption and/or fraud?

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