How could this happen? Who should be punished?
In my Article (NST RED 21st 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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