Bank views death of debtor as default of loan
Q MY DAD has been bogged down by a share trading loss of more
than $500,000 as a result of the collapse of the Clob market back in the late 1990s.
Till this day, the monthly interest payment to the bank is about $2,000, which he has paid himself.
My dad is semi-retired and my mum is a housewife. My sister and I are working and live with our parents.
The property in which we live is under my dad’s name. He has been waiting for the property market to improve before selling the house and repaying the bank.
When my dad dies, will the bank insist on having an immediate sale of the property irrespective of the existing property market situation?
What significance (implied or otherwise) will there be, if my siblings and I were to help my dad pay the monthly interest? Will we become the implied guarantor to repay the bank instead?
If the property was to be sold and the proceeds are insufficient to repay the bank (and my dad is prepared to declare bankruptcy), will my siblings and I (and our spouses) be implicated and be forced by the bank/courts to help repay my dad’s debt?
Would the act of us moving out of the property make a difference?
A The bank can sell the property at any time it deems fit since the death of your father would be an event of default and the bank is not obliged to wait for better market conditions.
Your fears that the bank may ‘dump’ the property at a low price may be unfounded because the bank, as the mortgagee, would have a vested interest in obtaining the best possible price for the property.
Any informal arrangements between your father and you/your sister to help pay for the monthly instalments do not affect the relationship between the bank and your dad.
As far as the bank is concerned, it looks only to your dad for the debt. By the same token, your siblings and you have no interest whatsoever in the property notwithstanding your monetary contributions.
If the mortgage was taken out by your dad alone (and assuming none of you are the guarantors), only he would be liable to pay the bank for any shortfall after the sale of the property.
No one else, family or otherwise, will be forced or obliged to pay the bank, or become an ‘implied guarantor’.
Therefore, just because you are the occupiers of the property does not create a legal right against you by the bank.
By the same token, if the bank chooses to foreclose on the property and evict you in order to sell the property, as occupiers, you have no recourse since you have no rights vis-a-vis the bank.
Doris Chia Partner Harry Elias Partnership
Advice provided in this column is not meant as a substitute for comprehensive professional advice.
Source : Sunday Times - 29 Oct 2006
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