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Explore the differences between Conventional and Islamic Financing, learn about legal documentations, types of financing, and important considerations for financing transactions. Get insights on practical approaches in handling home financing transactions seamlessly.
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PRELIMINARIES There are basically 2 types of financing available: • Conventional Financing • Islamic Financing
Conventional loans • Conventional Financing - financing granted by the Financial Institutions. Eg. housing loans, terms loans, overdraft, trade financing, etc Documents - Facilities Agreement, Charge, Deed of Assignment, Debentures, etc.
Islamic Financing • Islamic financing – financing in accordance to Shariah principles. It is based on the concept of trade which is permitted under Shariah rules (Not interest base ie. No Riba) • Documents – depends on type of financing (BBA facility, Musyarakah, Ijarah, etc.)
TYPES OF FINANCING: house financing, overdrafts, business loans, corporate loans, trade financing, personal financing, etc.
Example: House financing For house financing, there would be 2 types of documents executed : • A contract document between the bank and the customer; and • Security document where the customer would normally charge/assign the property to the bank
For Conventional Financing: • Facility Agreement - 1st Party/3rd Party Loans • Security Documents - Legal Charge/DOA
For Islamic financing: • Property Purchase Agreement • Property Sale Agreement • Security Documents – Legal Charge/DOA Note: There cannot be a 3rd Party Financing in Islamic financing - Hibah (gift) to be executed
Other Documents Debentures, Memorandum of Deposit, Letter of Set-Off, Shipping Guarantee, Letters of Credit, etc
1. CONVENTIONAL OR ISLAMICThe first consideration would be whether the proposed financing falls under the Conventional Financing or Islamic Financing.
2. WHAT ARE THE SECURITIES ? • If a legal charge is to be created as a security, it must be determined whether the land on which the property is situated has its own individual/strata title or if the property is still under master title. • Other securities - Fixed Deposits, Guarantees etc
3. WHO IS THE CUSTOMER ? • Individual ; or • If the customer of the bank is a company, then the solicitor would need to obtain, inter alia, the following documents from the company: Forms 24, 49, 13, 44, etc - Memorandum & Articles of Association - Board of Director’s resolution authorizing the company to obtain the financing and stating the purpose of the financing
4. PURPOSE OF THE FINANCING • Financing for the purchase of a property • Personal use by refinancing a property • Working capital/operational cost (if company)
PRACTICAL APPROACH – HANDLING A FINANCING TRANSACTION FOR HOME FINANCING
Documentation 1) Letter of Instruction received from bank 2) To purchase bank’s preprinted documents 3) To conduct the necessary searches : • Land Search • Bankruptcy/winding up searches • Company searches
4) To send out letter requesting borrower(s)/ chargor(s) to execute documents and to furnish documents (ex: nric, sale and purchase agreement, resolutions, etc) 5) to prepare documents for execution by the borrowers - in the event that the title has restrictions-in-interest, to prepare application for consent to charge form or ensure that the SPA Solicitors have applied for both consent to transfer & Charge
6) Once executed by the borrower(s)/chargor(s), to forward documents to the bank for execution. 7) If the property has a restriction in interest- to submit application to land office to obtain the consent to charge if not done by the SPA Solicitors.
8. After the borrower signs the documents, the solicitor has to liaise with all the relevant parties – Vendor’s Solicitors, Purchaser’s Solicitors, etc for undertakings, etc9. Once the Financial Institution signs the documents, the documents will be sent for stamping and where applicable, registration at the relevant Land Office/High Court.
Note: • cases where redemption is involved- additional steps : Redemption statement cum undertaking entry of caveat date of assignment to correspond with date of reassignment
- If the property is encumbered and the bank has to redeem the property from the current Financier, to request for the redemption statement cum undertaking from the current Financier and to enter a private caveat on the property (unless the individual title is not issued and the developer expressly prohibits the entry of private caveat).
- the redemption statement cum undertaking would state the amount still owing by the seller to the financier and an undertaking from the financier to forward the Discharge of Charge, Duplicate Charge and Title OR Receipt and Reassignment with the original documents evidencing title to the property, upon receipt of redemption sum and to refund the redemption sum in the event that the discharge of charge/deed of release & reassignment cannot be perfected.
10) Solicitor to request for the necessary undertakings from the relevant parties : If the seller is a developer – to obtain the developer’s undertaking, inter alia, : • to deliver a valid and registrable transfer and title upon issuance of title, • not to encumber the Master title without bank’s prior consent, • to procure the relevant consent to transfer/charge (if applicable)
and to refund the loan sum in the event of : • non registration of Transfer, • suspension /abandonment of project, • non issuance of Certificate of Completion and Compliance, • the individual/strata title is not issued (if applicable); and • the consent to transfer and charge is not obtained (if applicable).
If the property has no individual title as yet – to obtain the SPA Solicitors undertaking to, inter alia, forward the valid & registrable and stamped Memorandum of Transfer to the bank upon issuance of title. • If there is no individual title and the master title is charged to a bridging financier, then to obtain a letter of disclaimer from the bridging financier to exclude the property in the event of foreclosure, to forward the Discharge of Charge and title upon issuance thereof and to refund the redemption sum in the event of non registration of the Discharge of Charge
if the seller is not a developer but an individual/company – to procure the Vendor’s undertaking to refund addressed to the bank stating that the Vendor undertakes to refund all monies released to him/his financier in the event that the Transfer/Assignment cannot be perfected. • To obtain confirmation from developer or Vendor’s Solicitors, whichever applicable, that the differential sum between the Balance purchase price and Banking Facility has been settled.
The bank’s solicitors are to ensure all the undertakings and disclaimers are worded correctly to protect the bank’s interest.The solicitors can now advise the bank to release the redemption sum.Once the redemption sum is paid, the seller’s bank will forward all documents held by them as security to the new Financier’s Solicitors.
Security documents are to be stamped. The principal instrument is to be stamped ad valorem and the subsidiary documents can be stamped at a nominal rate. • For properties with title, the charge is then to be presented at the land office. The order of presentation must be noted : - discharge of charge (if applicable) • Withdrawal of caveat (if caveat had been lodged prior to drawdown of redemption sum) • Consent to transfer (if applicable) • Transfer • Consent to Charge (if applicable) - Charge • Note: it is always advisable to conduct a land search prior to the presentation of the transfer and charge.
For properties without title, the Deed of Assignment can only be dated after the Deed of Receipt & Reassignment. The Power of Attorney is to be lodged at the High Court. • Companies must lodge the Form 34 within 30 days of the date of the charge/assignment at the Companies Commission of Malaysia or Suruhanjaya Syarikat Malaysia. • Once the above is done, the solicitors can advise the financial institution to release the balance of the banking facility . In the event there is no redemption involved, all steps except the redemption process is the same.
Financing procedures for properties purchased via an auction • When preparing financing documentations for properties purchased via an auction by a judicial auction (High Court or PTD) or non-judicial auction, the procedures are basically similar with the exception to the following documents:- i) A Proclamation of Sale instead of a Sale and Purchase Agreement; ii) If the property purchased has been issued with an individual title/strata title and the auction is a judicial auction at High Court, then the appropriate transfer is by way of Form 16F (obtained from the court by the Solicitors representing the chargee ) and NOT the normal Form 14A (transfer form);
iii) If the auction was by way a judicial auction by the Land Office (PTD), then the transfer of the property will be by way of Form 16I (obtained from the relevant land office) instead of Form 14A;iv) The full Banking Facility sum would normally be paid to the chargee as part of the balance purchase price;v) The only security for the Financier in releasing the full Banking Facility sum will be by lodgement of a Private Caveat on the title pending the perfection of transfer and charge;vi) In the event there are restrictions-in-interest on the title, in such circumstances, there is no requirement to obtain consent to transfer but a consent to charge is required to be obtained.
vii) For properties involving Master Titles, the transfer Deed of Assignment must be executed by the assignee bank and the successful bidder (purchaser); viii) A Deed of Receipt and Reassignment need not be prepared in an transactions involving auction properties.
