REP 5 - Mortgage PDF

00:01 Welcome to our lecture on mod gauges and withdrawal of CPF monies. 00:08 The objectives of this lecture are for us to describe how a purchaser may finance his purchase of a property, describe the process involved in the mortgage transaction, identify and explain the documents involved in a...

00:01 Welcome to our lecture on mod gauges and withdrawal of CPF monies. 00:08 The objectives of this lecture are for us to describe how a purchaser may finance his purchase of a property, describe the process involved in the mortgage transaction, identify and explain the documents involved in a loan or in a mortgage, describe the process of applying for use of CPF savings, and how the property is charged to the CPF Board, and identify and explain the documents involved in the charge to the CPF Board. 00:40 The purchase price of a property often comprises not just the purchaser\'s own funds, but also a bank loan which is secured by a mortgage on the property and the purchaser\'s CPF monies for residential properties which is secured by a CPF charge on the property. 00:59 On to the topic of mortgages. Now, who are the parties to the mortgage? There is the mortgager. He is the person that provides the security in the form of the property. Then there is the borrower, who is the person from whom the loan is obtained. The mortgagee would be the bank or the financial institution that lends the money. 01:28 And note the mortgager and the borrower may be the same or different persons. 01:35 What this means is that mortgages can be direct or indirect. For a direct mortgage, the borrower and the mortgager are the same person or the same entity. For an indirect or a third party mortgage, the mortgager and the borrower are different persons or different entities. An example would be if a director of a company were to mortgage his property. 02:04 for the benefit of his company. He would be the mortgager, and the company would be the borrower. Now, what\'s the process of a mortgage like? First, the customer applies for a loan. To do that, he has to submit proof of regular income, such as a notice of assessment and his CPF contribution history. The bank will do a credit assessment check on the customer. 02:34 And if it is satisfied with the customer\'s creditworthiness, it issues a letter of offer. The customer accepts the offer and then the bank instructs its solicitor. Upon receiving instructions from the bank, the solicitor lodges a caveat, prepares the mortgage documents, conducts searches and ensures compliance with the bank\'s conditions. The parties then sign the mortgage documents. 03:03 The bank\'s lawyer submits a report on title. A report on title is a letter comprising information about the property, such as the address, its tenure, whether there are any restrictive covenants or easements affecting the property, and perhaps whether or not replies to legal requisitions are satisfactory. The bank then disperses the loan and thereafter the bank solicitor registers the mortgage. 03:33 So what are the security documents involved in a mortgage? First, there would be a letter of offer. Accompanying the letter of offer would be a set of standard terms and conditions, and these are usually in printed form. There would be the mortgage itself and the memorandum of mortgage. As if these documents weren\'t enough, sometimes there could be additional documents, such as an assignment or rental proceeds. 04:04 The letter of offer sets out major terms of the loan, such as the type of loan. It could be a term loan for a fixed period, say 10 years or 30 years, or it may be an overdraft. It sets out the interest rate applicable, the repayment terms, prepayment penalties, if any, and there could be special conditions in the loan. Some conditions precedent before the loan is dispersed. 04:33 The bank may require certain collaterals to be signed, such as a charge on fixed deposits or guarantee, where another person will be required to guarantee the loan in the event of a default by the mortgager. Now, what are these standard terms and conditions that are attached to the letter of offer? Every bank has its own set, and as mentioned earlier, it\'s in printed form, and all the terms apply 05:02 unless they are negated by a letter of offer. Your client will be happy to know that the letter of offer and the standard terms and conditions are drafted in plain English. So, what is a mortgage? A mortgage is a legal document by which the loan is secured by the property. The format is available on the Singapore Land Authority\'s website, but each bank will have its own set. 05:31 of terms and conditions. Today, most mortgages are in the open or all monies format. This means that even if the letter of offer specifies that the loan is for a fixed term, say 20 years, the mortgage does not state this. It does not state the quantum. It does not state the term of the loan. It will state that the bank will extend to the mortgager banking facilities. 06:01 for such amounts and for such period as the bank may think fit. The mortgager covenants to pay to the bank on demand, all monies owing including interest, which is owing to the bank from time to time. So when you act for the mortgager, it is important that you explain very clearly to the mortgager that there is a difference between the letter of offer and the mortgage. 06:29 However, you can assure your clients that your bank will not be so draconian as to exercise its right to recall all monies on demand if the mortgager were to make payments of the monthly installments promptly and punctually. In the mortgage, there are further terms and conditions which are binding on the mortgager, and these are contained in the memorandum of mortgage. 06:59 of a mortgage to be registered, there is a further set of conditions spelt out in the MM, Memorandum of Modgage. Now the Memorandum of Modgage is incorporated by a clause in the mortgage and because it is registered in the SLA, it has a registration number such as MM number I 94778S. Now you will find that it sets out covenants relating to the maintenance of the property 07:29 Now here, the bank is not micromanaging the mortgage\'s life. It simply wants to ensure that if it has to sell the property upon the mortgage\'s default, the property is found to be in fairly good condition so the bank can realize its security. Now as mentioned earlier, there may be other documents. Sometimes there could be a supplemental deal. And this is where it sets out particular conditions of the loan. 07:58 such as for a term loan, it will set out the quantum of the monthly installments, its payment, whether interest rates can change and so on. Sometimes, too, there could be an assignment of rental proceeds. And this is usually for properties that are purchased for investment and rented out. So here, the mortgager will be assigning to the bank all rental proceeds and the monies of the rental proceeds. 08:25 are gyrote into the mortgagee\'s bank account. What should the bank\'s lawyer do when he is instructed? Now, the solicitor should read the letter of offer and check the standard terms and conditions. He should then ascertain which is the correct form of mortgage. Is it direct, indirect, a third-party mortgage or an all-money\'s mortgage? And adapt it or amend it to suit or reflect the terms of the letter of offer. 08:57 When it comes to registering a mortgage, let\'s talk about mortgages under the Land Titles Act. First, under Section 68-3 of the Land Titles Act, a mortgage should not operate as a transfer of the land mortgaged, but should effect only as security. Under Section 77, the mortgager has a right to obtain a discharge of a mortgage once he has fulfilled his conditions or obligations under the mortgage. 09:26 and is deemed to have an equity of redemption. For common law mortgages or mortgages under the Registration of Deeds Act, unlike a mortgage registered under the Land Titles Act, the mortgager here conveys the entire estate to the mortgagee. It has to be by deed and in the English language, complying with Section 53 of the Conveyancing and Law of Property Act that states that a conveyance of any estate 09:55 or interest in land must be deed in the English language, otherwise it is void at law. Now, you don\'t just act for individuals. The mortgage borrower may be a company. So here, what do you do? If you are acting for the mortgage of a company, you\'ll need to check the company\'s memorandum and articles of association. You\'ll need to obtain the director\'s resolution. 10:23 authorizing the execution of the mortgage. Now if you act for the bank, you must ensure that you file your statement of charge at ACRA, Pursuant to section 131 of the Companies Act. Now this charge has to be filed within 30 days of creation of charge, otherwise it will be void against the creditors. Now you will have a lot of explaining to do to your client and to the judge if you\'re out of time. 10:52 Now registration at ACRA out of time is allowed only with the sanction of the court. So how can CPF monies be utilized? Now this is only allowed for the purchase and mortgage or residential properties. You may not use your CPF monies for commercial properties. What\'s the procedure for withdrawal? First the CPF member. 11:21 Now, a CPF member is your client who intends to withdraw his monies. He is known as the CPF member. He has to sign a letter of authorization, declaration and consent. He declares that he is not a bankrupt. All information submitted is true and correct and he authorizes you to apply for the withdrawal of his CPF monies towards payment of purchase price, reimbursement of stamp duty and monthly installments of the bank. 11:50 as the case may be. What are the security documents relating to the CPF withdrawal of monies? First, there would be an application to notify the charge. Then, there would be a letter of confirmation of priority arrangements, another memorandum of mortgage and sometimes an instrument of postponement where the banker disperses first. For the application to notify 12:20 Under Section 21 of the CPF Act, a charge arises when the monies are withdrawn from the member\'s account for the payment towards the purchase or mortgage of the property. So when the charge is registered in the SLA, it is simply notified on the register because the charge has arisen once withdrawal of CPF monies take place. Now, what is this letter of confirmation of priority arrangements? 12:50 This letter sets out the priorities of distribution of sale proceeds when the members bank exercises its power of sale in the event of a default on the mortgage. For example, when the mortgage is open or the all monies format, as talked about earlier, first priority would go to the mortgagees first outstanding. Now, what is first outstanding? First outstanding means 13:19 whatever is the outstanding housing loan plus the interest on the housing loan. Second priority would be the CPF\'s first outstandings. This means the CPF principal sum up to 100% of the valuation limit and the CPF monies used for stamp duty, legal and survey fees. So third in ranking or in equal ranking thereafter or in pari-pasu would be the CPF second outstandings. 13:48 and the balance of interest still due to the mortgage after deducting the interest above. Lastly, refinancing. Now this occurs when a mortgagger wants to discharge the existing mortgage and executes a mortgage in favor of another bank. Now the mortgagger may find that the interest rates offered may be lower or significantly lower than say five years ago. So to enjoy these rates, it does not make sense for him. 14:17 to say with the same bank. He would then approach a new bank and enjoy the current interest rates offered today. So as you can see, loyalty doesn\'t pay here in this instance. The existing mortgage is discharged, so the new mortgagee will disperse a loan amount to repay the previous mortgagee and a new mortgage will be registered. Since your clients will be dealing with a property, 14:45 CPF Board\'s consent will be needed. There will be no further documentation from the CPF Board except for a new letter of confirmation of priority arrangements. Again, confirming the priority of distribution of sales proceeds between the new bank and the board. So to conclude, the entire process of mortgaging and withdrawal of CPF monies has to be completed within the period set for completion. 15:13 which is six to eight weeks from the exercise of option. All monies dispersed and withdrawn in time for completion and the registration of the security documents thereafter will ensure that the interest of all parties is protected. That\'s it for this segment. Thank you. B24 REP - Lecture 5 Mortgages and withdrawal of CPF monies - Financing the purchase of a property - Types of mortgage - Process of a mortgage transaction - Documents involved in a loan/mortgage - Security documents - Letter of Offer - Standard terms and Conditions - Mortgage - Memorandum of Mortgage - Other potential Documents - Registering a Mortgage - Where borrower is a company - Application for use of **[CPF]** money - CPFB's charge over property - Outstandings - Refinancing - **[Consent of CPF Board]** - Documents involved in the charge to CPFB