Unpaid mortgage loan: The case between Maybank and the estate of a deceased woman

PHOTO: Google Photos

What happens when someone takes up a housing loan, passes away without a will, and the deceased’s next of kin chooses not to carry on repaying the mortgage loan? What will the bank do?

Well, in June 2022, a Singapore case received its judgement after Maybank Singapore brought an action against the deceased’s estate for not paying the outstanding sum for the property’s loan.

Prior to her death, the deceased individual was granted a mortgage with Maybank with her as the sole proprietor. She passed away in Jan 2020 without a will.

In April 2020, Maybank’s solicitors received a letter from the solicitors acting on behalf of the deceased’s brother and mother informing the bank that the property owner had passed away and to obtain letters of administration for the estate. While the monthly instalments for the mortgage were paid for a few months, they later ceased.

In May 2021, Maybank’s solicitors wrote in demanding that the Estate pay the overdue monthly instalments (totalling $37,057.43) plus interest and legal costs. However, the demand was not complied with.

Then in Nov 2021, the lawyers wrote in again, demanding the full sum of $454,882.32 due plus interest and legal costs. Once again, the demand wasn’t complied with.

Finally, in Dec 2021, the bank’s lawyers issued a “notice to quit” to the Estate. Basically, Maybank would exercise its right to take possession of the property upon the expiry of one month from the date of service of the letter.

One month after the notice, the Estate did not deliver vacant possession of the property to Maybank.

Commencement of OS 245 and SUM 1212 filing: What are they?

On March 14, 2022, Maybank commenced OS 245 against the Estate. OS 245 stands for Originating Summons 245, which is a mortgagee’s action by a bank against a deceased’s estate. This includes delivery of vacant possession of a mortgaged property and payment of outstanding sums.

Subsequently, Maybank filed Summons No 1212 of 2022 (“SUM 1212”), under the Rules of Court for a Public Trustee (PT) to be appointed as an Estate Representative.

The PT’s role, upon accepting the appointment, was to accept service of the originating summons and the supporting affidavit (under OS 245) and all subsequent summons. The PT in this case, is not related to the deceased or her family.

However, after the first hearing in April 2022, Maybank had yet to receive the PT’s consent to the appointment. In another hearing in May 2022, the PT consented to be appointed but subject to the condition that his/her role is limited to just OS 245 or SUM 1212.

PHOTO: Unsplash

In simpler terms, the PT is not liable for any further legal ramifications (eg. costs) after the originating process.

The judge, however, questioned the PT appointment if it was for a limited purpose and whether it would have been more appropriate if someone like the deceased’s Mother and/or Brother should represent the Estate instead.

Maybank claimed it was unable to appoint any other person apart from the PT to represent the Estate in this matter. This is because no letters of administration for the Estate have been extracted, and the Mother and Brother have not given consent to represent the Estate.

In court, Maybank claimed, through its legal representatives, that when a person (in this case, the Public Trustee) is appointed to “represent” the Estate, the proceedings are then “carried on” against that person.

The court disagreed. It ruled that it would be detrimental to the rule “if a plaintiff (Maybank in this case) can simply appoint the PT to accept service of the originating process and then proceed against an unrepresented estate on an uncontested basis.”

Appropriate representation begins with granting probate or administration of the estate

The judge cited past case examples where there needs to be an effective party representing the estate before any proceedings can be continued against it. To do so, the representing party must first be granted probate or administration of the Estate, depending on whether a will is written.

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If a will has been written, the executor(s) and/or trustee(s) will make an application to the court for a Grant of Probate (or a Grant of Letters of Administration if there isn’t one).

In either case, they give the executor(s) or trustee(s) legal authority to manage and distribute the deceased’s assets.

On the issue that Maybank claimed it had sought and failed to get the deceased’s Mother and/or Brother’s consent to represent the Estate prior, the judge pointed out that the letters exchange between both legal parties did not provide a clear consent request.

Furthermore, the letters seem to indicate that Maybank had yet to ascertain if the Mother or Brother had been granted administration.

In other words, the judge ruled that “a plaintiff does not have an unfettered right to appoint whoever he or wishes to represent the estate. A plaintiff ought to take reasonable steps to identify persons who might appropriately represent the estate and ascertain whether they consent to the appointment.”

When an estate or property owner dies, determining who owns the property thereafter will depend on whether there’s a will, and whether an executor has been granted probate. If there is no written will, whether anyone has been granted the letter of administration for the estate.
PHOTO: Unsplash

In summary, the court advises on the following principles:

  1. The plaintiff (in this case, Maybank) should first ascertain whether a grant of probate or administration has been made.
  2. If the grant of probate or administration has been made at the time the action is to be commenced, action should be brought against the personal representative(s) directly.
  3. If the grant has not been made at the time of commencing action, the action should be brought against the estate. The plaintiff must then, during the period of validity, apply to the Court for an order to appoint a person to represent the Estate.
    1. Prior to making such an application, the plaintiff must make reasonable efforts to ascertain an appropriate person to represent the Estate, including whether a grant of probate or administration has been granted (through a cause book search), and providing a list of potential beneficiaries, family members or friends.
  4. If a grant of probate or administration has been made after the action has commenced, the personal representative should be made party to the proceedings.
  5. If a grant of probate or administration has still not been made after the action has commenced, the plaintiff should apply to appoint an appropriate person to represent the estate in the proceedings. Regardless of the plaintiff’s choice, the plaintiff should give notice to other persons having an interest in the estate (who they are aware of after making reasonable inquiries) to give them the opportunity to object to the proposed appointment or decide whether they wish to be appointed instead.

By the end of the ruling, the judge declined Maybank’s request to proceed with OS 245 until the bank takes further steps to appoint an appropriate person to represent the Estate or seek a time extension to do so.

Maybank has to thus bear its own costs for SUM 1212 while costs for OS 245 are reserved pending the final determination of the case.

The above case is representative of a situation when someone passes away without leaving a will, and no one has applied to be granted administration to the estate.

The onus thus falls on the bank to reasonably find and appoint someone to represent the deceased’s estate before commencing legal proceedings to recover what it’s owed.

Do family members inherit debts?

In Singapore, family members are generally not legally responsible for the debts owed by the deceased. These debts include credit card debts, loans or taxes. There are some exceptions, however:

  1. If the family member holds a joint account with the deceased, used to service, say, a personal loan.
  2. The family member co-signed the mortgage with the deceased.

Usually, when someone dies, whether he or she has written a will, someone will be appointed as the ‘Estate Executor’ through a grant of probate (with written will) or letter of administration (without written will).

To pay off outstanding debts, the executor will administer the estate and settle these debts by selling off investments, withdrawing money left in the deceased’s bank accounts and so on.

It is only after settling these debts, that the executor will then be able to distribute what remaining assets there are left based on the instructions in the deceased’s will. If there isn’t one, then according to the Intestate Succession Act rules.

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If however, the estate is found to be insolvent (ie. he or she has more liabilities than assets), the deceased’s funeral, testamentary and administration expenses will take priority.

After that, the order of debt repayment will follow the Insolvency, Restructuring and Dissolution Act 2018. The beneficiaries of the insolvent estate will not be held responsible for the repayment of the debts (and most likely, the debts will be written off).

So, if you’re an estate or property owner and you’re drafting a will, while the title deed of the property passes on to your named beneficiaries, you can probably be assured that any outstanding debts owed for that property will first be administered by an executor.

This means that the burden of the housing loan (if you’re the sole proprietor) will not be passed on to your beneficiaries.

It could however mean that the executor would have to sell off the house in order to fully repay the outstanding loan (if the deceased is insolvent), even if the title of the house is meant to be passed on to the beneficiary according to the will.

This article was first published in 99.co.