Court removes caveat on debtor's HDB flat

A moneylender's bid to recover a loan by blocking the sale or transfer of a debtor's HDB flat has been overruled by the High Court.

The lender, Micro Credit, had placed a notice on a flat owned by Madam Salbiah Adnan and her then husband Zam Zam Muhammad Kassim, both in their 40s, requiring the lender to be informed if someone seeks to sell or transfer the flat.

Moneylenders use such notices, called a caveat, with the Singapore Land Authority, to ensure that borrowers repay a loan before they proceed to remove the notice.

In judgment grounds released on Monday, the court explained that a caveat is not meant to be a kind of mortgage for an unsecured debt.

"If a moneylender wishes to take security over a borrower's property, he should take a mortgage or a charge," said Judicial Commissioner Edmund Leow.

Mr Zam, a senior technician, had borrowed $2,000 in two tranches from the firm in September and October 2009.

Micro Credit had obtained two caveats on the flat owned by the couple in the same year. The first was authorised jointly by the couple.

The second was signed by Mr Zam alone and filed by Micro Credit in November 2009.

Mr Zam repaid the first loan but defaulted on the second after he was jailed for drug offences and the debt owed with interest rose to $28,334 as of January this year.

Madam Salbiah divorced Mr Zam in 2012 in the Syariah Court, which ordered him to transfer the flat to her. But the transfer could not be carried out by HDB because of the notice lodged by Micro Credit.

Madam Salbiah, through lawyer Mohamed Hashim Abdul Rasheed, applied to the court for the caveat to be removed. But Micro Credit's lawyer S.R. Shanmugam argued that the couple's signatures on the loan documents meant the firm had a valid interest in the sale proceeds of the flat.

But the judge found that the loan documents did not grant Micro Credit any interest in the flat or in the sale proceeds when sold.

He said that "even if (his) analysis is incorrect" Micro Credit's interest in the sale proceeds vanished with the Syariah Court order handing ownership of the unit to Madam Salbiah.

This meant Mr Zam had no share in the flat even if it were sold and Micro Credit could not recover its money.

The judge ordered the caveat removed.

He noted that the notice was lodged before new HDB rules took effect in 2010, forbidding the use of an HDB flat as security for loans.

The relevant 2010 provision was "enacted precisely to address cases like the present where a home owner uses the sale proceeds of his HDB flat as security or collateral for a loan", he said.

Citing a speech in Parliament by then National Development Minister Mah Bow Tan, the judge noted that in 2009, there were 546 caveats lodged by moneylenders on HDB flats to claim an interest in the sale proceeds of the flats.

This article was first published on Dec 05, 2014.
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