"The seller owes the bank more than the sale price. Can the sale still proceed?"

A seller agrees to sell his condominium for RM500,000.

The purchaser pays the deposit and signs the Sale and Purchase Agreement.

When the seller’s bank issues its redemption statement, the amount required to settle the financing is RM540,000.

The seller is surprised.

He expected the outstanding balance to be approximately RM460,000, but the redemption sum includes further amounts under the financing documents.

The sale price is now RM40,000 less than the amount required to obtain the bank’s release.

Can the purchaser’s payment still complete the sale?

Only if the shortfall is properly resolved.

1. The bank controls the release of its security

If the property is charged or assigned to the seller’s bank, the bank will ordinarily require the redemption sum to be paid before it releases the original title or completes the discharge or reassignment process.

The purchaser cannot obtain clear ownership merely by paying the agreed purchase price to the seller.

Part of the purchase price will usually be paid directly to the seller’s bank in accordance with the redemption arrangements.

Where the purchase price is insufficient, someone must provide the difference.

The bank is not generally required to release its security simply because the seller has agreed to sell the property for less than the amount owing.

2. The outstanding loan balance may not be the redemption sum

A balance shown on an online banking application may not represent the amount required to redeem the property on the intended payment date.

The formal redemption sum may include, depending on the facility:-

• Outstanding principal.

• Accrued interest or profit.

• Late payment charges.

• Early settlement charges.

• Legal or enforcement costs.

• Insurance or takaful-related amounts.

• Other liabilities secured by an “all monies” provision.

• Sums under linked facilities.

The bank’s redemption statement normally specifies the amount payable and the date up to which it is calculated.

If payment is made after that date, an updated statement or additional daily interest may be required.

3. The seller ordinarily has to provide the shortfall

If the sale price is RM500,000 and the bank requires RM540,000, the seller may need to provide at least RM40,000, together with any further costs or adjustments.

The Sale and Purchase Agreement should address:-

• When the redemption statement must be obtained.

• How much of the purchase price may be used for redemption.

• When the seller must provide any shortfall.

• To whom the shortfall must be paid.

• What happens if the seller does not provide it.

• Whether the completion period is extended while redemption is pending.

• The purchaser’s rights if clear title cannot be delivered.

The exact amount should be confirmed early. Waiting until the purchaser’s bank is ready to release the loan can jeopardise the completion deadline.

4. Can the seller negotiate with the bank?

The seller may ask the bank whether it is prepared to restructure, settle or release the security under an alternative arrangement.

However, the purchaser should not assume that the bank will agree.

Any concession must come from the bank in writing and must be sufficient to enable the title, discharge or reassignment documents to be released.

An oral discussion with a bank officer is not enough for the transaction to proceed safely.

If the seller requires additional financing to cover the shortfall, the timing and security arrangements must also be considered.

5. Should the purchaser pay more to solve the problem?

A purchaser should be cautious about paying amounts beyond the agreed purchase price merely to rescue the seller’s financing position.

Any proposed additional payment may affect:-

• The true consideration for the transaction.

• Stamp duty and tax reporting.

• The financing margin.

• The purchaser’s available cash.

• The contractual remedies if the sale later fails.

• The priority and security of the purchaser’s payment.

If the parties genuinely agree to revise the purchase price or payment structure, the arrangement should be formally documented and disclosed to the relevant bank and authorities.

The purchaser should not make an informal payment directly to the seller or seller’s bank without advice on how that payment will be protected.

6. What happens to the deposit if the seller cannot complete?

The answer depends on the Sale and Purchase Agreement and the reason completion fails.

The agreement should state whether the purchaser may terminate, recover the deposit and claim any agreed compensation if the seller cannot redeem the property or deliver clear title.

It is also important to know who holds the deposit.

Where the deposit is held by a lawyer or another stakeholder, it may remain subject to the stakeholder terms until it can be released in accordance with the agreement.

If the deposit has already been released to or used by the seller, recovery may become more difficult if the seller has insufficient funds.

The purchaser’s lawyer should therefore examine the redemption position before permitting deposit money to be released where the circumstances indicate a possible shortfall.

7. The seller should calculate the net position before agreeing on the price

The redemption sum is only one deduction from the sale proceeds.

The seller may also need to account for:-

• Real estate agency fees.

• Legal fees and disbursements.

• Real Property Gains Tax retention or tax payable.

• Maintenance and sinking fund arrears.

• Quit rent and assessment adjustments.

• Consent fees or administrative charges.

• Repair obligations or agreed deductions.

• The seller’s own moving and replacement-property costs.

A property sold for RM500,000 does not mean the seller will receive RM500,000 in cash.

Before accepting an offer, the seller should obtain an indicative financing balance and estimate the total deductions.

8. The purchaser should identify the problem before the completion clock runs down

Early title and bankruptcy searches, confirmation of the bank’s security, and a prompt request for the redemption statement can reveal whether the proposed sale is financially workable.

A negative-equity sale is not necessarily impossible.

It becomes possible only when there is a credible and documented plan to pay the seller’s bank in full - or when the bank formally agrees to another release arrangement.

Without that plan, both parties may sign an agreement for a sale that cannot be completed.