A property owner should always look to the future as he or she plans the next course of action, which also requires an individual to consider the aspect of death. When morality is tied with the legal implication of housing loans, most people would be confused about the nitty-gritty.
Messrs Eunice Tan & Partners founder Eunice Tan Mui Lee answers some burning questions that shine a light on this issue.
1 - If the borrower dies, how will the bank derive money to repay the housing loan? Does it become a bad debt?
No. It will not become bad debts automatically.
If the Mortgage Reducing Term Assurance (MRTA) covers the housing loan, the bank will enforce the terms of MRTA and make full repayment of the remaining balance. If this is not applicable, the next of kin or the administrator of the estate may continue to make payment.
The administrator of the deceased may redeem or continue to make repayment of the housing loan from the deceased estate. It would become a bad debt when there is no repayment towards the housing loan from the estate of the deceased (also the borrower). If it becomes a bad debt, the bank will foreclose the property.
2 - If a will was not created by the deceased, what are the possible implications? What can the next of kin do to guard against any unfavourable events?
There is no major implication if a will is not created by the deceased. If there is no will, the next of kin may apply Grant of Letter of Administration in Court to protect and to administer the property.
3 - What are the legal steps that will happen if this event transpired?
If no will is created, the next of kin or the beneficiary of the deceased estate may file Originating Summons in court for an order to appoint the said person as the administrator of the deceased estate. The court will determine whether there is any objection from the beneficiaries to appoint the applicant as administrator.
If there is no objection, the court will grant the order appointing the applicant as an administrator of the property. Once the order is made, the Administrator shall forward a copy of the court order to the bank for the record and continue to make repayment of the loan or otherwise to redeem the property from the Bank.
MRTA defined: Mortgage Reducing Term Assurance or MRTA is a life insurance plan with decreasing sum assured over time, and it is used just to cover your home loan owed to the bank. This plan is usually by the bank you are getting the mortgage from, as it is used as protection for the bank in case of misfortunes that stop you from servicing the loan.