A clause in Property Loan

[wemakebread]

Hi Dennis,

With your experience in property loan, can you advise whether this is true? If yes, what can we do to protect ourselves against such unfair practices?

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Below letter was published in TODAY on 8 Jun 2011.
http://www.todayonline.com/Voices/EDC11 ... se-too-far?


A loan clause too far?
Letter from Leow Zi Xiang 04:47 AM Jun 08, 2011

I am writing to highlight a recent practice some banks have adopted while granting housing loans.
It appears to be common procedure now for banks, when mortgaging a property to be used as security for a loan, to insert a clause that purports to do the following:

- Extend the security provided by the property to all current and future debts the borrower may owe the bank.

- Extend the security provided by the property to all other current and future liabilities, including those as guarantor, the borrower may owe the bank.

This means that the bank may exercise its rights over the property in respect of any debts you may owe it, including those which were hitherto unsecured by assets, such as personal loans or credit card debts.

More distressingly, borrowers who are (or will become) guarantors for an outstanding loan previously granted by the bank are now in danger. They may have been willing to act as guarantors on a personal basis but now their homes have suddenly become at risk.

This is an extremely wide-ranging and onerous clause which unduly burdens ordinary consumers. As it has now become practically standard procedure in the industry, consumers are left without much choice: If they need a housing loan, they have to accept these terms.

Banks have massive bargaining power when it comes to setting the terms of a loan and, without some limit placed on that power, consumers are at risk of being exploited. I hope that the Monetary Authority of Singapore will look into this and stop the banks from inserting ever more unfair clauses into standard loan contracts.