1. Understand the Type of Auction
In Malaysia, property auctions are commonly initiated by banks to recover monies owing to the bank due to loan defaults by borrowers and generally fall into two main categories:
LACA (Loan Agreement Cum Assignment) auctions (bank/private auction) – where the individual title or strata title to the property has not yet been issued and the bank’s right to auction the property is derived from the Loan Agreement Cum Assignment signed by the borrower.
Non-LACA auctions (High Court auction) – where the property held under individual title has been charged to the bank as security for a loan according to the National Land Code. Upon default by the borrower, the bank must apply to the High Court for an order for sale before the property can be auctioned.
Each type of auction is governed by different procedures and documentation. Understanding which type applies is important, as it affects timelines, confirmation of sale, and available remedies.
There are also private/owner auctions initiated by property owners themselves in an attempt to get the best price for their property however, this article will not delve into private auctions.
2. Pre-Auction Due Diligence
After identifying the auction properties you are interested in, proceed to perform the following checks.
Inspect the Property (Where Possible)
Although access may be restricted, where possible, buyers should attempt to inspect the property externally and gather information about:
The condition of the property
Whether the property is occupied / tenanted
Whether there are any maintenance and management issues (for strata properties)
Auction properties are sold on an “as is” basis, meaning the buyer bears the risk of defects, damage, or repair costs.
Conduct a Land Title Search (Properties With Title)
Before bidding, a purchaser should always conduct a land title search at the relevant land office to confirm:
The identity of the registered owner of the property
The tenure (freehold or leasehold)
Whether there are any encumbrances, caveats, or restrictions in interest
A title search helps ensure that the auctioning party has the legal right to sell the property and alerts the buyer to potential post-auction complications.
Check For Any Occupancy And Possession Risks
One of the biggest risks in auction purchases is vacant possession. Many auctioned properties are still occupied by the former owner or tenants.
In most cases:
The auctioning party does not guarantee vacant possession.
- The successful bidder is responsible for taking possession of the property.
Where the property is occupied, the successful bidder may need to commence legal proceedings to evict occupants.
This can result in additional costs, delays, and uncertainty. Buyers should factor this risk into their bidding price and financial planning.
Check For Outstanding Outgoings and Liabilities
Depending on the terms of the proclamation of sale, the purchaser may be responsible for:
Outstanding quit rent and assessment.
Maintenance fees and sinking fund contributions.
Utility arrears.
Failure to settle these may affect transfer of ownership or future dealings with the property. In some cases the outstanding sum to be borne by the successful bidder may be a significant amount.
3. Review the Proclamation of Sale and Conditions of Sale
Every auction is governed by a Proclamation of Sale (POS) and Conditions of Sale (COS). These documents set out critical terms, including:
The reserve price.
Deposit requirements.
Balance purchase price payment timeline.
Responsibility for outstanding quit rent, assessment, utilities, and maintenance charges.
Whether the property is sold subject to existing tenancies.
Failure to comply strictly with these conditions may result in forfeiture of the deposit. Therefore, it is crucial to obtain a copy of the POS & COS from the auctioneer and ensure that all salient terms are satisfactory before bidding.
4. Engage a Property Lawyer Early
Engaging an experienced Malaysian property lawyer before participating in an auction is one of the most effective ways to mitigate risk. A lawyer can:
Review the POS and COS
Conduct title and legal due diligence
Advise on risks relating to possession and encumbrances
Assist with transfer, loan documentation, and post-auction compliance
Early legal advice can prevent costly mistakes and ensure a smoother transaction.
5. Secure Financing Early
Financing an auction purchase can be more challenging than a normal sale. Banks often require:
Immediate payment of the auction deposit (usually 10%)
Short timelines for full settlement (typically 90 to 120 days)
Buyers should obtain pre-approval from their bank and confirm that the property is acceptable as loan security before bidding.
6. Attending The Auction
Prospective buyers should attend the auction fully prepared and strictly comply with the auction procedures. This includes:
Bringing the required bank draft for the deposit (usually 10% of the reserve price), made payable to the party specified in the Proclamation of Sale
Carrying identification documents and any required registration forms
Understanding the bidding increments and auction rules announced by the auctioneer
Bidders should also remain disciplined and avoid emotional bidding, as a successful bid creates an immediate and legally binding obligation to complete the purchase. Failure to comply with post-auction payment timelines may result in forfeiture of the deposit and potential legal consequences.
7. Payment Of The Balance Purchase Price
Upon a successful bid, the purchaser is required to pay the balance purchase price within the strict timeline stipulated in the Conditions of Sale, commonly within 90 to 120 days from the auction date. These timelines are generally non-negotiable.
Failure to settle the balance purchase price within the prescribed period may result in:
Forfeiture of the 10% deposit
Termination of the sale
Potential liability for losses incurred by the chargee or auctioning party
Purchasers relying on bank financing should ensure that loan documentation, valuation, and disbursement arrangements are progressed immediately after the auction. Any delay in financing approval or release of funds does not usually excuse late payment.
Where an extension of time is permitted under the Conditions of Sale, it is typically subject to interest or late payment charges, and approval is not guaranteed.
Conclusion
While auctioned properties in Malaysia can offer excellent value, they are not without significant legal and practical risks. Buyers must conduct thorough due diligence, understand the auction terms, and be prepared for potential complications after the sale.
With careful planning and proper legal guidance, purchasing an auctioned property can be a safe and rewarding investment rather than an expensive lesson.
