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WHEN buying a house, a buyer is often led to the bank’s panel of lawyers who prepare the documentation and the loan and security documents.

The way legal fees are structured, a lawyer acting for the bank is entitled to charge a certain fee and the lawyer acting for the borrower is also entitled to charge a certain fee. When the lawyer is acting for the bank and borrower, he is entitled to charge for both though the total is somewhat reduced.

Traditionally, banks have adopted the practice that the borrower must pay the legal fees. Hence, when the borrower utilises the bank’s lawyers, which he needs to in any event, he enjoys a savings due to the slightly reduced fee.

Some people may wonder why the bank does not pay the legal fees insofar as the solicitor acting for the bank is concerned.
This I cannot answer. All that can be said is that because the bank is in a dominant position, it is able to flex its muscle and impose its wishes on a borrower who needs to get the loan, and sometimes desperately so.

In a way, it could be said that this is an indirect expense for obtaining the loan in addition to the interest and other charges that have to be borne by the borrower. Another example is paying the valuation fee. Unfair as it may appear at times, most borrowers have accepted this state of affairs as a fait accompli. Through passage of time and continued adoption of the practice, it is almost as if it is the correct and fair thing to do.

However, in recent times, a different aspect has emerged causing the borrower to bear even more expenses which are in no way caused by the borrower.

This is brought about by the merger and the change of name of banks.

A reader laments: “I took a housing loan from a bank before its merger with another bank. After the merger, the name of the bank is slightly different. I sold the house and the documentation for the transactions was done by the lawyers for the bank from which the loan was obtained as the housing loan was not fully settled. The law firm has billed me for professional charges which included a change of name and registration fee in connection with it.

“On enquiry with the law firm, it was explained that the charges were for the change in name of the bank as a result of the merger. Not satisfied with this clarification I approached the bank and was advised that the correct term should be ‘vesting order’ and that I could appeal to the bank to waive the charges. The legal firm insists that I pay for the charges. Please advise on the following:

a)       Is ‘change of name’ and ‘vesting order’ the same?

b)       Mergers of banks and financial institutions are not at the behest of the clients but in compliance with the
requirements of the government. Should the clients be required to bear the charges?”

There are other people who are likely to be faced with similar situation and the aspect that troubles the reader and those in a similar position is whether it is fair for a bank to make a borrower pay for expenses incurred in work being done in respect of a matter totally unrelated to the borrower and in no way caused by him.

Change of name is self-explanatory. In such case, it is either one bank taking over the assets and liabilities of another and then perhaps making some changes to its name or alternatively, the creation of a new entity and both the existing institutions transferring their assets and liabilities to this new entity.

Of necessity, this new entity will in most cases have a name that reflects the involvement of both institutions. It is possible that the bank taking over may not change its name at all which is not the case here. At this point, it is relevant to say that a similar scenario prevails in relation to finance companies.

When there is a change in name, it is necessary to have this registered in the appropriate places. This is because the earlier documentation will reflect a different name and the registration of change in the appropriate manner will help make consistent the documentation which reflect the transaction in its entirety.

Vesting means something else. It is the process of transferring the loan and making it the loan of the other bank, as well as the transfer of the obligation.

All this happens when there is a bank merger and is in no way caused by the borrower. As we all know, mergers are triggered by banks which are in financial difficulties. Big bad loans without adequate security are the cause. Whether this is to be attributed to the bank’s own incompetence or reckless management or to some unforeseen event is not within the scope of this article.

However, one thing is certain. These problems, or at least most of them, are not caused by ordinary housebuyers who normally have to provide more than adequate security.

Yet the cost of this is passed on to the borrower. In the ordinary course of events, he will have to pay. The reason simply is that this may have been stipulated in the loan agreement as a condition. In such event, the borrower is contractually bound, unfair as the condition may appear to be.

Even if the borrower had the foresight to question such a clause, it would have been dismissed as frivolous and academic. This would have been on account that one could not imagine a bank facing financial difficulties. But we all know that these things do happen.

Even if it is not stipulated for in the contract, few borrowers would want to offend the bank from which they have obtained a loan. What is demanded by a bank is usually respectfully obeyed by the borrower with no questions asked. And so, banks take advantage of this reverence and their dominant position to burden borrowers with even more obligations, expenses and liabilities even though the required action that needs to be taken is caused by their very own action or inaction.

There is really no legal answer to the woes of the borrower. On an individual basis, the borrower is either strong enough to stand up to it or even challenge it. It is an area where borrowers need to be protected by the state.

Appropriate organisations could help highlight this situation and seek a change. These groups could put pressure on banks to be more reasonable in this regard. The government could also legislate to disallow unfair terms whenever this is the case.

Until then, the borrower is at the mercy of the bank or more immediately, its front line officer who receives the appeal and deals with it more likely in accordance with some circular that has been passed around. And until then, the borrower will have to bear yet another burden.

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