Financial loss & Shortfall

This post's original date is 2008 during Enbloc Round 1

• The CPF has a myriad of rules regarding the refund of monies to a member's CPF account after the sale of his property. Please refer to the CPF website for up to date information. 
• The rules changed for member who are above 55 yrs on  01/01/2013
• Seller Stamp Duty also changed

Please note: the following does not constitute financial advice to anyone who reads it. If you need financial advice, please seek expert opinion This is a BLOG, not an official site and I am a mere armchair blogger. THE FOLLOWING IS MY UNDERSTANDING AND ANALYSIS ONLY AND MAY BE ERRONEOUS.

Am I in Financial Loss?

If you think you will suffer from financial loss it is best not to sign the CSA. Remain a minority ( keep control of all your rights) and put in an objection to the STB to have your loss covered. It's no big deal - you bring in all your financial details, they will go through them and direct the SC to cover your losses. At no point do you have to sign the CSA to have your financial loss covered.
The financial loss issue is quite straightforward and the very limited deductions (4 only) are written in the LTSA (Fourth Schedule). Start with the Enbloc Sale proceeds then deduct the four allowable deductions from the Fourth Schedule; and if you end up in the negative then you are in financial loss. In Enbloc Rd1, the enbloc lawyer gave a deadline to sign for financial loss coverage. You did not need to sign, it was just a ploy to get more signatures. 

According to the FOURTH SCHEDULE the deductions allowable for the determination of financial loss are:

1. Stamp duty paid on the purchase of the lot or flat. 

2. Legal fees paid in relation to the purchase of the lot or flat. 

3. Costs related to the privatisation of any designated land as defined in section 126A.
4. Costs incurred pursuant to the collective sale which are to be shared by all subsidiary proprietors or proprietors as provided under the collective sale agreement.

Do you need to pay sellers stamp duty?
Visit the IRAS website 

5.  How do I know if the seller is liable to pay SSD?

If the seller has bought the residential property on or after 20 February 2010 and sold it within a short duration of up to 4 years from the date of purchase, there is a chance that he may have to pay SSD.  In the process of conveyancing, your lawyer may check with the seller's lawyer or make a search on the property to ascertain the date of purchase by the seller.  Whether the seller is liable for SSD and the amount of SSD payable would depend on the date of purchase and the date of sale. 

Will I suffer a Shortfall?

AN OWNER CAN BE IN FINANCIAL LOSS YET NOT SUFFER A SHORTFALL.
AN OWNER CAN HAVE A SHORTFALL AND NOT BE IN FINANCIAL LOSS.
AN OWNER CAN BE IN BOTH FINANCIAL LOSS AND SUFFER A SHORTFALL.

Case 1: Bank is first charge / CPF is second charge (for units bought from 1996 onwards)

The Bank discharge will be repaid in full from the sales proceeds. The CPF discharge will be paid from the remaining sales proceeds. If you are still outstanding to the CPF it doesn't matter; as the CPF Board will waive the outstanding amount. This is your own personal loss but it is not considered financial loss under LTSA. No point complaining to the STB, as this matter was dealt with in the Waterfront View collective sale. The CPF waive was accepted by the High Court -though it was never tested at the Appellate Court and is therefore still open to appeal. 

So, with the sales proceeds depleted, you have to pay the Costs & Expenses of the sale in cash. The Purchaser will also want to hold on to 5% of your proceeds until you vacate your unit. With no spare proceeds to hold back, this too will have to be in cash. 

If there are further complications like an owner taking out  a second mortgage on the home etc then really, I have no idea  - and it is always best to seek independent advice on the matter.

Case 2: CPF is first charge / Bank is second charge ( possible for units bought pre-1996)

The same as in Case 1 but the bank will not be so 'kind' as to waive outstanding amounts. They will demand full payment.

THERE SHOULD BE NO FINANCIAL LOSS OR SHORTFALL IN A COLLECTIVE SALE. IF THERE IS THEN THE RESERVE PRICE / SALE PRICE IS SET TOO LOW.