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Ask Geri: Housing Loan, Expired Letter of Guarantee and Penalties from Developer

I already have a bank loan approval and the bank already sent the bank guarantee to the developer (renewed 3 times) but the developer failed to provide the TCT to my bank since they have pending matters on their side.

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Hi Geri,

I would like to inquire regarding the penalties/interest the developer charged me with regards to the house and lot I purchased from them. I already have a bank loan approval and the bank already sent the bank guarantee to the developer (renewed 3 times) but the developer failed to provide the TCT to my bank since they have pending matters on their side.

They asked me to change to another bank (one of their accredited banks), telling me that their accredited bank can release the loan proceeds even without the TCT (i.e. TCT to follow is acceptable to their accredited bank). I did transfer to their accredited bank, and the bank already released the money to them but I have an amount due because of the interest incurred during the time of non-payment of my loan (this is the time that my initial bank is waiting for the TCT from them). I asked for waiver for all the interest, but they only waived 40% and asked me to pay the rest.

Is this fair to me? I believe that if they have provided the TCT upon my first bank loan approval, then no interest would have been charged to me. Please advise. Thanks.

– DT9, via Ask Geri


Hi DT9. Thank you for your email.

Though not explicitly stated, I would assume that prior to your bank financing, you were under in-house financing with your developer.

It is true that developers and banks have different agreements, that’s why some banks accept a “to-follow” arrangement as long as they have a prior agreement with the developers they trust. It is also the reason why some banks do not grant loans if the collateral is from non-accredited developers. This is the bank’s way of ensuring that the assets they accept as collateral are quality-made, and whose market value can really cover for the loans they have granted. In your case, the developer did not have an existing agreement with your first bank.

You mentioned that while you were waiting for the release of TCT (repeated times), there were no monthly payments made, which is why the developer charged you with fees. If you are under in-house financing, then you have agreed to pay regularly (usually monthly) until the bank financing has covered for the balance. Please check if you signed any agreements with the developer on the in-house financing. Generally, in-house financing charges higher interest and fees compared to bank financing, so non-payment will really incur interest fees and charges. I’m not saying all, but there are developers who process documents slower than usual so that customers remain in-house for as long as possible (since they earn big amounts). Not all. Not all. 🙂

You’re also correct that if the developer released the title immediately, you wouldn’t have additional charges to pay. We can only presume that the developer fell short in explaining to you that they have accredited banks which can expedite the process for you, and that getting a loan from another bank, while still acceptable, will take more time. Still, in the meantime, the in-house payments from you should continue until they tell you otherwise. As such, they still have the right to charge you for missed payments (regardless of which bank), since the bank financing is still pending. The letter of guarantee is only a guarantee, until the loan proceeds are released, you are still obliged to pay.


BUT, the big but is, if they did not tell you at all that you should get a loan from an accredited bank, otherwise, they cannot immediately release TCT, then you have the right to complain. Your letter of guarantee expired multiple times, so it must have been months that you were waiting for their advice. While there should have been payments from you while waiting, the developer should have at least advised you earlier on to change banks. Or a reminder to you to keep paying while the process is pending.

If they did not tell you immediately that the process will be pended because of your choice of bank, a waiver of penalties is warranted. Both parties had shortcomings, I assume, you failing to pay, and them informing you of the delay.

Good thing they waived a portion of your charges. As to how much is right and just, it really depends on your agreement. Talk to your developer, they might reconsider giving you more waivers. Hope this helps.

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About Geri (359 Articles)
Founder and main author. Husband, used-to-be-breadwinner, God-made multi-millionaire, employee, financial planner and adviser, investor, stocks trader, entrepreneur, agri-preneur, book author. Firm believer that all Pinoys deserve a richer life. Not a guru, but a forever student of the investments world, a work-in-progress.

5 Comments on Ask Geri: Housing Loan, Expired Letter of Guarantee and Penalties from Developer

  1. hi there ,i have concern regarding my loan at BDO whiich is accredited bank to developer i was applying loan and now the approval of my loan was granted and im waiting for the letter of guarantee and to process the tur over date meanwhile 8monhts before my unit is going to turnover to me my question is what if my letter of guarantee will release early and the turnover date will delay for 6months should i need to pay for my per month even my unit not yet turn over.? please comment thank you

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    • Hi Eric, yes it can happen that your loan has already started your unit has not been turned over yet. It happened to me. There are two parties your dealing with here thr bank and the developer. Letter of guarantee does not mean your loan will start, it just says the bank is guaranteeing that they will release to developer the loan proceeds IF and only IF the developer will comply with the requirements in documentation etc. But usually after the letter of guarantee, give and take a few months and the money is released to developer as payment which means your loan has started. This is regardless you have received the unit or not yet. Two things you can do. 1. Closely coordinate with bank when they think your loan will start and coordinate with developer when the turnover is (which is usually delayed). The closer the two dates are the better. 2. Ready your finances to pay for a mortgage loan even if you haven’t received the unit. Advantage is you finish the loan sooner, downside is you pay for something you are not yet using. Hope this helps!

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  2. hi there ,i have concern regarding my loan at BDO whiich is accredited bank to developer i was applying loan and now the approval of my loan was granted and im waiting for the letter of guarantee and to process the tur over date meanwhile 8monhts before my unit is going to turnover to me my question is what if my letter of guarantee will release early and the turnover date will delay for 6months should i need to pay for my per month even my unit not yet turn over.? please comment thank you

    Like

  3. hi there ,i have concern regarding my loan at BDO whiich is accredited bank to developer i was applying loan and now the approval of my loan was granted and im waiting for the letter of guarantee and to process the tur over date meanwhile 8monhts before my unit is going to turnover to me my question is what if my letter of guarantee will release early and the turnover date will delay for 6months should i need to pay for my per month even my unit not yet turn over.? please comment thank you

    Like

  4. Aug23 Update: DT9 emailed us to clarify that she was never under in-house financing and right after her DP was finished, she immediately applied for bank financing. Developer never informed her of the delay, then a few months after, sent her a demand letter of her past due amounts. It seems developer failed to ask her to keep on paying (past 20% DP) as long as process is still pending.

    Be careful with developers guys. Sometimes they grow so big that their customer service begins to suck. careful. 🙂

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