Can a House with an Existing Bank Loan Be Included in a Harta Sepencarian Agreement?

Short answer: yes, a house that is still under a bank loan can be identified and discussed in a harta sepencarian agreement between spouses. But do not assume the agreement itself changes the name on the title, the status of the loan, the bank's charge or the bank's rights. The family agreement, the land records and the financing documents need to be looked at as separate, but connected, matters.

This article is about a voluntary agreement made by spouses. If you already have a harta sepencarian order from the Syariah Court and need to carry it out on a house with a loan, that is a different process.

Why "the house still has a loan" needs special attention

For land governed by the National Land Code 1965, a dealing does not transfer title, or create, transfer or affect any interest in the land, until it is registered (section 206). The Code also provides that a charge takes effect on registration and makes the land or lease liable as security for the debt (section 243).

In practical terms: a document between spouses can be used to set out what they want to record between themselves, but it is not a shortcut to changing the land records or the bank's security position. The real position depends on the particular documents and facts.

"A house that is still charged to a bank is not a reason to avoid making an agreement, but it is a reason to make it more carefully. We have to look at the actual financing documents first, not assume what a clause will do to the bank or to the title," says Akmal Saufi Mohamed Khaled, lawyer and principal of ASCOLAW (Messrs Akmal Saufi & Co).

What to identify first

Before deciding what to record, gather:

• any existing harta sepencarian agreement;

• the title or other property documents you have;

• the letter of offer, the financing agreement and the related security documents;

• who is named as the registered owner, and who is a party to the financing;

• a simple record of the contributions, payments or changes you want to explain; and

• whether a sale, refinancing or other transaction is being planned.

This is not a list of legal requirements for every case. It is the basic information needed so that advice is not built on assumptions.

What can be discussed in the agreement?

Spouses may want to explain their intentions or arrangements for the house, including the ownership facts, each spouse's contributions or a change in circumstances. The right wording cannot be chosen in the abstract. It has to be read together with any existing agreement, the status of the property, the financing and the applicable law.

Do not use this article to decide whether a particular clause will change ownership, bind the bank or decide the outcome of a future claim.

Three things to keep separate

1. The agreement between the spouses

This is the document being considered or reviewed. Its precise effect requires a review of its wording and the facts.

2. The land records and dealings

For land governed by the National Land Code, a transfer or other change to an interest in land involves a dealing and registration under land law. An agreement between spouses should not be presented as an automatic change to the title.

3. The financing and security

If the house is still financed, the financing and security documents need to be checked specifically. Do not assume an agreement between spouses changes the obligations under the loan or the position of the bank.

If something changes with the house or the loan

A sale, refinancing, a change of owner, full settlement of the loan or a significant change in contributions can change which documents need to be looked at. Before signing a new document or updating an existing agreement, get a proper review of:

• the original agreement;

• the change you want to make;

• the property and financing records; and

• any transaction that is already under way.

If the matter has become a dispute

Harta sepencarian is part of Islamic family law, which is state law. In Selangor, section 122 of the Islamic Family Law (State of Selangor) Enactment 2003 gives the Syariah Court power to order the division of harta sepencarian in the context of a divorce. If the spouses no longer agree, or the issue is already in dispute or in proceedings, do not treat it as ordinary agreement drafting. Get advice on the right route.

How ASCOLAW can help

ASCOLAW can review any existing agreement, the property documents and the relevant financing information before the scope of work and a quotation are discussed.

Fill in the ASCOLAW enquiry form below to request a review. Tell us the state where the house is, whose name is on the title, who the borrower is, and whether a sale or refinancing is being planned.

Frequently asked questions

Does a house with a loan have to be left out of the agreement?

Not necessarily. The more important questions are what you want to record, and what that means for the property and financing documents. The documents need to be reviewed before deciding.

Will the agreement change the name on the title straight away?

Do not assume so. For land governed by the National Land Code, a dealing needs a proper instrument and registration before it affects the title or any interest in the land.

Does the agreement change what we owe the bank?

Do not assume it does. The financing and security documents need to be checked specifically.

What if we later want to refinance or sell the house?

A sale or refinancing can change which documents need to be looked at, and the agreement may need to be reviewed. Get advice before signing anything new.

This article is general information and not legal advice for any specific situation. Islamic family law is state law and can differ from state to state; the Selangor Enactment is used here as an example. The National Land Code applies in Peninsular Malaysia; Sabah and Sarawak have their own land laws. The effect of any agreement on the title, the financing or a future harta sepencarian claim depends on the actual documents and facts.

Related guides

• Discharge of Charge by Lawyers

• Land Title Transfer Procedure In Malaysia

• Transferring Property Between Family Members in Malaysia: When Is It a Love and Affection Transfer?

• Housing Loan & Loan Agreement Legal Fees in Malaysia