KUALA LUMPUR: A bank's practice of approving a house loan amount before ordering a property valuation is unethical and a poor business practice, the High Court ruled yesterday.
Judge Datuk Akhtar Tahir made this statement in his judgment on a suit filed by Bank Islam Malaysia (BIM) against a property valuer, Gaya Nasir Sabaruddin & Associates (GNS), for allegedly overvaluing the property.
According to the facts, BIM issued a letter of offer for RM4,353,639.50 to Jemey Sudin on May 16, 2013, for the purchase of a three-storey luxury detached house near Seri Kembangan.
The plaintiff (BIM) then instructed the defendant (GNS), a panel of valuers for the bank since July 1, 2006, to prepare a valuation report of the said property on May 21, 2013.
On July 23 of the same year, the plaintiff received a valuation report from the defendant, which valued the property at RM5.9 million, based on sales transactions from three areas near the property.
However, due to the customer's default on the repayment, the bank initiated steps to auction the property and appointed IPC Island Property Consultation Sdn Bhd (IPC) to prepare a valuation report for the auction.
On Nov 26, 2014, IPC had submitted its valuation report to the plaintiff. The report had valued the property at RM4.5 million.
During an internal inquiry, the plaintiff concluded that the defendant had significantly overvalued the property, which constituted misrepresentation and negligence on the defendant's part.
Subsequently, the plaintiff filed the suit to recover losses amounting to RM1,180,144.50 allegedly incurred due to the defendant's overvaluation of the property.
The defendant denied negligence and misstatement, saying the valuation was conducted according to standard valuation practices and guidelines.
The judge said the plaintiff's act of issuing the letter of offer with the specified loan amount, which was signed by the plaintiff and the customer, created a valid and enforceable contract binding both parties.
"It can be noted that the letter of offer, together with the conditions attached, not only approved the loan to finance the property, but also approved a specific amount of the loan.
"What is glaring about the letter of offer is that not only was the loan approved, but also a specific sum was approved even before the appointment and instructions to the defendant to value the property.
"It is clear that the amount of loan agreed is not based on the valuation of the property but on the agreed sale price between the plaintiff and the customer.
"The court regards the instruction to the defendant to value (the property) by the plaintiff after approving a specific sum a mere whitewash just to complete the formalities," he said in his judgment dated yesterday.
He said the plaintiff's Machiavellian practice of not properly assessing a customer's application is what had led to the losses it suffered, rather than any negligence or misstatement by the valuation firm.
"In short, the plaintiff is the author of its own misfortune for the losses suffered."
The court said the defendants were not careless or wrong in their valuation report.
However, they might have been influenced to give a higher value to match the amount of financing the plaintiff had promised to the customer.
The court also awarded RM100,000 in cost to the defendant.
Lawyer Muhammad Ali Redha represented the bank, while Rafidah Abdul Rahman appeared for the defendant.