Tuesday, July 18, 2006

How to get a loan in 3 days?

[Please note that this entry is written for the Sri Lankan context and hopefully will not apply outside of Sri Lanka]

Couple of days ago I bought my first house… from the day the property was advertised in the paper, until the day it got written under my name, it took 17 elapsed calendar days. Although I took an express 24 business hour housing loan from the NSB – paying an extra fee for the ‘express’ service, I actually got the loan only after about 31 business hours as opposed to the advertised 24! But note that although the NSB advertises the service as the three business day service, they inform you well ahead that it will be on the 4th day after submission that the cheque will be ready. (i.e. 4 calendar days since one business day is 8 hours) The service begins only after all required documents are ready and accepted by the bank, and getting these documents ready itself could take a few more days at the local government and land registries etc., so do not ever assume that you could really get everything done in 3 or 4 days!

After many years of searching for a property within a particular area, and fluctuating housing loan interest rates, we finally came across a property that we liked on the 12th of March. By this time, I was ready with all documents necessary to apply for a housing loan from the NSB, and had all documents required to prove my income, ready.

After initial inspection of the property on Sunday the 12th of March, we were able to get a copy of the deed and the plan by the 14th. After an initial validation from the NSB on the loan amount and the offer price for the property that we considered, we also validated this through an external valuer (as we couldn’t get in touch with the NSB valuer in time) – just to be safe about the loan amount being pursued from the bank, for the property concerned. To also ensure that the property has a good title, we started our search through the land registry ahead of time, and thanks to my mother-in-law, we were able to request for the necessary extracts ahead of the confirmation of acceptance of our offer. We were informed that our offer has been accepted on the 20th of March, and were able to collect the relevant documents from the vendor on the 21st to acquire the other documents from the municipal council.

The next few days were hectic as I was running around with my mother-in-law to the land registries, municipal council, surveyors and lawyers! As the bank looks for clear title for 30 years, sometimes you may need to check the deeds for more than 30 years if you are unlucky. Usually at the land registries, some documents become ‘lost’.. but if you are really interested to ‘find’ these.. they mysteriously appear back again in an instant! And you may sometimes come across a situation where a particular deed required cannot be located. This may be a troublesome event if you cannot locate the lawyer who wrote this particular deed either, and if it has been written by a lady lawyer before she got married.. Good luck! As she may have now changed her name, and you will not be able to locate her in any telephone directory or service either! If you come across this situation, you should go to the registrar generals department in Fort, and go through the list of lawyers, and locate the land registry where the 2nd copies of the particular lawyer are held. Again like the registration information at the land registries, the 2nd copies play the same old lost-and-found trick!.. if you keep your eyes open at a land registry, you will surely see why so many attorneys goes near or sometimes even inside the record rooms and almost touches the clerks.. keep your eyes open when you notice the above and you will realize how lost records are mysteriously found at the Sri Lankan land registries! You may sometimes hear stories about how certain records become damaged at the registries.. and then you will hear about the specially trained mice who are given this task to destroy ‘some’ of the records mentioned above.

Getting copies of your extracts on time could be a task of its own.. though the photocopying section of the land registries (at least some) are supposed to be somewhat privatized, they still function according to the ‘old laws’. If you are in a hurry to get your copies, either you should speak to the registrar and explain your situation and get an endorsement on your receipt from him, or go through ‘other means’.. Even if you get the registrar himself to endorse and prioritize your extracts, you then need to wait and waste hours near the photocopy section.. again some of the folios you may have checked the day before may again get ‘lost’ just as they are about to get photocopied.. Waiting for your copies near the photocopy desk, you will surely see how some people get their copies through a ‘same day’ service, while those who goes by the book will have to spend at least a week or more to get their copies! But to your surprise you will note that these special ‘same day’ services are neither documented nor informed to any person officially, though you see many posters from the bribery and corruption commission at these registries. I wonder if all that the present bribery commission does is print these posters and paste them around the infested spots, since if they just visit some of these locations they could save the cost of these prints as well as stop all corruption. But then again when Sri Lanka is unable to even appoint a commissioner to the above commission and so many others in time, and when you hear how the Sri Lanka Inland Revenue heads are being arrested for involvement in the largest tax fraud of South Asia, you will realize why these institutes function as I have mentioned above.

After you collect the necessary deeds and extracts you may also need to go through previous plans pertaining to your property.. However in the case of surveyors, no copies are maintained at the Survey Department etc. as deed copies are maintained by the land registries. Hence if a particular surveyor who has written a plan is no more, you may have very less options!

After all legal documents mentioned above and related survey plans are found, your lawyer will need to study these in detail and prepare a Title report and a Pedigree report of the property.

You will also have to spend some time at the local Municipal Council to get the relevant documents to obtain your housing loan. Note that the COC – Certificate of Conformance for a house is requested by the NSB – but is not included in their guide book.

The other documents which are required but are not mentioned in the NSB guide book is as follows:

1. A standing order form from your bank – if you are paying the installment through one

2. A copy of your NID and that of the vendor.

It is strongly suggested to meet a credit officer at the NSB on the day prior to your submission of documents, to check that all are in order. Note that some documents you hand over to the bank (e.g. the deed) could be photocopies - as long as they are certified by a Notary. Also make sure to get copies of your bank statements etc. as you may want to keep the originals with you for future purposes and just hand over copies to the bank. Any original documents that you submit to the bank will be filed and will not be returned to you.

Loan Day 1 (Friday)

On the day you submit your documents, it is suggested to arrive at the bank by 8:30am in the morning, just as they open for business. It would be then possible to meet the same credit officer who reviewed your documents the previous day. Your documents would then be filed in a few hours. (Mine took 2 hours). Since we opted to write and process our own Title Deed, we were able to save 1% of the purchase price which would otherwise have had to be paid for to the NSB as legal charges for the deed. Due to this reason we tried very hard to find out which of the legal officers would process our loan, so that we would be able to synchronize with them to make the process smoother. However, the legal department at NSB seems to lack the customer friendly attitude of the Housing loans section so far, and seems to operate according to the ‘old regime’ system of governance. However, we were asked by one of the officers to submit a draft of the deed on Monday.

They will then ask you to get a Mortgage Protection policy, and you may want to select Ceylinco over SLIC. However I choose SLIC, and went there straight away and got an appointment with Durdans hospital for them to conduct the medical checkup required for the policy.

The Weekend, ..

After 14 hours of fasting, I went for the medical test at Durdans early morning on Saturday. The Bank official was also able to make his inspection on Saturday, and the valuer on Sunday. I assume that if I had not submitted my documents on Friday, these two would have taken more time, and would not have been available to the NSB by the morning of the 2nd day of the Express loan system.

Loan Day 2 (Monday)

I met with the credit officer again and tried to get any feedback on the draft of the deed, but was unsuccessful. I was not able to get any feedback as the still ‘the file has not come to the legal section’. I then tried to go to the SLIC, but unfortunately it was towards the end of the lunch hour at this still not so privatized institution. After meeting with the relevant person, and then getting the medical report verified through the SLIC doctor, they stated that it needs to go through re-insurance as the Total cholesterol/HDL ratio was 0.06 over its regular value, though no other tests indicated any significant risk. Hence I was asked to come again tomorrow.

Loan Day 3 (Tuesday)

Again I met with the credit officer, and found that still the file had not gone to the legal section, as it was still going through a process where about 6 to 8 people had to approve the loan, all the way up to the chairman! Hence again I went to the SLIC to pay my premium as I was asked to bring this particular policy on the day the loan would be disbursed, by the NSB. However, I find that still SLIC has ‘not made a decision’ on the policy. Then I spoke to a few officers and an AGM of the department, and overheard a conversation at the AGM’s office on how they were going to loose a life insurance to Ceylinco! Getting my own insurance policy last year after considering all leading insurance companies in Sri Lanka, including SLIC, I immediately knew they were playing a loosing battle! I also spoke to the AGM and the other officials on the delay, and said that if the so called ‘Leaders in insurance’ is like this.. what we should expect as customers. I also commented that I should have opted to get this policy from Ceylinco, as at least they would not have made me waste my time like this. Note that Mortgage Protection policies are processed only at the SLIC head office.

D-Day (Wednesday)

I went early in the morning to the NSB, and found that my file has still not reached the legal department after 24 business hours! It was around 11am when it finally reached the legal division as the Title insurance information had to be processed and inserted into the file, and only one of the officers out of three were present at the time. Following the file to the legal division, we were able to finally meet the legal officer who was to process our application. At about 11:15am we were called and informed that there was a discrepancy between the second schedule of the deed (which states the right of way) and the Title insurance policy – which has stated that we would have access through all roads shown in the survey plan. However, the latter is incorrect as we had the right of way only through one of the roads shown in the plan which was over 10 years old. But, as the legal officer insisted, we were compelled to insert a single line into the deed so that it matched the (erroneous) title insurance, to avoid a delay in the processing of our loan. We were then asked to come at 2:30pm to sign the deed and the mortgage bond by the legal officer.

After paying the necessary stamp duty and collecting the insurance policy from the SLIC (finally) we came to the bank again with the Vendor at the stated time. After signing the deed, we were surprised to see that the mortgage bond had been printed erroneously by the NSB legal division, with the wrong amount! Hence to cover up and prevent further delay, we were asked to sign on an empty bond which they would fill-up later and then began the eternal waiting…

Eternal waiting…

At 3:15pm I was given a receipt to pay for the legal charges, and the cash counter was about to close by 3:30pm. When I went to the cash counter, the cashier was already in a mood to go home, and was almost closed for the day, and reluctantly started to accept the payment, saying that he had to catch some train… I guess these are normal ‘happenings’ at the ‘still in the government sector’ though we never hear such stories in our private sector places of work.. ever! Then the legal officer asked me to go back to the housing loans section, where they wanted me to get a fresh letter of vacant possession from the vendor, and then I had to pay the Title insurance and Fire insurance premiums. Now the same cashier was in a really bad mood and said that if I wanted to pay, I needed to pay the ‘exact’ amount in cash! But to his surprise I was able to make this amount , and a senior official then came and asked him to process the receipts quickly.. the cashier was still talking about the stupid train… After I produced the receipts again at the loans section, they found out that the Title insurance amount they asked me to pay was Rs. 500/- less than the actual amount, and then I was asked to pay this balance again.. How I wonder how a bank makes mistakes in something like “amounts”!! This is the second time they made such a mistake! Now again I went back to the same cashier at the fourth floor and he was almost on the train by now.. but to my luck, the senior officials were again present, and closing the days balance, and they were very helpful in asking this cashier to process the balance as a late payment fee, which he very reluctantly had to do. Then after producing the receipt again at the loans division at the third floor I was told that everything was ready and that the cheque would be given in the fourth floor by the legal division and for me to go upstairs and wait. The time was around 4:25pm.

However after some time, since the cheque never arrived, I went back down stairs, and then was asked to which account it should be written.. and then the person typing the cheque took around 12 minutes to type about three lines of text on the computer and print the cheque.. I was about 10 feet from the computer and I could hear them trying to take the cursor keys up and down and delete some of the text they have typed in the wrong place.. !@#$ Then finally after the cheque was printed and signed, it lay again in the tray until someone came to pick it up and take it to the legal division again.. the time was past 4:50pm by now.. and I just saw the credit manager waking by and once he saw me still standing, he came and called for someone to take the cheque upstairs… I went along with the peon to the legal division.. and then after about another 5 minutes the legal officer came and started to apologize to the bank official who was to hand over the cheque stating that there was a delay since ‘we’ did the title deed ourselves!

Now having proof that the 24 business hour loan didn’t even reach the legal department in 24 business hours, and seeing that the legal division was unable to correctly print about 25 words on a pre-printed mortgage bond correctly in three hours, we wondered how they could have completed and printed a Title deed as well (correctly) and still deliver the loan faster than this?? Then finally the cheque was handed over to the vendor at around 5pm after 301/2 business hours after acceptance of the express loan.

So can you really get a housing loan in 24 business hours?.. well according to my calculations of 8 working hours per day, you cannot… not even in 4 days!... but my wife was able to correct me through her experience working at a government institution sometime back.. the fact I missed was that on any 8 business hour day at a government or semi-government institution - only 6 are ‘working’ hours  !!...Aha.. now you do your math!

For a loan of x,x00,000/- with a House worth y,y00,000/- (i.e. a Total of z,x00,000/-) I had to pay the following charges to obtain the housing loan through the (not so) express service. Note that I have left out the loan and purchase amount intentionally ;-)

Valuation fees 3,980
Inspection fees 550
Title investigation charges 500
Credit information bureau charges 240
Special levy 28,875
Mortgage bond registration fees 1,500
Initial amount payable when handing the loan application 35,600
Title insurance 25,526
Fire insurance 16,323
Legal charges (0.75% of the mortgage amount) ~0.75% of ‘mortgage’ amount
Stamp Duty ~3% of ‘purchase’ price

Note that I have left out usual legal charges of 1% of the value of property for the Title deed (usually charged by the bank) and all legal and other costs and charges for the preparation of the Title report, Title deed, land registry searches, local government taxes and payments, surveyors fees and lawyers costs etc.

Also see.
(1) EMI calculations
(2) Tax calculations
(3) Tax benefits and directions with housing loans