It’s all in the fine print

Source : Today – 22 Aug 2009

Landmark lawsuit over reverse mortgage dispute will set legal precedent here

IN A case that has been touted as the first of its kind in Singapore, a couple have sued NTUC Income for a reverse mortgage deal that turned sour, claiming that the insurer had wrongfully seized their home in 2006.

On Friday, NTUC Income filed its defence, setting the stage for a possible court showdown while maintaining that it is open to an out-of-court settlement.

In their suit, former flight engineer Derek Chua, 72, and his wife Colleen Ng, 57, claim that under a reverse mortgage scheme, Mr Chua could live in the property until he dies or sells it off. Also, the Chuas say in their suit, Income could not force them to repay the loan if it exceeded 80 per cent of the property’s market value.

A reverse mortgage works in the opposite way of a normal home loan. Designed to help those who are cash poor but asset rich, the scheme allows borrowers to receive monthly payouts until the owner dies or the property is sold, or when the tenure expires.

In Mr Chua’s case, the contract he signed with Income did not allow him to owe more than a loan-to-valuation (LTV) ratio of 80 per cent.

The Chuas’ property, at 3 Jalan Lye Kwee, was bought in 1975 and valued at $2.1 million in 1997. NTUC Income then lent the couple up to 80 per cent of the valuation, or $1.68 million. A sum of $2,000 was paid every month to the Chuas.

However, after the Sars crisis in 2003, the property’s value dropped to $1.1 million and the couple were told by Income that they had exceeded the 80 per cent limit. The firm asked Mr Chua to make a lump sum top-up payment of $46,000 to bring the LTV ratio back to within 80 per cent.

During this time, NTUC Income’s lawyers said, monthly payouts were still paid to the couple – although the sum was cut because of the drop in valuation.

In filing its defence, Income also claims that Mr Chua did not pay the top-up despite having been invited to discuss how he could bring the LTV ratio back to within 80 per cent.

The Chuas, NTUC Income alleges, had breached the terms in their mortgage contract, which entitles the insurer to take possession of the property.

NTUC Income adds that it had “granted indulgence” by allowing the couple to sell the property within a time frame, but this was not done as well.

When contacted by Weekend Today, Mr Jeffrey Lee, NTUC Income’s chief financial officer, said: “Even though we believe in the merits of our defence, we maintain a reconciliatory spirit and we continue to be open to exploring an out-of-court settlement.”

NTUC Income is represented by Senior Counsel Sundaresh Menon and Aurill Kam.

The Chuas, who are represented by Senior Counsel Michael Khoo, have 14 days to file a reply.