UOB vs Lippo on inflated mortgages - excessive furniture rebates or poor internal controls?

WAS IT just a case of a property developer handing out generous perks, or a conspiracy to secure inflated home loans?

Singapore’s High Court is expected to deliver its verdict on this long-running legal tussle between UOB and developer Lippo Marina Collection (LMC) this month.

In a lawsuit first filed in November 2014, UOB alleges that LMC – a subsidiary of Indonesia’s Lippo Group – had conspired with two property agents to offer “excessive” furniture rebates provided to buyers, inflating the stated sale prices of units at the Marina Collection, a luxury condo at the wealthy enclave of Sentosa Cove.

The bank claims it was thus misled into granting housing loans based on the inflated stated sale prices, instead of actual purchase prices of the units. 

For instance, a unit with an actual purchase price of S$4.8 million was granted a furniture rebate of S$1.4 million, resulting in a stated purchase price of S$6.1 million.

This, in turn, led the bank to finance S$4.9 million – in excess of the property’s actual price. In some cases, the rebates ran up to 34.5 per cent of the stated purchase prices.

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The Marina Collection was launched for sale in late 2007, but sales were hampered after a series of cooling measures – with only 42 of its 124 units sold by March 10, 2011. 

The court heard that in December 2011, LMC’s general manager Woo Pui Lim had entered into an agreement with property agent Rick Goh to grant furniture rebates to purchasers.

UOB alleged that the plot allowed LMC to dispose of the units, with the true purchase prices fully financed by the bank and surplus monies paid back into the accounts of purchasers, who were really “fronts” with limited financial means.

In all, UOB disbursed S$181 million to purported purchases of 38 units in the condo between December 2011 and September 2013. 

By April 2015, all 38 purchasers had defaulted on the loans and remain in arrears to date.

LMC denied the conspiracy. It claimed that furniture rebates were a common marketing tool used by many developers to court potential home buyers.

It said instead that UOB was “the victim of its poor internal system of checks” that allowed itself to be “manipulated by” property agents Goh and Filly Ho, as well as then-UOB salesperson Ann Ong, in extending the inflated loans. 

“Unfortunately, the risk of default (which exists in all housing loans) came true in this case at a time when a dampened property market meant that UOB could not recover the amounts owing on the loans by simply enforcing the mortgage and selling the properties,” LMC’s lawyers said.

The lawsuit was first reported by The Straits Times. 

Here are UOB’s key allegations and LMC’s corresponding defences:

Were purchase prices misrepresented?

UOB alleged that LMC conspired with the property agents, Goh and Ho, to misrepresent the stated purchase prices and intended for the bank to rely on them in granting the housing loans. 

Even though the buyers had signed off on forms that gave UOB the impression that there were no discounts, rebates and/or benefits granted in respect of the purchase of the units, these buyers were “procured… to act as fronts” to obtain the bank’s financing.

Goh and Ho were the ones who took charge of the purchases, obtained financing from UOB, and supplied information and supporting documents, where relevant, to UOB.

Misrepresentation by silence happens when there is a “wilful suppression of material and important facts (or) an omission to inform the other side of pertinent facts”. In this case, the existence of furniture rebates was never disclosed prior to disbursement of the housing loans, UOB argued.

LMC said the furniture rebates were “expressly conveyed” to Ann Ong, who was then UOB’s authorised representative for the sales. Both Goh and Ho also stated that Ong was aware of the rebates but had failed to declare them in the respective loan application forms she filled out for the purchasers.

LMC also said that UOB had obtained up to three independent valuations for each of the units sold. In each of these 38 cases, the quantum of the loans did not exceed 80 per cent of the valuations. According to Singapore law, banks can lend up to 80 per cent of the purchase price or current market valuation, whichever is lower, of a residential property, less any discount, rebate or benefit.

Were buyers’ identities misrepresented?

UOB also claimed that it was misled to believe that all 38 purchasers were the true beneficiary owners of the units, and were applying for the loans to purchase the properties for their own use. In fact, 32 of these purchasers were nominees or fronts for four investors based in Indonesia. These purchasers were either Ho’s contacts or had been introduced to her by third parties, while the investors comprise Ho’s family and friends. 

LMC argues that UOB officials were informed that most of the purchasers were nominees. It also questioned why their nominee statuses mattered, if they had satisfied UOB’s checks on creditworthiness and other factors.

“The real problem lay not in the fact that many of the purchasers were nominees, but in UOB’s extremely lax method of assessing the purchasers’ financial standing,” said LMC’s lawyers from Drew & Napier.

Was there fraud?

UOB argues that funds were “recycled” or “round-tripped” among various accounts to satisfy the bank’s requirement of having purchasers place amounts of between S$200,000 and S$1.2 million in their bank accounts. 

This misled UOB into thinking that the purchasers were of good financial standing and had the financial means to service the loans.

“Had UOB been aware of the inter-account transfers, which meant that the representation… was a sham, it would not have approved and thereafter disbursed the housing loans,” said the bank’s lawyers from Tan Kok Quan Partnership.

LMC argued that it had no part in this allegation, pointing instead to Goh’s evidence that Ong had “arranged and orchestrated” the movement of funds. LMC also questioned Ong’s absence from the proceedings, given the “significant allegations” levelled against her by Goh and Ho. 

LMC alleged that UOB had deleted email correspondence between Ong and the defendants as well as purchasers, while the bank claimed it lost these emails as Ong’s computer was reformatted after she left the bank.

However, UOB pointed to the High Court's judgement in 2016 which ruled that the bank is "free to elect whether to include Ann Ong as a party for purposes of its claim".

Were payments misrepresented? 

UOB further alleged that LMC had misled its own solicitors for conveying transactions that it had received payments necessary for UOB to approve and disburse the housing loans when in fact, these funds had already been set off against the furniture rebates. The solicitors thus conveyed the misrepresentations.

It is telling that LMC departed from the usual practice of accepting cashier’s orders for the “completion payments” and accepted cheques instead, UOB added, referring to the 15-25 per cent of the stated purchase price to be paid prior to completion.

LMC argued that the bank’s officers had made the decisions to disburse loans upon receipt of a document known as “Form 3” from the bank’s solicitors, which served as, among other things, written confirmation to the bank that the purchasers had made the “completion payments”. LMC argued instead that UOB had “deliberately withheld” any disclosure of Form 3s in the proceedings.

Even if the alleged payment misrepresentations were true, UOB did not rely on them to disburse the loans, but had relied on its own lawyers’ confirmations instead, LMC argued.

UOB claimed that Form 3s alone are incapable of confirming that the completion payment has been made. LMC, however, argued that the Form 3s expressly state that UOB's lawyers confirm that the cash component payments had been made and that the bank would be relying on the lawyers' confirmation.