Financial Institution as A Bona Fide Purchaser for Value: Scratch Beneath the Surface

Abstract

The Malaysian Government incorporated into the Malaysian primary land law statute, the National Land Code 1965 (NLC), the computerized land database. It is known as the Computerized Land Registration System (CLRS) in 2001. The main purpose of the CLRS is to provide a more efficient land database that replaced the manual Register Document of Titles (RDT). It is a commendable effort but the conversion process of the original titles placed at the land registry gives rise to an adverse implication on the registered proprietor. Land fraud scam deprived the legitimate ownership and interest in land. The implication of land fraud scam is like a double edge sword. The illegal activities affect the registered proprietor who lost his ownership of the land without any compensation accorded to him when the land is transferred to a bona fide purchaser for value as provided under the proviso of Section 340(3) of the NLC. The ownership or interest of the new proprietor or interest holder who obtained registration through land fraud scam is liable to be set aside. Registration offers certainty in the title. However, the security of tenure will remain at stake when the rightful and lawful claimant over the land is deprived of the land. The loss is compounded when no avenue for compensation is accorded for him under the NLC. Land fraud scam caused untold misery to these affected parties. There is no means to verify the authenticity of the parties and documents. The Australian conveyancing system is analyzed to review the legal measures used to reduce land fraud scam. This paper aims to evaluate the extent of a legal duty that needs to be imposed before any financial institution commits itself by accepting land as security for the approved loan.