Auction & Foreclosed Property
The 10% bank draft: what it is for, and when you get it back
The 10% bank draft serves two distinct statutory functions under the National Land Code (Act 828, Revised 2020): pre-bid proof of capacity and post-bid earnest deposit. Learn how it is calculated, when unsuccessful bidders are refunded, and how s.267A applies upon default.
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| Best for | Buyers considering a foreclosed or auctioned property |
|---|---|
| Risk level | High |
| Buyer action | Send Lewis the property, how the names are held on the title and what you are trying to decide, and he will tell you what to check first. |
Where auction buyers lose money
This post works through the deposit is proof of capacity before the bid and security after it — two different roles with different rules Every auction lot is governed by its own Conditions of Sale. Two lots in the same building, sold on the same day, can carry completely different obligations.
Role 1: Pre-bid financial qualification under s.257(1)(e) and s.263(2)(e)
The requirement for a 10% bank draft functions primarily as a statutory filter. Under s.257(1)(e) (for Court-ordered sales) and s.263(2)(e) (for Land Administrator-ordered sales) of the National Land Code (Act 828, Revised 2020), no individual or corporate entity may bid without first proving possession of a sum equal to ten per centum (10%) of the reserve price. This statutory threshold prevents frivolous bids, ensuring that every registered participant possesses genuine financial capacity before bidding opens. Until the auction concludes, this bank draft remains your property.
The baseline calculation: 10% of reserve price, not the bid price
A frequent point of confusion is how the bank draft is calculated. Under s.257(1)(e) and s.263(2)(e), the deposit is ten per centum of the RESERVE PRICE fixed under s.257(1)(d) or s.263(2)(d), not the final hammer price. You purchase the bank draft before the auction begins based entirely on the published reserve price. If aggressive bidding drives the final price above the reserve price, the Conditions of Sale require the winning bidder to pay the difference between the initial 10% reserve draft and 10% of the final bid price on the day, but your entry ticket is pegged solely to the statutory reserve price.
Unsuccessful bidders: immediate return and release of bank drafts
For bidders who do not win the lot, the return of the deposit is straightforward and immediate. If another bidder prevails, or if no bid reaches the reserve price and the property is withdrawn under s.259(2)(c) or s.265(2), the auctioneer returns your original bank draft immediately upon the conclusion of the auction. The funds were never transferred to the chargee or court. You can return the physical draft to your issuing commercial bank for redeposit into your bank account without any statutory penalty or statutory deduction.
Role 2: Post-hammer earnest deposit and credit to the chargor's account
The moment the hammer falls, the nature of the 10% changes completely. Under s.257(1)(f) and s.263(2)(f), if the successful bidder does not pay the full purchase price immediately upon the fall of the hammer, the 10% sum is paid as an earnest deposit to the chargee. The statute expressly mandates that this deposit is credited directly to the chargor's account in reduction of the outstanding secured debt. At this exact statutory juncture, the funds cease to be your money and become legally appropriated to the chargee and chargor.
Default on the balance: forfeiture under s.267A and priority under s.268(1)
The financial danger of an auction lies in default. Under s.257(1)(g) and s.263(2)(g), the purchaser must settle the balance not later than 120 days from the sale date, and no extension is permitted. If the purchaser fails to settle, s.267A provides that the deposit is forfeited. The chargee must apply the forfeited deposit according to strict statutory priority: first toward outstanding land rent or outgoings due to the State Authority or lessor and certified sale expenses under paragraphs 268(1)(a) and (b); the remainder is retained in the chargor's account under paragraphs 268(1)(c), (d), and (e). The defaulting buyer recovers nothing.
Check this against your own case
Before you register to bid, read the Proclamation of Sale and the Conditions of Sale for that specific lot, end to end, and do a land search. The lot's own conditions govern the deposit, the completion period, and which arrears you inherit. Nothing general — including this post — overrides what that document says about that lot.
Buyer checklist
Under s.257(1)(e) and s.263(2)(e) of the National Land Code (Act 828, Revised 2020), every bidder must prove possession of a sum equal to ten per centum (10%) of the RESERVE price — not the eventual bid price — to be permitted to bid. If you do not win the bid, your bank draft is returned immediately upon the conclusion of the auction. If you win, that 10% is paid to the chargee as an earnest deposit and credited to the chargor's account under s.257(1)(f) or s.263(2)(f). However, if you fail to settle the remaining balance within the non-extendable 120-day period under s.257(1)(g) or s.263(2)(g), the deposit is forfeited under s.267A and applied first toward state outgoings and certified sale expenses under paragraphs 268(1)(a) and (b).
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| 1 | Obtain the Proclamation of Sale to identify the exact reserve price fixed under s.257(1)(d) or s.263(2)(d). |
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| 2 | Purchase a bank draft for exactly ten per centum (10%) of the reserve price under s.257(1)(e) or s.263(2)(e). |
| 3 | Ensure the payee name on the bank draft matches the chargee bank or legal firm specified in the proclamation. |
| 4 | Retain the bank draft safely for immediate retrieval if outbid or if the lot is withdrawn under s.259(2)(c) / s.265(2). |
| 5 | Prepare funds to settle the remaining balance strictly within 120 days to avoid deposit forfeiture under s.267A. |
Common questions
Is the 10% bank draft calculated on the reserve price or the winning bid price?
Under s.257(1)(e) and s.263(2)(e) of the National Land Code (Act 828, Revised 2020), the bank draft required to qualify to bid is ten per centum (10%) of the reserve price, not the final bid price.
When does an unsuccessful bidder get their bank draft returned?
Immediately upon the conclusion of the auction session, allowing the unsuccessful bidder to return the original draft to their commercial bank for redeposit without statutory penalty.
How is a successful bidder's deposit treated under the National Land Code?
Under s.257(1)(f) and s.263(2)(f), the deposit is paid to the chargee and credited directly to the chargor's account in reduction of the secured debt.
What happens to the deposit if the winning bidder fails to pay the balance within 120 days?
Under s.267A, the deposit is forfeited and applied by the chargee first to state outgoings and certified sale expenses under s.268(1)(a)-(b), with any remainder reducing the chargor's debt under paragraphs 268(1)(c)-(e).
Lewis Chong
REN 69566 · IQI GlobalProperty advisor helping KL, JB, and Penang buyers make data-backed property decisions.
Related reading
Use one buyer framework across different news.
Reading a Proclamation of Sale line by line
The Proclamation of Sale is the legal contract governing a foreclosure auction under the National Land Code (Act 828, Revised 2020). Reading its title details, reserve price, deposit terms, balance deadline, and encumbrances protects bidders before the hammer falls.
Lewis Conclusion
Never bid on an auction property based on marketing flyers, online portals, or an agent's verbal summary. Request the official Proclamation of Sale and Conditions of Sale directly from the auctioneer or chargee bank's solicitors. Have your conveyancing lawyer review the title particulars, restrictions in interest under s.120, and outgoing apportionment clauses before you prepare your bank draft.
Auction due diligence: what to finish before you register to bid
Foreclosure auctions operate on an as-is-where-is basis under the National Land Code (Act 828, Revised 2020). Complete this strict sequence of land searches, physical site inspections, arrears enquiries, and financing checks before submitting your bank draft.
Lewis Conclusion
Do not cut corners on pre-bid due diligence to save search fees or an afternoon of travel. If you cannot complete every step in the sequence — title search, site visit, arrears confirmation, and loan readiness check — walk away from that auction. An auction property bought blind is not a discount; it is an unhedged liability.
Winning the bid is the easy part: financing and the balance deadline
Winning an auction property triggers a strict statutory deadline: the balance of the purchase price must be settled not later than 120 days from the sale date under s.257(1)(g) and s.263(2)(g) of the National Land Code (Act 828, Revised 2020), with no extension permitted.
Lewis Conclusion
Never raise your hand at an auction relying on a loan application submitted after the hammer falls. Secure indicative mortgage approval, appoint an experienced conveyancing lawyer, and inspect the title particulars beforehand. The 120-day clock starts ticking the very day of the sale, and neither the Court nor the Land Administrator has the statutory power to grant you an extension.
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Obtain the Proclamation of Sale to identify the exact reserve price fixed under s.257(1)(d) or s.263(2)(d).
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Purchase a bank draft for exactly ten per centum (10%) of the reserve price under s.257(1)(e) or s.263(2)(e).
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Ensure the payee name on the bank draft matches the chargee bank or legal firm specified in the proclamation.
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Retain the bank draft safely for immediate retrieval if outbid or if the lot is withdrawn under s.259(2)(c) / s.265(2).