UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai

http://www.dubailand.gov.ae/ld_website/enLAW/No14_2008.pdf

Article (3)

The provisions of this Law apply to the Mortgage of Property and Property Units

as security for debt. It makes no difference whether the debt is secured by a

charge over the whole of the Property or over an undivided interest therein or by

right in-rem or personal right over a Property marked as sold off-plan.

Article (4)

The Mortgagee/creditor should be a bank, company or financial institution that is

duly licenced and registered with the UAE Central Bank to provide finance for

Property in the UAE.

Article (5)

1. The Mortgagor must be the owner of the Mortgaged Property or Property Unit

and in a position to dispose of the same.

2. The Mortgagor can be the debtor or guarantor in rem who executes a

Mortgage on behalf of the debtor.

3. Subject to Articles 22, 23 & 24 of this Law, a Mortgage over Property or a

Property Unit must be shown to exist ipso facto or ipso jure off-plan when the

Mortgage is made.

4. A Mortgage may only be created over Property or a Property Unit that is

capable of being disposed of.

Article (6)

A Mortgage includes all appurtenances to the Property or Property Unit including

buildings, plants, assigned/apportioned properties and any improvements made

after the Mortgage contract.

Article (7)

1. A Mortgage is not valid unless it is registered with the Department and any

agreement to the contrary is void.

2. The Mortgagor shall bear the costs of the contract unless otherwise agreed

by the parties.

Article (8)

1. Mortgage applications shall be filed with the Department and shall be signed

by the Mortgagor and Mortgagee or the guarantor in rem, if any, including the

following particulars:

a) All information related to the Property

b) Value of the Property

c) Value of the debt

d) Mortgage term

e) Personal details of the Mortgagor, Mortgagee and guarantor in rem

including domicile and place of residence.

2. The mortgage contract shall be signed using the standard form of the

Department and the Real Estate Register or Interim Real Estate Register, as

the case may be, shall be updated accordingly. The ranking of the Mortgage

is determined by its date of registration.

3. The Department shall give the contracting parties a mortgage deed bearing

the signature of the competent officer and the seal of the Department.

4. The mortgage deed can be in electronic form and is admissible as evidence

on the same basis as a written mortgage deed.

Article (9)

The Mortgage must secure a debt that is owing or promised at the conclusion of

the Mortgage.

Section Two

Legal Effects of Mortgage

 

Article (10)

The Mortgagor shall not sell, gift or otherwise dispose of the Mortgaged Property

Unit or Property or create any right in-rem or personal right over the Mortgaged

Property Unit or Property without the approval of the Mortgagee and subject to

the assignee agreeing to take over the obligations of the Mortgagor under the

mortgage contract. The Mortgagee may in the mortgage contract stipulate joint

liability of the mortgagor and assignee for those obligations.

Article (11)

If a clause in the mortgage contract gives the Mortgagee title to the Mortgaged

Property when the Mortgagor fails to pay the mortgage debt within the specified

period or provides for the sale of the mortgaged Property without taking the

statutory steps, the Mortgage shall be considered valid but in either case the

clause is void. The clause is also void if included in a subsequent agreement.

Article (12)

The Mortgagor has the right to administer his mortgaged Property and collect its

yield and revenue until it is foreclosed and sold at a public auction upon default of

paying the debt.

Article (13)

Where loss or damage occurs to the mortgaged Property, the Mortgage shall

attach to substitute assets and the Mortgagee may cover his claim from those

assets in the order of its priority.

Article (14)

The debt may only be covered out of the mortgaged Property and the guarantor

in kind may not seek recourse against the debtor’s assets before enforcement

against the mortgaged Property.

Article (15)

1. The Mortgagee may assign his rights subject to the consent of the debtor.

The assignment deed shall be registered with the Department.

2. The Mortgagee/creditor can, up to the value of his debt, assign the rank of his

Mortgage to another creditor having a security interest in the same Property.

Article (16)

A Mortgage secures only the amount specified in the mortgage contract unless

otherwise provided by law or agreement.

Article (17)

The rank of a Mortgage is determined by the serial number under which it is

registered with the Department. In case several applications are submitted at the

same time to register a Mortgage against the same debtor and over the same

Property, the Mortgages shall be registered under the same number and those

creditors shall rank equally in the distribution of auction proceeds.

Article (18)

A Mortgagee/creditor may follow the mortgaged Property into the hands of any

person in possession thereof in order to obtain payment of his claim when due

according to rank. A person shall be deemed in possession of the Property if he

acquires title to the Property after it has been mortgaged or acquires any other

right in- rem or personal right over the Property.

Article (19)

The Mortgagor will guarantee the mortgaged Property and keep it in good

condition until the debt is repaid. The Mortgagee may protest any deficiency in

the guarantee and take whatever legal action is necessary to protect his rights

and recover the costs from the Mortgagor.

Article (20)

 

A Mortgage terminates upon repayment of the secured debt.

Section Three

Special Mortgages

 

Article (21)

A Musataha holder may mortgage buildings or plants over the term of the

Musataha without having the right to mortgage the land that is to be developed

unless otherwise agreed.

Article (22)

The holder of usufruct or long term lease for a term between 10 and 99 years

may Mortgage his interest in the Property or Property Unit for the term of the

usufruct or long term lease.

Article (23)

A Mortgage over rights of musataha, usufruct or long term lease shall terminate

and be deleted from the register upon repayment of the debt secured by the

Mortgage or upon expiry of the term of the musataha, usufruct or long term

lease.

Article (24)

The purchaser of Property Units or Property that are marked as sold off-plan or

are under construction may mortgage them as security for the debt provided that

those units or Property are registered in the Interim Real Estate Register

maintained by the Department.

Section Four

Execution Proceedings on the Mortgaged Property

 

Article (25)

Upon default in payment of the debt when due or upon fulfillment of a condition

granting early repayment status, the Mortgagee/creditor or his universal or

singular successor must provide the debtor or person in possession of the

mortgaged Property or Property Unit 30 days notice through the Notary Public

before commencing execution proceedings.

Article (26)

If the Mortgagor/debtor or his universal or singular successor or the guarantor in

rem fails to pay the Mortgage within the period specified in the preceding Article,

the execution judge shall, upon request of the Mortgagee/creditor order an

attachment against the mortgaged Property so that it can be sold by public

auction in accordance with the applicable procedures of the Department.

Article (27)

Subject to the preceding Article, the execution judge may, upon request of the

debtor or his guarantor in rem, postpone the sale by public auction for up to 60

days and for one time only if he finds that:

a) the Mortgagor/ debtor will be able to repay his debt if given this period.

b) sale of the mortgaged Property or Property Unit will cause the debtor

substantial damage.

Article (28)

Subject to Articles 25, 26 & 27 of this Law, failure to pay the debt within the

stipulated period will cause the mortgaged Property to be sold by public auction

in accordance with the applicable procedures of the Department within 30 days

after the end of the relevant period referred to in either article.

Article (29)

The debtor or his guarantor in rem may repay the secured debt and its ancillaries

before the due date.

Article (30)

The claims of Mortgagees/creditors shall be paid out of the price of the Property

Unit or Property or out of the substitute assets in order of priority even if the

Mortgages had all been registered the same day. If the sale proceeds are not

sufficient to cover the claim of a creditor, such creditor can claim the difference

from the debtor.

Section Five

Closing Provisions

 

Article (31)

The Civil Transactions Code (Federal Law No. 5 of 1985), as amended, and the

Civil Procedure Code (Federal Code No. 11 of 1992) shall apply to any matter for

which no provision is made in this Law.

Article (32)

Property granted by the government to UAE citizens and such-like persons for

commercial and residential purposes is excluded under this Law and is subject to

the applicable orders and directives of the Ruler and the decisions in

implementation thereof.

Article (33)

Mortgage deeds that are duly registered pursuant to this Law are binding upon

third parties.

Article (34)

The Head of the Department shall issue the decisions necessary for

implementing this Law.

Article (35)

This Law shall be published in the Official Gazette and shall take effect 60 days

after publication.

UAE Central Bank statistics show that real estate mortgage loans issued in the UAE have increased by 15% in 2010 and are still upwardly bound along with other sources of funding such as Sharia’h compliant real estate investment trusts (REIT’s).   According to Business Islamica, on November 23, 2010 ‘Dubai Islamic Bank launched the emirates first Sharia’h compliant REIT in a joint- venture with French property firm Eiffel Management, a move executives said would help fuel growth in the country’s battered real estate sector.’  Sharia’h-compliant REITs ensure higher-quality investments because the screening process looks at both the underlying asset and the usage of the asset and does not allow for speculative or risky investments.

In addition, the recent Barclay’s Dubai court judgment granting Barclay’s a foreclosure order against a defaulting mortgagor has increased confidence in the mortgage lending business in Dubai. 

Along with other types of financing and increased lender confidence, as mortgage loans are increasingly becoming available, a diverse portfolio of people are beginning to purchase property through diversified financing once again in the dynamic and resilient emirate of Dubai.  Furthermore, as financing becomes available, projects that were once on hold may proceed with full force.

Therefore, what should people, banks, and companies know in regards to registering mortgages, transfer of mortgages, mortgage releases, extension of mortgage repayments, and mortgage portfolios as mortgage loans are now becoming available again?

Documents Required to Register A Mortgage

 

  1. Original certificate of mortgage property ownership;
  2. A letter to the Dubai Land Department from an approved bank, financial institution, or company to register the mortgaged property, stating the name and a specimen signature of the Bank’s authorized signatory agent representative;
  3. An authenticated /attested copy of the mortgage contract;
  4. If the mortgaged property was gifted, a copy of the building permission should be attached with the same;
  5. If the mortgaged property is owned by a company, a copy of the decision issued from the competent administrative authority in the company concerning the mortgage of the property should be attached with the authorization of the representative (agent/nominee) to perform the mortgage; 
  6. A duly attested power of attorney from the company stating expressively the powers conferred on the Attorney to perform the mortgage registration. 

 

Documents Required to Transfer a Mortgage

  1. Original title deed;
  2. Original previous mortgage contract;
  3. Original letter of redemption from the mortgage;
  4. Letter issued from the new mortgagee;
  5. Passport copy with File No. or the unified No. for “Nationals’;
  6. Copy of nationality card plus pages 26 for ‘Nationals’’
  7. Passport copy including the permit ‘for Expatriates’. 

 

Documents Required for Mortgage Release

 

  1. Original title deed;
  2. Original letter of release;
  3. Original mortgage bond;
  4. Passport copy and file number for (Nationals);
  5. Copy of nationality card plus page 26 for (Nationals);
  6. Passport copy including copy of the residency visa for (ex-patriates). 

 

In the case of a company mortgage, also submit:

  1. Copy of the trade license;
  2. Copy of the organization establishment’s Articles of Association.

 

Documents Required to Register an Extension of the Mortgage Repayment

  1. Original mortgage contract;
  2. Letter from the mortgagee extending the duration of the mortgage. 

 

Documents Required to Register a Mortgage Portfolio (A mortgage portfolio is when an individual or company decides to mortgage all or some of their properties in one mortgage contract and procedure). 

 

 

  1. Title deeds;
  2. Original map;
  3. Letter from the financing body including information of the mortgage (start-end-value);
  4. Passport copies;
  5. National card with page number 26 for UAE nationals;
  6. Trade license for financiers applying for the first time at the Land Department.

 

In addition, according to Article 15 of Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai, the mortgagee/creditor may assign his or her rights subject to the consent of the debtor and the assignment deed must be registered with the Land Department.  The mortgagee/creditor can up to the value of his or her debt, assign the rank of his or her mortgage to another creditor having a security interest in the same Property. 

Registering a mortgage with the Land Department of Dubai is required by law under Article 7 of Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai.  It is also helpful in the event of a dispute.  Under Article 8 of Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai, the Land Department issues a mortgage deed after the mortgage has been registered in paper or in electronic form, which is admissible as evidence in the Dubai Courts.  Furthermore, under Article 33 of Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai, mortgage deeds that are duly registered pursuant to this Law are binding upon third parties. 

Although Article 247 of the  UAE Civil Procedures Law Federal Law of 1992 disallows banks in the UAE from foreclosing on a defaulting property owner who is residing in his or her property, recently in 2010 Barclays Bank was the first bank in Dubai to obtain a foreclosure order from the Dubai Courts based on Articles 25, 26, 27, and 28 of the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai. 

Article 247(2) of the UAE Civil Procedures Law Federal Law of 1992 states that:

‘Without prejudice to the provisions of any other law, the following may not be placed under garnishment:

(2). The house which is considered an accommodation for the debtor or the adjudged party and whoever lives with him from among his relatives who are legally supported by him, in case of his death.’ 

However, Article 25 of the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai states:

‘Upon default in payment of the debt when due or upon fulfillment of a condition granting early repayment status, the mortgagee/creditor or his universal or singular successor must provide the debtor or person in possession of the mortgaged Property or Property Unit 30 days notice through the Notary Public before commencing execution proceedings.’

Article 26 of the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai states:

‘If the mortgagor/debtor or his universal or singular successor or the guarantor in rem fails to pay the mortgage within the period specified in the preceding Article, the execution judge shall, upon request of the mortgagee/creditor order an attachment against the mortgaged Property so that it can be sold by public auction in accordance with the applicable procedures of the Department.

Article 27 of the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai states:

‘Subject to the preceding Article, the execution judge may upon request of the debtor or his guarantor in rem, postpone the sale by public auction for up to 60 days and for one time only if he finds that: (1) the mortgagor/debtor will be able to repay his debt if given this period; (2) Sale of the mortgaged property or property unit will cause the debtor substantial damage.’

Article 28 of the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai states:

Subject to Articles 25, 26, and 27 of this Law, failure to pay the debt within the stipulated period will cause the mortgaged property to be sold by public auction in accordance with the applicable procedures of the Department within 30 days after the end of the relevant period referred to in either article.

Therefore, despite the protection afforded defaulting mortgagors in the UAE law,  specifically Article 247 of the UAE Civil Code as stated above, Barclays was able to rely on the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai specifically in order to obtain the foreclosure order to induce sale by public auction of the debtor’s property. 

Under Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai, upon default of a loan, the bank must give the borrower 30 days notice through the notary public before commencing execution proceedings.  The execution judge then reviews the case and may issue a debt judgment, which requires the property to be handed over to the Dubai Land Department for auction.  During this period, creditors have the right to administer mortgaged property and collect its yields and revenue until it is sold at the public auction.  Before the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai was passed, lenders and builders could resort to the courts to enforce contracts, however, they did not have the right to foreclose. 

This judgment in particular may have increased banks confidence in Dubai to begin to issue mortgage loans once again as banks’ confidence may have increased that a foreclosure order may be granted by the Dubai courts in the event of a defaulting mortgagor.  The rights of creditors seems to have been strengthened under the Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai with this recent Barclay’s and subsequent similar judgments and a previously missing element of certainty may have been  injected into the once uncertain Dubai real estate market.

Therefore, the combination of Dubai court judgments strengthening creditors’ rights combined with the availability of increased diversified financing may lead to the solid recovery of the Dubai real estate market.

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UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

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