Written by Dr. Hassan Elhais Banks and financial institutions are a part of everyone’s life. The financial relationship between a person and his bank is governed by documents and agreements. In the event of loans, especially mortgages, this relationship is beneficial but can become complicated, especially when issues arise related to default. If an individual with a mortgage is a salaried employee who no longer retains his job, he is forced into a situation where the bank seeks payment regardless of his employment status. The financial institution can pursue this matter in 2 ways:
Firstly, the commercial route. In this case, the financial institution starts commercial proceedings in the court to try and enforce the specific performance of the contract. It usually means that the individual has to hire legal representation to defend themselves in court. This process takes 12-30 months and involves the appointment of experts by the court to view the viability and enforceability of that contract.
Secondly, the criminal route. The financial institution can, and mostly does, bank the guarantee cheque of the individual due to their failure to clear installment payments. The financial institutions, at the time of offering loans, credit cards or financing, take up to 3 blank cheques, signed by the person, for such events of default. While previously, when the cheque used to be returned for non-payment, the banks would file a criminal case before the courts for bounced cheque due to insufficient funds. However, with the recent amendment introduced through Federal Decree-Law No. 14 of 2020, there is no criminality attached in cases where a cheque bounces due to insufficiency of funds. The new law instead provides the following remedy for insufficiency or unavailability of funds: if a cheque is bounced, the beneficiary can use the bounced cheque to file for an execution case before the courts in the UAE under Article 635 bis of the Federal Decree Law No. 18 of 1993 relating to commercial transactions .
Mortgage and Ijarah
Mortgage and Ijarah are based on 2 different principles. The mortgage is based on an interest charged to the client for borrowing the money for the payment of the property. Ijari is based on the financial institution buying the property and holding it for the client, whilst the client lives in the property and pays rent, which counts as their profit. The interesting points in both these finances are the person’s legal recourse in the event of a default. Mostly, shariah-compliant contracts do not require any installment payment until the property is complete and handed over. Whereas in conventional finance, the individual is required to pay interest payments towards the property since the property is transferred to the customer’s name and monies have been released. However, in the case of Ijarah, it all comes down to the contract. The Ijarah contracts vary widely in the degree to which they bind the individual to pay in the event of a default or the event that the property is not constructed.
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