Mortgage and its Contemporary Applications - Scope of the Standard

Transcription

1. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications Statement of the Standard 1. Scope of the Standard This standard covers mortgages requested by the Institution with the aim of documenting the debts and commitments owed to it by other individuals and Institutions. It is also covers the mortgages presented by the Institution to other parties in order to document the debts and commitments it owes to them. Furthermore, the standard covers the mortgages which the Institution, in its capacity as a notary or agent, keeps for the benefit of other parties. 2. Definition of Mortgage To mortgage means to make a financial asset or so tied to a debt so that the asset or its value is used for repayment of the debt in case of default. 3. Shari’ah Rulings on Mortgage 3/1 Mortgage is permissible in Qur`an, Sunnah (Prophetic tradition) and Ijma’ (consensus of Fuqaha). 3/1/1 The mortgage contract is binding for the mortgagor once it is concluded, and the mortgagor does not have the right to revoke it from his own side, whereas the mortgagee has the right to do so. 3/1/2 Possession of the mortgaged asset takes place on the basis of the same requirements for possession of a sold property. It could be actual possession by putting a hand on the property, which is known as seizure mortgage; or possession could be legal through registration and documentation, which is known as security or formal mortgage. Both types of mortgages are subject to the same rulings. 3/1/3 The mortgagee has the right to appoint an agent to possess the mortgage on his behalf. The agent, thus appointed, should have 968
2. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications the same rights of disposition which the principal has. The mortgage can also be put in the hands of the mortgagee or in the hands of a third party known as the notary, to be agreed upon between the two parties. When the mortgage is kept by a notary neither of the two parties has the right to transfer it to any other location. 3/1/4 The mortgagee has the right to stipulate a condition that the mortgagor should appoint him or his representative as an agent who can sell the mortgaged asset and repay the debt out of its value in case of default, without resorting to judiciary. The mortgagor does not have the right to retreat from such agency once agreed upon. 3/1/5 The death of the mortgagor or the mortgagee has no effect on the validity of the mortgage contract. The respective inheritors shall substitute the dead party. 3/1/6 The mortgage contract is no longer valid when the mortgaged asset perishes unless a compensation for it is obtained (through solidarity insurance, for instance). The mortgage contract can also cease to be valid for other reasons such as termination of the contract by the mortgagee, settlement of or relief from the debt, or relinquishment of the mortgage right. Furthermore, the validity of the mortgage contract can also expire as a result of transfer of the ownership of the mortgaged asset (through sale, gift or will) on permission of the mortgagee; unless the new owner accepts to keep the mortgage contract. [see item 3/2/6] 3/1/7 The mortgagee has the right to keep the whole mortgaged asset for any part of the debt, unless he accepts partial releasing of the mortgage. On repayment of the debt the mortgagee has no right to keep the mortgaged asset as a collateral for a new debt for which the asset is not mortgaged, except when the two parties agree to keep the mortgaged asset as a collateral for any debt between them within a specific period. 969
3. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications 3/2 Rulings relating to the mortgaged asset 3/2/1 The mortgaged asset should be a Shari’ah-permissible property. It should also be well specified (through pointing, naming or description) and can possibly be delivered. 3/2/2 In principle, the mortgaged object should be a tangible asset, yet it can be a debt, a cash amount, a fungible asset or a consumable commodity. Perishable objects can also be mortgaged as they can be sold and replaced by their value. Moreover, a mortgaged object can be a share of common property which can be identified and sold separately. 3/2/3 The same asset can be mortgaged to more than one mortgagee. If all mortgages are of the same rank the consent of all the parties has to be sought, and the mortgage right in the asset is to be shared among them in proportion to their respective debts. If the mortgages are ranked in such a way that a succeeding mortgagee should get his debt repaid only when his precedent mortgagee does, the consent of the succeeding mortgagee alone has to be sought. 3/2/4 The mortgaged asset is a trust in the hands of the mortgagee, the notary or the agent and is still owned by the mortgagor as long as it is mortgaged. Therefore when the mortgaged asset perishes in the hands of the mortgagee, the notary or the agent, for a reason other than transgression or negligence, no responsibility shall rest with him, and the debt shall still remain valid. If the perish of the mortgaged asset is due to transgression or negligence of the mortgagee, the agent or the notary he shall be held responsible for compensation at the value of the asset on the date of its perish, whereas the debt shall remain valid. In this case the two parties have the right to perform clearance arrangements between the debt amount and the value of the perished mortgage asset. 3/2/5 The mortgagor can mortgage an asset that is owed to him by the mortgagee, whether the asset is kept by the mortgagee 970
4. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications as a trust (such as deposited or lent assets and investment accounts); or as a guaranteed asset (such as current accounts and assets retained after nullification of contracts). In the latter case the status of the mortgagee will consequently change from keeping the asset on guarantee basis to keeping it on the basis of trust. 3/2/6 The mortgagor can mortgage a borrowed asset (borrowed mortgage), or a rented asset (rented mortgage), on permission of the owner in both cases. If a borrowed or rented mortgage is used for repayment of the defaulted debt, the owner of the asset should have the right of recourse on the mortgagor for compensation; in kind if the mortgaged asset is a fungible asset, or in value if otherwise. When a borrowed or rented mortgage asset perishes in the hands of the mortgagor, the mortgagor has to compensate the owner of the borrowed asset, whereas for the rented asset compensation is deserved only if the perish of the mortgaged asset is due to transgression or negligence of the mortgagor. 3/2/7 In a sale contract the seller has the right to stipulate a condition that the buyer, after actual or constructive possession of the good, should mortgage it to him against the deferred price. 3/2/8 Appreciation in the value of the mortgaged asset as well as its income is considered to be mortgaged along with the principal, unless the two parties agree otherwise. 3/2/9 The mortgagor can benefit from the mortgaged asset on permission of the mortgagee, whereas the mortgagee has no right at all to enjoy free of charge benefit from the mortgaged asset with or without the permission of the mortgagor. However, on permission of the mortgagor the mortgagee can utilize the mortgaged asset against the normal pay for similar assets. [see items 3/3/ and 4/3] 3/2/10 The mortgagor should bear all actual expenses relating to reparation of the mortgaged asset and its preservation against 971
5. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications decay. When the mortgagee pays such expenses with or without the permission of the mortgagor he has the right of recourse on the mortgagor for compensation or he may obtain compensation in terms of an equivalent period of benefiting from the mortgaged assets. The mortgagee should bear all the expenses relating to safekeeping, documentation and selling of the mortgaged asset, except when the two parties agree that the mortgagor should bear such expenses. 3/2/11 With due consideration to item (5), it is permissible to mortgage debt, whether such debt is owed by the mortgagee or anyone else. 3/2/12 Possession of a mortgaged debt takes place by possession of the debt’s document or by attestation of the debt at the time of its mortgaging. When a debt is mortgaged, the mortgagee becomes more entitled to it than anyone else. 3/3 Rulings relating to the debt for which the mortgage is signed 3/3/1 The debt for which the mortgage is signed should be a permissible debt such as sale income, guarantee against damage, Salam commodity, Istisna’a commodity or an owed usufruct. Concluding a valid mortgage contract need not necessarily be preceded by establishing the debt. The mortgage contract can be signed before or at the same time of signing the debt contract. The debt for which the mortgage is signed should not be a impermissible debt (such as a usurious loan); or a non-debt deal (such as a specific price, the usufruct of a specific asset, and a spot sale commodity that is still in the hands of the seller). 3/3/2 It is impermissible to stipulate mortgage as a condition in trustbased contracts such as agency, deposit, Musharakah, Mudarabah and leasing contracts. If mortgage in such contracts is to be confined to indemnity in case of transgression, negligence or breach of the contract, then it is permissible. [see Shari’ah Standard No. (5) on Guarantees, item 2/2/1] 972
6. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications 3/4 Execution of the mortgage 3/4/1 With due consideration to item 3/1/4, the mortgagee has the right to claim the sale of the mortgaged asset in case of default. After repayment of the mortgagee’s debt the remaining value of the mortgaged asset should be given to the mortgagor by virtue of the mortgage contract. If the sale value of the mortgaged asset happened to be less than the due debt, the difference shall be subject to Shari’ah rulings on normal debt, and the mortgagee should have the right of recourse on the mortgagor for settlement of such difference. 3/4/2 The mortgagee does not have the right to stipulate a condition that he should own the asset in case of default. Nevertheless, there is no prohibition for the mortgagee to purchase the mortgaged asset from the mortgagor at market value, and take the portion of the value to which he is entitled. 3/5/3 When the mortgagor is bankrupt, the mortgagee should have the priority over other debtors, for getting his debt repaid from the sale value of the mortgaged asset. If the sale value of the mortgaged asset is less than the mortgagee’s debt, he becomes in the same standing with other debtors with regard to the excess indebtedness. 4. Mortgage of Financial Papers and Sukuk 4/1 It is permissible to mortgage the financial papers and Sukuk which can be issued and transacted according to Shari’ah, such as Islamic Sukuk and shares of Islamic financial Institutions. The shares of the companies whose original activities are permissible can also be added to this category. [see Shari’ah Standard No. (21) on Financial Paper: Shares and Bonds, item 3/4] 4/2 It is permissible to mortgage usufruct-based Sukuk which represent common shares in the usufructs of specific assets, or assets in the form of a specific indebtedness. This should be taken with due consideration to Shari’ah Standard No. (17) on Investment Sukuk, item 5/1/5/2. 973
7. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications 4/3 It is impermissible to mortgage the financial papers and Sukuk that should not be issued or transacted according to Shari’ah, such as interest-based bonds, preference shares and enjoyment shares [see Shari’ah Standard No. (21) on Financial Paper: Shares and Bonds, items 2/6 and 2/7]. Such financial papers include also traditional investment certificates, certificates of traditional investment deposits and shares of the companies that pursue impermissible activities like manufacturing of alcohols, swine trade and dealing in Riba [see Shari’ah Standard No. (21) on Financial Paper: Shares and Bonds, item 2/1 and Shari’ah Standard No. (14) on Documentary Credit, items 3/4/1 and 3/4/2]. Among these financial papers also are shares of traditional financial Institutions, shares of traditional financial companies, shares of traditional insurance companies and shares of companies which originally pursue permissible activities, yet Ribabased and other prohibited dealings constitute a predominant part of their activities. 5. Mortgage of Current Accounts and Cash Securities When a current account is mortgaged for the benefit of the same institution with which it is opened, the institution should not use the account unless an agreement is reached between the two parties to transfer the account to an investment account, and thus, make it subject to the rulings on Mudarabah instead of the rulings on loan. This is so because the institution, as a mortgagee, has to avoid making free of charge benefit from the mortgaged account. On transference of the account to an investment account, the account holder becomes entitled to his profit share as the owner of the capital (Rab al-Mal), while the institution becomes entitled to its profit share as the worker (Mudarib). 6. Mortgage of Investment Units and Investment Accounts 6/1 The Institution can accept mortgage in the form of investment units in Islamic investment funds. In this case the Institution as a mortgagee can suspend the right of the client to get back or draw from the account, absolutely or in proportion to the amount of the debt, whichever is more suitable. 974
8. Shari ’ah Standard No. (39): Mortgage and Its Contemporary Applications 6/2 The income and growth earned by the units or the account are considered to be mortgaged along with the principal. This should hold true whether the contractual relationship between the client and the Institution or the fund is Mudarabah or investment agency, unless the two parties agree on other arrangement. 7. Mortgage of What Will Be Owned It is permissible to mortgage an income which is still to be owned if the principal (income earning asset) is specified. The contract in this case is valid whether such income is to be mortgaged along with the principal or independently. 8. Insurance of the Mortgaged Asset The mortgagee has the right at the time of signing the contract to request from the mortgagor to arrange Islamic insurance for the mortgaged asset whenever it is possible. When the mortgagor accepts to do so the compensation to be received on the damage of the mortgaged asset shall replace it. If the compensation is received in the form of a cash amount such amount shall be mortgaged along with its returns by depositing it in a frozen investment account owned by the mortgagor. [see Shari’ah Standard No. (5) on Guarantees, item 4/8] 9. Zakah on the Mortgaged Asset 9/1 The owner of the mortgaged asset should pay Zakah if it is payable on the asset and its income or on its income only. The fact that the owner cannot dispose of the mortgaged asset does not relief him from payment of Zakah. 9/2 Zakah is payable on all cash mortgages such as current accounts, cash securities, units of investment funds, frozen investment accounts, Sukuk, Salam debts, and Istisna’a debts, subject to stipulations of Shari’ah Standard No. (35) on Zakah, items 5/1, 5/2 and 5/3. 10. Date of Issuance of the Standard This Standard was issued on 17 Rabi’ I, 1430 A.H., corresponding to 15 March 2009 A.D. 975