200 foreclosure cases in Dubai courts

Nearly 200 foreclosure cases are being currently dealt by Dubai Courts and the rate and frequency is likely to increase, top law firms believe.

“Most of the conventional banks have claims and we understand that there may well be around 200 foreclosure cases coming through the courts at the moment,” Michael Dark, Senior Legal Consultant, Dispute Resolution, Hadef and Partners, told Emirates 24/7.

Mazen Boustany, Head of Banking & Finance, Habib Al Mulla & Company, Dubai, who prefers to use the term “mortgage enforcement” than foreclosure, said the crisis affecting the real estate sector in the UAE is leading to an increase in mortgage enforcement.

“It is very much increasing, due to the crisis affecting the real-estate sector in the UAE.”

Asked if the firms were aware of any foreclosure orders passed recently, Boustany said there have been orders enforcing mortgages in Dubai based on law No.14 of 2008 in relation to mortgages (Dubai Mortgage Law).

The first two orders were rendered in December 2009 and since the firm is aware of six other similar orders.

“The orders are somewhat revolutionary in a judicial sense in the UAE as they are the first examples of the direct enforcement of mortgage deeds without first having to obtain a judgment on the merits of the case.”

Although the concept of foreclosure is a common law, Hadef & Partners emphasises it is not applied in the same way in the UAE. Enforcement of mortgages in the UAE follows the UAE Civil Code and the Civil Procedure Code, which govern the procedures relating to sale of mortgaged property by public auction.

The UAE Civil Code and the UAE Civil Procedure Code does not make it compulsory to obtain a final judgment on the merits of a case before enforcing a mortgage. In practice, the courts have been reluctant in the past (and may still be) to directly enforce a mortgage deed without a court judgment, Boustany added.

In January 2010 Barclays Bank won a Dubai foreclosure court order in its case against borrowers who had taken mortgages on their real estate assets with Barclays. The order was based on Dubai Law No. 14 of 2008, which related to mortgages in Dubai.

Under Law No. 14 of 2008 (the Mortgage Law), 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 turned 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 public auction.

Alan Rodgers, Head of Banking & Finance, Hadef & Partners, said: “It may therefore be argued that whilst the Mortgage Law speeds up the proof of debt, there is still the need for a court order to be obtained for the sale of the mortgaged property in public auction, the Barclays case may have set a precedent to speed up the process of proving the debt, but does not necessarily speed up the enforcement process of selling the asset which requires judicial sale (auction).”

According to Louisa Lynch, Associate, Norton Rose Middle East, the Dubai Land Department (DLD) re-commenced public auctions of land in November 2010 following a hiatus on property auctions of eleven months.

We attended an auction which included a foreclosed property ordered to sale further to a court order. We were told that the freehold property in question was owned by a foreign national who left Dubai in 2008 and subsequently defaulted on their mortgage. On the auction day, only one bidder paid the required 20 per cent of the reserve price in order to submit his bid. The property was not sold, as we understand that the sole bidder was only willing to make an offer of Dh500,000.”

She added property auctions have been held since, but it was not clear whether these auctions included foreclosed property.

Habib Al Mulla and Hadef & Partners admitted that they are handling such cases.
 
Boustany said they have been recently approached by a major international lending institution to handle its mortgage enforcement procedures, while Dark too confirmed that they are handling cases for banks and financial institutions.

Asked about the time taken to get a foreclosure order, Dark said: “We understand that a number of banks who have applied to have foreclosure cases heard had thought that the process would take some two to three months, but the actual process is taking between six to eight months.”

Boustany mentioned that as the process does not involve obtaining a court judgment on the merits of the case, the process should be relatively quick, possibly a couple of months.

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