Some UAE banks sue property defaulters

Some conventional and Islamic banks in the UAE have started filing cases against mortgagors of foreclosed properties in order to recoup their losses, 'Emirates24|7' has learnt.

“Banks (conventional and Islamic) have started to file cases to recover their losses from mortgagors if the losses are huge and they are certain that the mortgagor has assets that can be attached. Some of our clients have filed cases against the mortgagors,” Mazen Boustany, Head of Banking and Finance at Habib Al Mulla & Company, told this website.

Asked how many cases have been filed by Islamic mortgage providers here in Dubai to recover losses, he said: “We are not aware of how many cases have been filed in Dubai. In the firm, we are dealing with a few cases for Islamic Financial Institutions.”

Earlier this year, Boustany told this website that the crisis affecting the real estate sector in the UAE is leading to an increase in mortgage enforcement (foreclosure).

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

Top legal firms estimated in April that nearly 200 foreclosure cases are being currently dealt by Dubai Courts and the numbers were likely to increase.

This website reported in May that Barclays, which had won the first foreclosure order in Dubai in 2010, became the first bank to successfully sell a property (villa in the Springs community) at a public auction for Dh1.22 million.

According to Boustany, under the UAE mortgage laws, even a Shariah-compliant lender is not allowed to directly acquire or repossess the mortgaged asset, but rather has to go through the courts to auction the mortgaged asset and satisfy itself with the sale of the proceeds, knowing that the lender may participate in such public auctions.

“The concept is that the right of the financier is over the amounts it is owed and not over the asset itself. In Islamic Finance and more specifically in Ijara Muntahiya Bil Tamleek financing, although the plot would be in the name of the Islamic mortgage company, however there would be a mention that it is for the account of the lessee on the title deed and thus the company would not be allowed to repossess the plot directly, but rather to sell it through the public auction procedure,” he added.

Under Law No. 14 concerning Mortgages in 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 turned over to the DLD 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.

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