Mortgages

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This is the text of a twitter thread I started to brainstorm the issues of Mortgages in the United States beyond just the structuring of the individual contract.

I’ve been thinking a lot about mortgage structuring these days and what the appropriate questions are to ask about – conventional or islamic – mortgages in order to do the research necessary to find an adjustment or solution to the issue of whether they are permitted or not. First & foremost is important to state that the whole is greater than the sum of its parts. Meaning that we cannot simply look at individual contract clauses and/or docs used in a suite of mortgage paperwork, but also understand the regulatory system than mortgages operate under. This in the shariah is known as قاعدة الجمع والفرق and seeks to synergize the apparent meanings of legal drafting with the intent of the legislator and the intent of the counter-parties. Another important question is who possesses an interest in a piece of Real Estate? and what rights does that interest confer upon that person who holds that interest? does anyone who contributes financially to the purchase of Real Estate possess an equitable interest in it? What does this mean when funds are contributed with a contingency or not? how far does that interest reach before/after contract? how does this affect a person’s position as lien or title holder after contract? Does the Sharia recognize an intermediate position between the two? What effect does characterizing the real estate as a homestead have? are homestead provisions even considered effective under the Sharia? Is there formal filing that would need to be made or are we allowed to consider custom and convention in declaring a homestead? Is it valid to retain title to a home it has been sold to a buyer until that buyer pays off the entire debt which is owed? (seems to not be per majma’, but just asking questions here).

Who offered to purchase is presented however this is not final contract. a pre-approval letter for financing is presented, and this too is not the final contract. an agreement to sell it’s sign and yet this too is not the final contract. When is the sale considered final and in what role are the various parties coming into the contract as? is it fair to characterize as a lender the financing party if they come in on a contingency surrounding the value of the property and its use by the buyer as a homestead?

Is it fair to characterize as a borrower the purchasing party if they come in on a contingency that the property accurately reflect the value asked for by the seller and that it be suitable for a homestead? Under the Sharia to what extent is an agent allowed to act on behalf of his principal? can in the instance of buying and selling an agent purchase on behalf of his principal using his own money? can you purchase something and then Finance it to his principal? What role do suspended contracts (عقود موقوفة) play in the agent principal relationship when dealing with third-party sellers? and what if explicit permission to do so is given? What effect does co-signing a contingency for the involvement of the agent or not have on the final contract form? does this in any way recharacterize the involvement of the agent in purchasing true financing an asset which the acquirement of is a chief objective of the contract?

Most people have objected to the use of a note and a mortgage document in the long-term sale of residential homes. I don’t see these documents as any concern. The note simply records the debt incurred through the transaction, while the mortgage simply records the holding of the property as collateral for the payment of that debt. That’s pretty standard practice even under classical Islamic law. two questions however arise from that practice: 1) can debt ever be sold? 2) does holding an equitable interest confer status (equal or subordinate) to the purchaser?

Before I forget there are a few issues that play a role in understanding the mortgage process: 1) does characterizing the note as a debt instrument for the purposes tax law change the Sharia ruling? 2) Does the sale of that debt affect the overall transaction objective?

What role does that debt being assumed by governmental or quasi-govt orgs play? Does it affect permissibility when the same govt manipulates currency supply and sets rates? Is the individual consumer culpable in any way for using this system when it is the only choice they have to be able to purchase a home? in other words do we penalize those who want to avoid interest-based transactions when it is the only option they have?

These are all open ended questions that I post here to shed some light on my research process and the types of questions I believe are important to this topic.