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Buying Real Estate Through The Bank: Dealing With Ihe Islamic Banks Such As al-Raajihi Or al-Bilaad

Islamic Rulings - Living Shariah Verdicts

Islamic Questions & Answers


I want to buy some real estate through one of the Islamic banks such as al-Raajihi or al-Bilaad. Is it permissible for me to sign a contract to purchase with the bank without checking whether the property deeds have been transferred to the name of the bank? Or is it essential to see the property deed and make sure that ownership has been transferred to the bank before I sign any papers?
My second question is: the real estate I want to buy is worth more than the amount that the bank has set for buying based on my salary. Is it permissible for me to give the bank the difference so that I can go ahead with the purchase?.


Praise be to Allaah.

Firstly:

Buying a property through the bank is done in one of two ways:

1.

The role of the bank is merely to finance the transaction, so it gives the money to its customer or pays it on his behalf, on the basis that the customer will pay it back in instalments, with something extra. This is a haraam, riba-based loan.

2.

The bank buys the property, then sells it to the customer. This is permissible subject to certain conditions:

(i) That the bank does not stipulate any penalty in the event of late payment of instalments, because stipulating this penalty is a kind of riba which is haraam, whether the bank takes the penalty for itself or distributes it to the poor. Please see the answer to question no. 89978.

(ii) That the customer does not sign any purchase contract or make a promise to purchase before the bank takes possession of the property.

(iii) That the bank does not stipulate that a down payment be made before it takes possession of the property, because the down payment -- according to those scholars who say that it is permissible, namely the Hanbalis -- is not valid before the contract is drawn up.

It says in Ghaayah al-Muntaha (3/79): It [the down payment] means paying some of the price or rent after drawing up the contract and not before. End quote.

But the majority of Hanafi, Maaliki and Shaafa'i fuqaha' do not regard the down payment as valid and they do not regard it as permissible for the seller to take it, whether it is agreed upon after the contract or before.

Dr. Muhammad al-‘Usaymi (may Allah preserve him) was asked:

What is the ruling on the "Manzil Mubaarak" financing program (buying a house in the name of the bank until the loans are paid off) which is offered by al-Bank al-‘Arabi and al-Raajihi bank?

He replied:

Many commercial banks offer financing services for buying real estate. In the riba-based banks, the customer asks for financing, and the commercial bank gives the money to the customer, who buys the house and mortgages the title or ownership papers to the bank. There is no doubt that this is riba-based financing and is haraam.

As for the Islamic banks, after the real estate is identified by the customer, the bank buys the property in its own name and the title deeds are transferred to it, then it sells it to the customer for a price to be paid later with a stated, known amount of profit. There is no doubt that this is permissible.

One of the matters that should be noted in this case is that it is not permissible for the bank which offers financing for real estate purchase to demand a down payment from the customer before buying a property. And it is not permissible for it to oblige the customer to buy the property; rather the customer has the choice of buying or not buying.

End quote from the Shaykh's website.

The point is that it is essential that the bank take possession of the property before selling it to you, and taking possession is done through a purchase contract between the bank and the owner of the property. It is not essential to register the property in the name of the bank, especially if registering involves payment of large fees as is the case in some countries.

Secondly:

It is permissible to buy property from the bank by instalments; it is also permissible to pay part of the price and to pay the rest by instalments, such as if you pay twenty thousand, for example, and pay the rest in instalments in a manner that is compatible with your salary and other commitments. There is nothing wrong with the bank deciding the price of the house on the basis of the number of years you will pay instalments, so that if you pay part of it up front, that will reduce the number of years during which you pay in instalments, thus reducing the price of the property.

And Allah knows best.

Buying a foreclosed house if it is sold at auction because the borrower is not able to pay off the riba-based loan

Somebody mortgaged his house in return for a riba-based loan, and at the end of the agreed period, because the home owner was unable to pay off his debt, the riba-based institution sold the house through the court at a public auction. Because the house is opposite to a mosque, some good brothers thought to buy it from the one who bought it at the auction and add its area to the mosque.
My question is:
1. What is the ruling on mortgaging the house in return for the riba-based loan?
2. What is the ruling on buying this house that was sold without the consent of its owner who was not able to pay off the riba-based loan?
3. Does this purchase come under the heading of buying something that was unlawfully confiscated?
4. What is the ruling on buying this house from the second purchaser, when the story of its sale is known, and adding it to the area of the mosque?.


Praise be to Allaah.

Firstly:

Borrowing money on the basis of riba is emphatically forbidden and is a major sin, because Allah, may He be glorified and exalted, says (interpretation of the meaning):

"O you who believe! Fear Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allaah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)"

[al-Baqarah 2:278-279]

And Muslim (1598) narrated that Jaabir (may Allah be pleased with him) said: The Messenger of Allaah (peace and blessings of Allaah be upon him) cursed the one who consumes riba and the one who pays it, the one who writes it down and the two who witness it, and he said: they are all the same.

So it is not permissible to take out a riba-based loan or to mortgage the house in order to take out such a loan.

Secondly:

The one who takes out a riba-based loan is not obliged to pay the interest; rather he has to pay back the original amount of the loan only. If he is not able to do that, and he gave something to the lender as collateral, it is permissible to sell the collateral in two cases:

1. If the borrower gave permission to sell it, whether he gave permission at the time the contract was drawn up or at the time payment became due.

2. If the court rules that it is to be sold.

It says in Zaad al-Mustaqni‘: When the debt is due to be repaid and he refuses to pay, if the borrower gave permission to the lender to sell it, he may sell it and pay off the debt, otherwise the judge may force him to pay off the debt or sell the collateral. If he does not do that, the judge may sell it to pay off the debt. End quote.

The court may appoint someone to sell it, whether it appoints the lender or someone else.

It is stipulated that the one who sells it, whether it is the lender or someone else appointed by the judge, should sell it for the market price and not for less than that.

It says in Mughni al-Muhtaaj, 3/71:

The collateral should not be sold except for the current price in the local currency of something similar; if that condition is not met, then the sale is not valid. But if it is a little below the going price, which often happens when people bargain, that does not matter because they usually overlook that. End quote.

Based on that, if the item is sold because the borrower is unable to pay off the original loan, and that is done on the orders of the court and it is sold by public auction, there is nothing wrong with that and it does not matter if the seller did not give consent, because selling an item when its owner is reluctant is valid if he is forced to do so for a legitimate reason, and this is not regarded as buying something that was unlawfully confiscated or taken by force.

Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) said: The words ‘so it [the transaction] is not valid if he is forced to sell it without a legitimate reason' – he commented on this by saying: If it is sold when the owner is reluctant for a legitimate reason, there is nothing wrong with that, because this is restoring the dues of others, i.e., if we force someone to sell something for a legitimate reason, this is restoring the dues of others, and is not wrongdoing or transgression.

For example: a person gave his house as collateral to someone for a debt that he owed to him. The time for repayment came and the lender asked for his money, but the borrower who owed the debt refused to pay. In this case, the borrower may be forced to sell his house, so that he can pay off what he owes to the lender.

Another example: A piece of land was owned by two people, and it was a small piece of land that could not be divided. One of the partners asked the other to sell, but the other partner refused. In this case the land may be sold despite the objections of the one who refused, because there is a legitimate reason, which is to ward off harm from his partner.

So the guideline is: If forcing someone to sell is for a legitimate reason, the sale is valid even if the seller does not give consent to it. Because in this case we are not committing a sin by wronging him or by any other means, so it is permissible. End quote from al-Sharh al-Mumti‘, 8/108

Thirdly:

There is nothing wrong with buying a house from the second purchaser and adding it to the mosque.

And Allah knows best.

 

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