MORTGAGING, GUARANTY, PERSONAL SURETY AND TRANSFER OF A DEBT
This is an agreement whereby some property is placed as security for a loan, so that the lender can collect the payment from it. The property is called the mortgaged property, and the debtor is called the mortgagor, and the lender is called the mortgagee.
Ruling 518: Such an agreement is formed by any way that indicates it, whether verbally or by conduct. It is necessary for the mortgagee and the mortgagor to be able to enter such contracts by the Sharia, just as in all contracts.
Ruling 519: The contract becomes valid and complete by merely an agreement, and it is not necessary for the mortgagee to actually take possession of the mortgaged property.
Ruling 520: It is not possible to withdraw from the contract, except with the agreement of both parties, and it becomes annulled by the mortgagee denying his right over the mortgaged property or by the debtor becoming relieved of his debt upon which the mortgaged property was presented as security.
Ruling 521: If the mortgaged property is damaged or it can no longer be used, then if it was guaranteed its replacement will take its place, otherwise the mortgage will become void. It is not obligatory on the mortgagor to replace the mortgaged property except if there is a condition in the contract which obliges him to do so.
Ruling 522: If the mortgagor mortgaged his property on somebody else’s loan, and it was used to clear the debt, the mortgagor may go to the debtor to be reimbursed except if the mortgage was done without the debtor’s request or permission; otherwise, he cannot demand it from the debtor.
Ruling 523: A mortgage contract is valid for any type of debt liability, whether it is cash, food or anything else. However, it is not valid if it is used to secure an expected debt for which he is not liable yet, such as the wage of a labourer before he begins work.
Ruling 524: Unless there is a clause in the contract of not giving possession of the mortgaged property to the mortgagee, it is obligatory for the mortgagor to hand it over to him. Once it has been passed to the mortgagee, it will be considered to be entrusted to his custody as amanah, which he will not be responsible for except if there is damage due to his negligence or wrongdoing. If it is not to be passed to the mortgagee, he will still have a right over it, so the mortgagor cannot use it or dispose of it in a way that will violate the mortgagee’s right.
Ruling 525: The benefits and proceeds of the mortgaged property – such as the residence in a house or the milk of an animal – is the property of the mortgagor. If the mortgagee stipulated that the benefits and proceeds will belong to him, and this stipulation was in the loan contract, this clause is void because it is prohibited interest; if he stipulated this in a mortgage contract which is independently formed or any other contract, it is apparently permissible.
Ruling 526: If the mortgagee dies, his right over of the mortgaged property will be passed to his heirs. If the mortgagor dies, the mortgage will not be annulled.
Ruling 527: If the payment of a debt is due, the mortgagee cannot autonomously seek its payment from the mortgaged property; rather, it is necessary for him to refer to the mortgagor to seek the payment, either from his wealth or from the mortgaged property. However, if there is a condition in the contract that the mortgagee may directly seek to clear the debt from the mortgaged property without referring to the mortgagor, then he may do so. However, if the mortgagor becomes bankrupt or he dies with a debt that his estate cannot cover, it is problematic for the mortgagee to independently from other creditors seek the payment of the debt owed to him from the mortgaged property, and it will be necessary for him to conciliate the matter with the other creditors.
Ruling 528: If the mortgagor dies, and the mortgagee does not have confirmation of the debt by two adil witnesses and he fears that the heirs will take the mortgaged property and deny his debt if he attests to the mortgage, it is permissible for him to clear the debt owed to him from the mortgaged property, and whatever is extra will be handed to the heirs, without him having to attest to the mortgage.
Personal Surety for Bail (Kafalah)
This is when one person – the assuror – promises and assures another person that a third (bailed) person will appear for any case against him, such that if the bailed person does not show up the assuror will force him to appear.
The details of this are given in the more comprehensive books of Islamic law.
This is a contract between a guarantor and a creditor, whereby the guarantor will undertake to bear an established debt which is the liability of a third person, the debtor. Both parties, as in all contracts, must be able to enter into such contracts, so they must be adults, sane, un-coerced, etc.
Ruling 529: This is one of the binding contracts, so neither party has the choice to withdraw, nor can there be a provision for the right of withdrawal, and the right of withdrawal is not established for violating a condition. However, if the guaranty agreement was with the permission of the debtor, such conditions are valid.
Ruling 530: When the guaranty agreement has been formed, the liability of the debt will be transferred to the guarantor. The guarantor then has the right to revert to the debtor to demand reimbursement of the money he paid to clear his debt, if the guaranty was with his permission or request.
Ruling 531: It is permissible to guaranty a debt which was overdue and granted deferral – such that the creditor does not have the right to demand payment until after the deferred period – just as it is also permissible to guaranty a deferred debt with immediate payment.
Transfer of a Debt (Hawalah)
This is when a debtor transfers his debt to another person, such that the latter now becomes the debtor, and the original debtor becomes free of any liability.
Ruling 532: It is necessary for the original debtor and the creditor to be adults, sane and not coerced; it is necessary for the original debtor and the second debtor both to not be barred from disposal of their wealth due to foolishness or bankruptcy.
Ruling 533: If the second debtor is not indebted to the creditor and he did not volunteer to be liable for the debt, the original debtor will still be liable to pay the amount of the transferred debt to the second debtor.
Ruling 534: Hawalah is similar to guaranty in regards to it being binding and the invalidity of any conditions of withdrawal, etc, except if it was with the agreement of the new debtor.