Mortgage

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Mortgaging refers to the security for a debt against an article that can cover it or its value (in case of non-fulfillment).

Mortgaging is permissible according to the Noble Quran, the Sunnah (Prophetic Tradition) and the consensus of Muslim scholars. Allah, Exalted be He, says (what means): {...And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken...} [Quran 2: 283]

When the Prophet ( sallallaahu  `alayhi  wa  sallam ( may  Allah exalt his mention )) died, his armor had been mortgaged'. Scholars unanimously agree that mortgaging is permissible on journeys and the majority of scholars maintain that mortgaging is also permissible in residence. The wisdom behind the legality of mortgaging is to keep properties and protect them against loss.

Allah, Exalted be He, commands Muslims to write down the debts as He Says (what means): {O you who have believed, when you contract a debt for a specified term, write it down...} [Quran 2: 282]

And He also Says (what means): {And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken...} [Quran 2:283]

Such permissibility is considered of the mercy of Allah upon His servants as He guides them to what benefits them.

The amount, quality, and description of the collateral must be known. The debtor must be legally permitted to contract; he must possess the collateral or have permission to deal conclusively with it. Man is permitted to mortgage his own property for the debt of another. The collateral must be a property valid for selling in order to enable the creditor to make use of it in case of non-fulfillment.

It is permissible to stipulate the collateral in or after concluding the contract as Allah Says (what means): {And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken...} [Quran 2: 283]

Thus, Allah, Exalted be He, has made the stipulation of the collateral a substitute for writing the contract of debt, which is written after the debt becomes in effect and obligatory to be settled by the indebted person.

The collateral is obligatory to be given by the debtor, as he owes the creditor who is not obliged to accept the collateral and is permitted to cancel the mortgaging contract as he alone has a right to claim it. It is permissible for the debtor to mortgage his share of a property owned by him and others because he is permitted to sell his share to pay back his debt.

It is permissible to mortgage the purchased article for its price, as this price is a liability on the debtor, i.e. the mortgagor, and the purchased article is possessed by him, so he can mortgage it. For example, if someone buys a house or a car on credit or in cash but the price is not paid yet, he is permitted to mortgage it so as to pay its price to the seller. However, neither the debtor nor the creditor is permitted to dispose of the collateral except after getting the permission of the other. If either of them disposes of the collateral, he causes a loss to the other. That is, if the debtor disposes of the collateral without the creditor's permission, he deprives him from securing the deal. Similarly, if the creditor disposes of the collateral (without the debtor's permission), he will be disposing of a property that does not belong to him.

Concerning making use of the collateral, it is to be according to what the two parties (the debtor and the creditor) agree on. So, if they agree on renting or concluding any other transactions with regard to the collateral, it will be permissible. However, if they do not agree (to make use of the collateral), the collateral remains suspended until it is redeemed. The debtor is to be made able to maintain and keep the collateral; for example, watering, pollinating, and treating the trees, as this is done for the benefit of the collateral.

The earnings received from the collateral whether by itself (such as an animal when it becomes fatter or is able to do some work) or through its product (such as offspring, wool and whatever is begotten from it) are considered part of the collateral that can be sold with the collateral for fulfilling the debt. The same ruling applies to the crops of a mortgaged land. Besides, if there is any damage caused to the collateral, the compensation for this damage is to be joined to the collateral, as it is a substitute for part of it.

The debtor must provide the expenditures of the collateral. This is because Sa' id Ibn-ul-Musayyab reported on the authority of Abu Hurayrah (may Allah be pleased with them) that the Prophet ( sallallaahu  `alayhi  wa  sallam ( may  Allah exalt his mention )) said: “When someone mortgages an item, it is not to be foreclosed; any increase in its value goes to him and any loss or liability must be borne by him.” [Ash-Shafi'i and Ad-Daraqutni who grades it as having a good and authentic chain of transmitters]

This is because the collateral is the property of the debtor and it is his responsibility to provide whatever it requires for its maintenance. Also, it is the responsibility of the debtor to pay the rent of the store where the collateral is kept, the wages of guarding it, and the wages of grazing the mortgaged cattle.

If part of the collateral is damaged, the rest is legally considered collateral for the whole debt as the debt is guaranteed by the whole collateral, and as long as part of the collateral is damaged, then the rest is collateral for the whole debt.

If the debtor pays back part of the debt, no part of the collateral is to be redeemed until the debtor pays the whole debt.

When the debt is due, the debtor must pay back the whole debt to comply with the contract, whether he has given a collateral or not. Allah, Exalted be He, Says (what means): {...then let him who is entrusted discharge his trust [faithfully] and let him fear Allah, his Lord...} [Quran 2: 283]

And He also Says (what means): {...and not leave anything out of it...} [Quran 2:282]

If the debtor abstains from paying back the debt to the creditor, he is considered a procrastinator and then the judge is to oblige him to pay back the debt. However, if the debtor still refuses to pay back the debt, the judge must imprison and effect discretionary punishment on him until he pays back the debt. Then, if he does not pay back the debt, the judge is to sell the collateral and pay back the debt. The judge must behave on behalf of the debtor when the latter refuses to pay back, since such a debt is an obligation on the debtor and the collateral is a mere guarantee for the debt to be returned when due. If some money remains after paying back the debt, it must be given to the debtor as it belongs to him. Yet, if the money of the sold collateral does not cover the debt, the rest of the debt is still on the credit of the debtor and he has to return it.

If the collateral is an animal which needs expenditures and is kept by the creditor, the wise Lawgiver permits him to ride it, if it is a riding animal, and to milk it, if it is a milch animal, provided that he provides the expenditures. The Prophet ( sallallaahu  `alayhi  wa  sallam ( may  Allah exalt his mention )) says: “The mortgaged animal can be used for riding as long as it is fed, and the milk of the milch animal can be drunk according to what one spends on it. The one who rides the animal or drinks its milk should provide the expenditures.” [Al-Bukhari]

So, whoever rides the animal or drinks its milk must provide the expenditures in return for his making use of it. Any other utility gained from this animal belongs to its owner, the debtor.

Ibnul-Qayyim ( may  Allah  be  pleased  with  him) says: “The Hadeeth as well as the general principles and the original rules of the Islamic Law indicate that the Muslim must take care of the mortgaged animal in order to observe the orders of Allah. Moreover, the owner of such an animal has the right of ownership and the mortgagee has the right to guarantee his own property (by keeping the collateral). If the mortgagee keeps the animal and neither rides nor milks it, he misses his right to make use of it. Thus, depending on justice, analogical deduction, as well as the interests of the mortgager, mortgagee, and the mortgaged animal, the mortgagee is permitted to ride and milk the mortgaged animal in return for his providing its expenditures. When the mortgagee lawfully makes use of the mortgaged animal and provides the expenditures, this satisfies the interests of both the mortgager and mortgagee and keeps their rights.”4

Some of the scholars of Islamic Jurisprudence ( may  Allah  have  mercy  upon  them) maintain that there are two categories of collaterals: The first needs expenditures while the second does not. The first category of collaterals is divided into two subcategories. The first is the animal that can be ridden or milked whose ruling has been explained above. The second subcategory is not to be ridden or milked such as the male or female slave. The mortgagee is not permitted to make use of this kind of collaterals except with the permission of the mortgager. So, if the owner of the slave permits the mortgagee to make use of the slave provided that the mortgagee provides the expenditures, then it is permissible, as this is considered a sort of compensation. The second category of collaterals is the kind that does not need expenditures, such as a house, belongings, and the like. The mortgagee is permitted to make use of this kind of collaterals with the permission of the mortgager except when this collateral guarantees a loan, for it is prohibited to gain any interest out of a loan as we previously explained that it is a kind of riba.

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