Buying your own home in Dubai is still a far-fetched dream for many. A way out to achieve this dream is to opt for mortgages offered by financial institutes. However, buying a property on a mortgage is a multi-layered step with many questions. Some of them include: What if I am unable to pay the loan? Will I face criminal charges if unable to pay the loan? What about if my property got defected? Is the lender able to sell my property? and many others.

In this video I have answered all the common FAQs about the legal aspect that determines the mortgage in Dubai according to the Mortgage law of Dubai no 14 of 2008 and the UAE civil code.

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Before we start, we need to know who is the mortgager and the Mortgagee as many people get confused with such terms.

The mortgager is the owner of the property, or who the holder of a personal right by virtue of the contract of sale signed by the owner of the property sold on plan and entered in the property register or the initial property register known also as the borrower ; The Mortgagee, A creditor who grants the Mortgager a loan secured by a property that is actually or virtually existing known also as the lender. Therefore, please note this down the Mortgager is the borrower and the mortgagee is the lender. Alright?

So here we start our video today with the most asked question;

WHAT IS A MORTGAGE?

A mortgage is an amount provided to the Mortgager or the borrower for purchasing residential or commercial property. The amount is paid back to the Mortgagee or the lender in instalments which includes; the principal amount and additional interest. Till the loan is paid fully, the property is under the name of the lender and after completely paying it off, the borrower can transfer it.

Prior to initiating the process, here are some things to consider before securing a mortgage in Dubai that you must know.

How can be the Mortgage contract valid?

In the process of securing a mortgage, it's crucial to understand that the mortgage becomes legally valid only upon registration with the Dubai Land Department DLD. A title certificate will be provided by the Land Department to the owner to prove its ownership of a property. An interim property register is also available at the Land Department and any contract for the sale of property off-plan will be considered void if it has not been registered on this interim register. Essentially, all property in Dubai should now be registered and have a title. Any zinformal agreements outside this official registration are not recognized. Typically, the borrower, known as the mortgager, bears the responsibility for covering the associated contract fees, unless an alternative arrangement is mutually agreed upon by the parties involved.

Example:

John and Mary decide to formalize a mortgage agreement for John's property. To ensure the mortgage's legal validity, they register it with the Dubai Land Department. The registration signifies the commencement of the mortgage, and any prior informal discussions or agreements hold no legal weight. Additionally, they clarify in the contract that John will cover the associated fees, ensuring transparency and preventing potential disputes in the future.

Is the mortgager permitted to sell the property?

In accordance with the Dubai Mortgage Law of 2008, the mortgager (property owner) is restricted from selling, transferring, or otherwise dealing with the mortgaged property without explicit approval from the mortgagee (lender). However, in the case of an assignment, where a third party (assignee) agrees to take on the mortgager's obligations under the mortgage contract, the mortgager is permitted to proceed with such actions.

What could happen in case of default from the mortgager?

Additionally, The mortgagee can require the mortgager to act as a guarantor for someone else in the mortgage contract. If the contract allows the mortgager to take the property without following legal steps in case of default, this is considered valid. Even if both parties later find it unfair, the specific conditions in the mortgage contract are still enforceable

Imagine you own a house, and you decide to mortgage it to secure a loan. As the mortgager, you have the right to manage and live in the house, as well as collect any rental income it generates if you decide to rent it out. You retain control over the property until a situation arises where you are unable to meet your mortgage repayment obligations.

If, unfortunately, you fail to fulfill your debt obligations and the lender decides to take action, the property may be put up for public auction. It's only at this point, when the property is forcibly sold through auction due to non-payment, that your right to manage and receive revenue from the property would come to an end. The proceeds from the auction would typically be used to settle the outstanding debt

What can the Mortgagee do in order to enforce his rights in the courts?

In the event of default in payment of the debt when due, the lender must provide the borrower 30 days written notice through the Notary Public before commencing execution proceedings.

If within the 30 day period, the borrower fails to pay the sums due, the execution judge shall, upon request of the lender order an attachment against the mortgaged property so that it can be sold by a public auction in accordance with the applicable procedures of the Land Department.

What about if the property mortgaged got defected?

if the property used as collateral for a mortgage gets damaged or becomes defective, the mortgage (legal interest in the property) is moved to another property. The lender, also known as the mortgagee, then has the right to recover the outstanding debt from this replacement property, and the order or priority in which the lender can claim repayment is determined by the "rank."

Let's clarify the phrase "the Mortgagee shall have the right to recover its debt from such property based on its rank":

Suppose you've mortgaged your house (Property A) for a loan. If Property A is damaged due to, let's say, a natural disaster, the mortgage can shift to another property you own (Property B). The lender, the mortgagee, can then recover the remaining debt by selling or using Property B to settle the loan. The "rank" here would determine if any other claims on Property B need to be satisfied before the lender can collect the debt, meaning that there may be other parties with interests in the property, and the order of priority determines whose claims are settled first such as other mortgagees, If someone else has an equity interest in the property, like a joint owner or an individual with a legal claim.

How could the Rank be determined?

the registration of such Mortgages shall be made under one number and said creditors shall, on allocation of the auction amount, rank equally.

For example, Sarah, Mark, and Lisa simultaneously register mortgages on John's house. The registration department assigns the same sequential number to all three mortgages. In the event of a property sale, Sarah, Mark, and Lisa share equal priority in receiving proceeds due to the same sequential number.

CAN I LEAVE THE UAE IF I HAVE A MORTGAGE TO PAY?

Yes, borrowers are allowed to leave the country even when they have a mortgage to pay. However, the borrower might have to keep the property buy-to-let and pay the instalments on time. Be sure that you settle your instalments on time, as this does not only leads you to legal proceedings, but it might cause some travel ban with UAE and the GCC countries.

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Some precautionary steps to take when buying a property in the UAE:

  • Ensure that the seller has legal ownership of the property and has the right to sell it.
  • Verify the seller’s identity and request copies of necessary documents, such as a valid Emirates ID or passport.
  • Conduct a thorough title search to verify the property’s ownership history, any existing mortgages, liens, or encumbrances.
  • Perform due diligence on the property, including checking for any legal disputes, pending legal cases, or other potential issues.
  • Confirm with the property management company or homeowners association (HOA) that all service charges, maintenance fees, and other dues are up to date.
  • Ensure that there are no outstanding utility bills or other liabilities associated with the property.
  • Carefully review the SPA, which outlines the terms and conditions of the property purchase. Ensure that it includes all relevant details, such as payment schedule, completion date, and any contingencies.
  • Clarify the payment schedule and methods with the seller. Make sure you understand the breakdown of payments, including initial deposits, installments, and final payment.
  • Whenever possible, use an escrow account to hold the funds during the transaction. An escrow account adds a layer of security by ensuring that funds are only released when certain conditions are met.

Mohamed Darwish Founder of Darwish Legal Consultants Hospitality Lawyer | Mediator | Host of The Legal Lobby Podcast