Buying Foreclosed Homes From the Bank – Is it Halal?

Bank-owned foreclosure

This is a recent ruling by AMJA on the issue of buying foreclosed homes directly from the bank. As we know, the economic crisis has caused millions of people to lose their homes to foreclosure. These homes revert to ownership by the bank that held the loan, and are then typically offered for sale at a discount, or auctioned. These homes can represent great buying opportunities because the prices can be quite low. But is it halal?

Frankly I did not quite understanding ruling number two below. We know that dealing in ribaa is haram; buy if a buyer is paying the entire price in cash, then what does it matter who he is buying from? I’ll see if I can get someone to explain the ruling Insha’Allah.

Here is the ruling:

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The Permanent Fatwa Committee of AMJA, the Assembly of Muslim Jurists of America, has conducted an in-depth study of the subject of buying homes directly from a bank (foreclosed houses) as it occurs in the United States of America.

Several members of the committee submitted working papers for discussion and mutual exchange of viewpoints, with deliberations continuing over the course of a number of sessions.

The Permanent Fatwa

Committee also consulted AMJA’s Higher Advisory Board due to the contemporary nature of this transaction and the frequency with which Muslims have been asking about it, especially after the recession currently dominating the real estate market in the United States as well as the general fact that Muslims are increasingly expressing interest in permissible home-buying methods.

As a result, members of the committee reached a total of three differing conclusions/positions concerning the said transaction, the differences being essentially the result of differing ways of viewing the loan-contract, the bank provides to the client in order to conclude the foreclosure sale, and the extent of its validity: whether this contract is real (i.e., Islamically valid and thus capable of having Islamic Law applied to it) including the ahkam (rules) related to it being riba-based (interest-based); or whether it is an illusory contract in which actual it is considered unreal, null (or nonexistent) from an Islamic legal perspective, thus incapable of having Islamic ahkamapplied to it-even though it is considered completely legal and binding from a civil legal perspective.

POSITION ONE:

Transaction Prohibited.

Those committee members who concluded that the transaction is prohibited did so by upholding the basic principle that the said contract includes an unequivocal statement of an interest-bearing loan as a condition of the sale.

These member are:

1) Dr. Muhammad Naeem Saei

2) Dr. Muhammad Muwaffak Al Ghaylany

3) Dr. Hatem Mohammad Al-Haj Aly

POSITION TWO:

Transaction Conditionally Permitted.

The committee who took the position that the transaction is permitted presumed the main objective of the said transaction was to sell the house, not to loan money. As a result, they placed a number of restrictions on it.They stipulate that:

1. Before signing the contract, the bank must be the legal owner of the house, and as such, the bank must bear full liability for the house; and, that as a result of the re-sale (of the foreclosed house) a new interestbased-loan contract must have been drawn up in conjunction with the contract of this sale, provided that the lender (the bank) must also be the seller and no third party, financially independent of the bank, may be involved in financing the sale, and that the loan t be restricted to the purchase of the foreclosed house in question such that the buyer: does not possess freedom of disposal with

regard to the loan, does not take the loan [money] into his possession, and does not bear liability for it.

If these conditions are met, then the transaction would be considered Islamically allowed.

These members are:

1) Dr.Walid Al-Maneesi

2) Dr. Main Khalid Al-Qudah

POSITION THREE:

Undecided Stand

There was also a third group of members who did not elect either of the two aforementioned positions, preferring not to take a stand on this current issue, pending further study and contemplation.

These members are:

1) Dr. Salah Al-Sawy

2) Dr.Walid Basyouni

Because of this clear difference of opinion on the matter, the Permanent Fatwa Committee would like to advise Muslims to search for other alternatives (of buying homes) in order to avoid an area of scholarly dispute (alkhurooj minal khilaf) and to be on the safe side religiously (ihtiyaat). It is certainly recommended to avoid matters

of dispute among the scholars, for “whomsoever avoids doubtful matters does protect his religious duties and his honor.”

At the same time, those who find themselves in dire need may follow the scholars who permit it; and Allah Almighty is the Most Exalted and He knows best.

The Permanent Fatwa Committee of AMJA, the Assembly of Muslim Jurists of America,

California, the United States

Growing Demand for Islamic Banking in Oman – Part 1

16. September 2011 · 1 comment · Categories: Islamic Banking in Oman, Islamic Banking News, Islamic Banking Trends, Islamic Financing News · Tags: islamic banks in oman, islamic finance oman, oman islamic banking

Oman has issued a decree permitting Islamic banking

The global Islamic finance market has grown to nearly $1 trillion. Islamic banking products have proven very popular not only in the Muslim world, but in Europe and, increasingly, even in the USA.

Unlike many neighboring Muslim nations, Oman has remained firmly secular in its financial and banking industries. The head of its central bank commented in 2007 that “banks should be universal”, which was seen as code for “traditionally Western” or “non-Islamic”. However, Oman is a nation of 3 million Muslims, many of whom are quite conservative in their faith.

These religious Muslims have been increasingly demanding Islamic banking services in Oman. Some want to buy homes, some want loans to build homes or start businesses, and for religious reasons they do not want to take interest-bearing loans. Islamic Shari’ah rules forbid the taking or payment of interest.

Ali al-Sulaimi is one such. Employed as a clerk, he wants to build a home, but refuses to deal in ribaa. Dressed in a traditional white dishdasha robe and skullcap, he spoke on this subject on his way to prayers at the Sultan Qaboos Grand Mosque in the capital Muscat.

Islamic banks “should open today already”, Sulaimi said.

Soon, he may get his wish. In May of 2011, Oman’s central bank issued a ruling saying that Oman must begin setting up Islamic banking alternatives.

The sultanate’s decision to allow Islamic banking in Oman may be a concession to religious Omanis, or more likely is a recognition of the money they are losing, as they watch investment dollars flow to Islamic banks in neighboring countries.

It will take several years to properly develop an Islamic banking industry in Oman. However, the banks appear eager to get started.

“There is a lot of opportunity for Islamic finance in Oman, with almost every bank considering launching an Islamic window and one or two full-fledged Islamic banks being launched,” said Ashar Nazim, leader for Islamic financial services in the Middle East and North Africa at consultancy Ernst & Young.

“Islamic banking could be 8 to 10 percent of (banking) market share over the next three to five years. I’m comfortable with saying it could be at least a $6 billion industry in Oman.”

The Current Financial Crisis is an Opportunity for Islamic Banking

29. January 2009 · Write a comment · Categories: Islamic Banking News, Islamic Banking Trends, Islamic Financing News

A story published on January 12, 2009 in Singapore’s Straits-Times is titled, “Chance for Islamic Banking.” It reads:

KUALA LUMPUR – THE global economic crisis has handed the Islamic finance sector a ‘golden opportunity’ to show it is a better alternative to capitalism, Malaysia said on Monday.

Although capitalism has been pre-eminent for centuries, ‘it is becoming obvious that there is now more proof of its weaknesses,’ Deputy Prime Minister Najib Razak said in a speech to an Islamic economic conference.

‘We Muslims should see the current situation as a golden opportunity for us to prove the power, strength and effectiveness of the Islamic banking and finance system,’ he said in an opening address.

Islamic banking, a booming US$1 trillion (S$1.49 trillion) global industry that prohibits speculation and high levels of debt, has been relatively unscathed by the credit crunch.

The rules of the sector – which incorporate principles of sharia or Islamic law – prohibit many of the risky activities that triggered the crisis that is felling economies around the world.

‘An economic system that is not closely linked to real and productive activities is a threat to the entire system,’ said Mr Najib, who is also finance minister.

He said the Islamic approach could provide ‘concrete and realistic’ measures to tackle the crisis and that Malaysia, Southeast Asia’s leader in the field, was committed to developing the sector with better training and marketing.

Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives and other creative accounting practices are banned.

Transactions must be backed by real assets – not repackaged subprime, or high-risk, mortgages – and because risk is shared between the bank and the depositor there is an incentive for the institutions to ensure the deal is sound.

Islamic finance also shuns investments in gambling, alcohol and pornography in favour of ethical investments. — AFP

Islamic Financing Spurring Growth in London

03. March 2008 · Write a comment · Categories: Blogroll, Islamic Financing News, Islamic Mortgages

via IslamOnline.net:

CAIRO — A £1bn Shari`ah- compliant loan will turn a landmark military property at the heart of London into a luxurious residential compound, a groundbreaking project for Islamic finance dealings with real estate in Britain.

“This is the most important redevelopment scheme in London in the last 50 years,” Christian Candy, co-owner and founder of the property developer firm (CPC), told the Guardian on Monday, March 3.

Candy’s firm will use a £1.3bn loan from the Qatari Investment Fund to transform the historic Chelsea barracks in central London into a residential compound. Under the scheme, the 12.8 acre of concrete army buildings in the ritzy Chelsea neighborhood will turn into luxury flats, a hotel and health spas, with the help of Qatari Diar, the giant real estate company and the property arm of the fund. The 3.5-year-loan will comply with Islamic finance rules as it is structured in an Ijara structure, or lease agreement, whereby rent is paid on the borrowings, rather than interest payments.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships. Islam forbids Muslims from receiving or paying interest on loans. Islamic bankers and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Groundbreaking

The project is seen as breaking new ground for Islamic finance in Britain. Developers say the deal would be the largest Shari`ah-compliant financing on a property in the UK.

“The financial structure developed here has allowed us to deliver a truly innovative financing solution for the global real estate sector,” said Patrick Chenel, chief financial officer for Qatari Diar.

“We have broken new ground with our advisers by creating and setting up Islamic financing of a scale not seen before in a major real estate acquisition in [the] UK.”

Mark Payne, partner at the international law firm Clifford Chance which structured the deal, agrees.

“This will open people’s eyes to the possibilities for Islamic financing to help business in the UK,” he told the Financial Times.

He believes the deal will show that Islamic financing is “possible on a wide range of assets.

“We will certainly see more of these types of deals.”

Islamic finance is one of the fastest growing sectors in the global financial industry. Beginning almost three decades ago, it has made substantial growth and attracted the attention of investors and bankers across the world.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Britain, home to nearly two million Muslims, is seeking to become a hub for Islamic finance. It is already home to the world’s first qualification center — the Islamic Finance Qualification (IFQ) — which covers all aspects of the industry.

(Reported on IslamOnline.net)

It’s great to hear about Islamic financing being used for these kinds of deals (and rather ironic that the developer’s name is Christian).

It seems most of the Islamic financing deals I hear about are huge projects like this, which is good as far as it goes.

Insha’Allah I’d like to hear about this kind of Islamic business financing becoming available to smaller entrepreneurs as well, for example in the $50K to $500K range.

Islamic Banking Information