Mortgages: Part 1

An important issue affecting Muslims in the West is the purchasing of a house. It is no secret that hardly anyone can buy  house by cash payment. This causes people to seek help from individuals or organisations. Individuals most likely will not help because of the current economic situation so people go to the banks. In this scenario, a Muslim finds themselves confronted with two options; either he will avoid dealing with a bank in order not to commit a sin by dealing with “Riba[1]’’, but then he will live in hardship for the rest of his life. Alternatively, he will deal with the bank but live the rest of his life feeling guilty, and the burden of guilt that we feel from sin is not an easy one to bear either. So Muslims credit options, already severely constrained after the so-called “credit crunch’’ which has led to seemingly endlessly increasing UK house prices and resultant unaffordable rent rises due to exploitation by unscrupulous landlords, are even more limited vis-à-vis their non-Muslim brothers and sisters.

The issue of purchasing a property with the support of a bank is well-known to be controversial amongst Muslim academics. It is likewise well known that most of the scholars consider certain types of purchasing a house through the banks to be “prohibited’’.

Regarding the way that is considered permissible, it is when, for instance, someone purchases a house for £100,000: The buyer makes a deposit of £20,000. He now owns a 20% share of the property and the bank owns an 80% share. The mortgage payments of the buyer are formed by them paying rent on the 80% share owned by the bank and also a mortgage for the 80% owned by the bank. As such the share of the house the buyer owns increases over time whilst the amount owned by the bank decreases. Throughout the entire term of the mortgage however, the house is in fact owned by the bank, as demonstrated by the deed. This, according to the Hanafi School, is an invalid transaction. The second, considered prohibited, way is to borrow money from the bank to buy a house and pay it back to the bank with interest – for example borrowing one hundred thousand pounds and paying back two hundred thousand. This is prohibited according to the Hanafi, Maliki, Shafei and Hanbali schools of Sunnah.

According to what scholars understand, the most popular method in Western countries is the abovementioned second way, called “Mortgage’’. However, I think this is incorrect; ‘mortgage’ is not related to the prohibited second way and nor is it a scenario where ‘’Riba’’ (prohibited interest) is involved.

In this article I would like to explain this issue from my understanding, and also to know what you think about it. I want to thank you in advance and hope you won’t consider this a critique of you or anyone else. My only concern is to serve people who are in hardship and confusion.

In brief, the procedure of taking out a mortgage is as follows:

  1. The buyer expresses his desire to buy a property to the bank and that he requires to borrow a certain amount of money.
  2. The bank checks the financial status of the buyer to make sure that he will be able to pay the debt back. In order make a full check, it asks him for certain documents. Each bank will have its own criteria which have to be met in order to be qualified to borrow money.
  3. If the buyer meets these conditions, then the bank looks into the property that buyer wishes to buy. The bank will check the property to make sure that it meets the criteria of the bank.
  4. If the property meets its conditions, then the bank lends the money by transferring it to the bank account of the buyer.
  5. The buyer can then purchase the property.
  6. Afterwards, the buyer has to pay the money back to the bank with some profit (which depends on what they have agreed). The buyer has to pay it back within a certain period of time.
  7. The time period differs according to what the buyer agreed with the bank (it could be ten years or more).
  8. The interest that the bank will be charging the buyer depends on what they have agreed – it could be three percent or more or less.
  9. As time passes the payable amount increases with it. For example, if the buyer borrows one thousand pounds and pays it back within the first year, then he has to pay one thousand and thirty pounds. But as time passes the debt increases, because the interest is not based on the initial amount that is borrowed but rather on the amount which is due each year. This necessitates the payable amount to differ based on the time of the payment.

This is a brief illustration of the issue. There are of course a few other details which however have no bearing on the Islamic legal verdict.

An explicit look at the issue may give the impression that it is the prohibited form of interest (Riba). However, I think that this assumption is incorrect.

I would like to explain a few issues before putting forward my verdict.

Tawkeel[2] (representing)

‘Wikala[3] linguistically is sometimes used for ‘preserving’, as God said: ‘They said; God is enough for us, and he is the best Wakeel’[4]. So it means ‘protecting one’. He also said: ‘There are no gods but Him. So make Him your Wakeel’ – i.e. to protect you. It can also mean ‘to defer things’.

In Sharia terminology, this word is used for the same two meanings for which it is used linguistically; “to defer the control over something to a representative’’ and “preserving something by the representative’’[5]

The Rukn[6] of Tawkeel is a person appointing the representative to act over the object of wikalah.

Is it compulsory to use only the literal words meaning ‘wikalah’?

It seems to be compulsory if we look at the statements of the Fuqaha explicitly, because they said the rukn of it (wikalah) is to say ‘’I appointed you as my representative to sell this item or to buy it’’[7]

However, if we look into the statements of Fuqaha[8] deeper, we understand that using the literal [exact same] words is not compulsory. That is because they said the rukn of it is the words by which wikalah is confirmed. Additionally, the examples that Fuqaha have given prove that the literal same words are not compulsory.[9]Ibn Abideen said in ‘’Radd Muhtaar’’: ‘The rukn of wikala is anything that means ‘offer and accept’ – even indirectly such as silence’[10]. So the really important thing is to express that a person is appointing the second person as a representative[11]. [Some more examples are mentioned in the original Arabic copy of the letter]

The permissibility of wikalah by other words besides the literal ones is also confirmed by the Quran, as it is mentioned in Surah al-Kahf; “Send some of you with these silver coins to buy food for us’’ [Surah Kahf; 19]. So they said “send some of you’’ and didn’t say ‘make tawkeel of some of you’. I don’t doubt that this issue is known to a person such as yourself – I just mention these examples to clarify what I am talking about.

 

Establishing Wikalah by Iqtidha (Implicitly)

Iqtidha al-nass is a part of a sentence which is not mentioned verbally, but the sentence cannot be correct without this extra.[12]For example, if someone says; “free your slave for a thousand pounds for my Kaffarah[13] (penalty)’’, and the second person replies; ‘’ok’’. This transaction will be valid and his Kaffarah will be accepted as all of that will be valid by Iqtidha. That is because his request was implicit; “sell me your slave for a thousand pounds. Then be my representative to free the slave as my Kaffarah’’.

 

Permissibility of Tawkeel for Oneself

Is it permissible to make someone a wakeel in something which benefits the wakeel? No doubt this is permissible, and its permissibility is setup by the Quran. In Surah Kahf God mentioned that Ahl Kahf sent one of their number to buy food for them. No doubt this Wakeel would buy the food and he would also be one of the people who would eat it. Some scholars mentioned that a condition for the validity of such Tawkeel is that it should not benefit him only. But this condition doesn’t have a solid basis, and it is disputable.[14]

I do not doubt that you are aware of this and there are many examples of this issue. For instance, the scenario that is mentioned in ‘Al-Muheet al-Burhani’: If person A makes Tawkeel of person B to free himself from the debt that he owes to the person A and person B acts on it, it will be valid.[15]

Initial Status of Transactions According to the Hanafi School

The initial status of all kinds of transactions is that they are permissible. One of the well-known principles of the Hanafi School is that everything beside these three is permissible [by default]: 1. Bloodshed 2. Sexual acts 3. Rituals of worship.[16] Imam Shaykhee Zade said: ‘Be noted that the initial status of everything is that it is permissible except sexual acts. God said: ‘He is the one who created everything on Earth for you’. Also: ‘Consume everything halal and desirable which is on Earth’[17] Based on this, we say; everything is permissible unless it is proven to be not permissible.

A Commodity Having Two Prices

Setting up two or more prices for the same commodity because of different conditions of the commodity or of something else is permissible; such as the price differing based on the time of payment. So for instance, if the buyer pays today the price is one thousand pounds, but if he pays tomorrow it will be two thousand. The price could differ for other reasons too, such as cheaper pricing for poor customers, and a higher price for rich customers.

Imam Quduri said: ‘It is permissible for the buyer to increase the price. And permissible for the seller to increase the commodity and decrease the price. And legal action will be taken towards that all’’.[18] He also said: “If a customer says [to the tailor] ‘’if you finish stitching today I will pay you one dirham[19], if tomorrow, half a dirham’’, so if he stitches it today he gets one dirham, but if tomorrow he gets a standard fee according to Abu Hanifa as long as it is not more than half of a dirham. His two students said; both of the conditions are valid and the tailor gets paid depending on which time he finishes.[20]

Riba (Prohibited Interest)

Its definition according to Sharia law is that it is an extra which is given (for nothing) in the transaction of exchanging a valuable for a valuable.[21] Riba is prohibited in any commodity which is measurable by weight or volume if it is exchanged by exactly the same commodity.[22] If both of these two conditions (i.e. measurability in the same units, and the commodity being the same from both sides) are found to be missing, Tafadhul[23] and Nasaa[24] will become permissible. If only one of the two conditions is present, then Tafadhul will be permissible but not Nasaa. (As above, if neither of the two conditions are present then both of Tafadhul and Nasaa will be permissible).[25]

The act of a person will be considered permissible as much as possible. Quduri says: ‘If someone sells two dirhams and one dinar[26] for two dinars and one dirham, it will be valid. And it will be considered that each of currencies was exchanged for opposite one. Anyone sells eleven dirhams for ten dirhams and one dinar, it will be valid. And it will be considered that ten dirhams is exchanged for ten dirhams, and one extra dirham for one dinar…[27]. There are many examples of this principle in the Fiqh books, which proves that we try to consider the action valid as a default.

Debt

Debt according to the Sharia terminology is a Mithliy[28] commodity that you borrow and demand back.[29] Its legal ruling is that the person who is taking the debt will own it once he has received it according to Abu Hanifa and Muhammad.[30]

Thus, debt is the borrowing of an item from someone for certain period of time under the condition of returning it back. The ownership of the borrowed item will be transferred to the person who is taking it, which necessitates that he is free to do with it as he wants – the person who is lending it out has no right to dictate what he can and cannot do with it.

 

The Difference Between Debt and Tawkeel

 The difference is very obvious; in tawkeel, ownership will not be transferred to the representative, whereas in ‘debt’, ownership gets transferred to the person who is borrowing the money. He will retain this ownership until such time as he has to pay the debt back. During this time though, he is free to do as he wants with it.

The Issue of Mortgage

 Coming back to the issue of mortgage, it cannot be Riba, because the bank does not ‘lend’ the money [as per the Shariah definition of lending or debt]. That is because the buyer is not free to do with the money whatever he wants. The bank won’t allow him to do anything with it except buying that exact house which he agreed with the bank to buy.

This is not called ‘debt’. That is because a person can do with the money as he wishes in the case of ‘debt’. But in the issue of a mortgage the person is not free.

The different topics that I have mentioned necessitate that a mortgage is Tawkeel and not a debt because the scenario of a mortgage happens as follows:

  • Customer expresses his desire to buy a house to the bank.
  • Bank follows its procedure, then it appoints the buyer to buy the house on behalf of the bank with the money which he gets from the bank by cash payment.
  • Then he buys the house from the bank by instalments over certain period of time. After that he pays back that money during that time period.

This is the practical and technical explanation of a mortgage. This is because the meaning is the most important thing in transactions and not what one says (i.e. it is about what you do and not what you say).

Thus, when the bank says to the customer; ‘this is a debt we are lending you so that you can buy a house, and you have to pay it back to us’, this statement is incorrect literally but yet is correct by Iqtidha. That is because the bank doesn’t give the ownership of the money to the customer – the bank will block you from using this money for anything besides buying that specific house – and that is not called lending but rather ‘tawkeel’.

This is not any type of riba, because the bank does not give away the money to the customer. Therefore the customer deals with the bank twice:

  1. When he represents the bank to buy the house.
  2. When he buys the house from the bank.

As for the price not being fixed but differing based on the time of paying it back, as we said, it is permissible according to the two students of Abu Hanifa without any conditions. It is also permissible according to Abu Hanifa with the condition that I explained above (i.e. for the late payment he has to pay a ‘standard price’, and the ‘standard price’ is what is known by custom).

……………………………………………………………………………………………………………………………………………

[1] Riba is prohibited interest. It is further explained below.

[2] ‘Tawkeel’ is the process of giving authorization to a person to represent you

[3] ‘Wikala’ is a synonym of Tawkeel

[4] ‘Wakeel’ is an official representative.

[5]  انظر “بدائع الصنائع في ترتيب الشرائع” لعلاء الدين الكساني المتوفى سنة 587 هـ , جـ 6 صـ 19 , من منشورات دار الكتب العلمية , بيروت , لبنان , الطبعة الثانية 1986

[6] ‘Rukn’ is the essence of something, such as the essence of ‘human’ is that it is a thinking animal.

[7]  “الفتاوى الهندية” جـ 3 صـ 516

[8] ‘Fuqaha’ means jurists, plural of ‘Faqeeh’ – jurist.

[9] Examples are found in the books of Fiqh and Fatawa

[10]   “رد المحتار” جـ 11 صـ 357

[11]   “الفتاوى الشامية” جـ 3 صـ 519

[12]  انظر “كشف الأسرار شرح منار الأنوار” للإمام أبي البركات النسفي المتوفي 710 هـ جـ 1 صـ 395 , من منشورات دار الكتب العلمية .

[13] ‘Kaffarah’ is a financial penalty for certain types of errors committed by a person such as; not keeping an oath, divorcing one’s wife in a humiliating way etc

[14]  انظر “المحيط البرهاني” جـ 15 صـ 4

[15]  انظر “المحيط البرهاني” جـ 15 صـ 3

[16]  انظر “رد المحتار” 1: 105، 4: 161، 6: 458

[17]  انظر “مجمع الأنهر” 2: 568

[18]  انظر “مختصر القدوري” صـ 86

[19] Dirham is a silver coin used in the past. In our time there is a currency that is used in some Arabian countries called Dirham, and that is not related to the Dirham of the past centuries.

[20]  انظر “مختصر القدوري” صـ 103

[21]  انظر “الفتاوى الشامية” جـ 3 صـ 125

[22]  انظر “مختصر القدوري” صـ 87 , “الفتاوى الشامية” جـ 3 صـ 125

[23] ‘Tafadhul’ means something been more on one side, for example one of two partners having more capital. In this context Tafadhul means one of the buyers or sellers having extra on his side.

[24] ‘Nasaa’ means delaying and doing something later. In this context it means either the buyer or the seller releases the commodity later.

[25]  انظر “مختصر القدوري” صـ 87

[26] Dinar is a golden coin that used in the past centuries.

[27]   انظر “مختصر القدوري” صـ 90

[28] ‘Mithliy’ means a commodity that is measurable by litre or kg.

[29] انظر “الشامية” جـ 7 صـ 388 , من منشورات دار الكتب العلمية , بيروت , لبنان , الطبعة الثانية سنة 2003 م .

[30]   انظر “الشامية ” جـ 7 صـ392

 

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