Defaulting mortgage implications

[duncheski]

Hi there,

I purchased a 2 bed property off plan in dubai last October - i took out an islamic mortgage but unfortunately no-one at the bank told me of my financial commitments pre-completion. I find myself having to pay around 6,000 dhs per month just for interest until the place is complete (2-3 yrs time).

As it stands i bought it for 1.5 million but would prob only get around 900k for it now. I put 300k down as deposit. If i were to simply walk away from it now, i would have lost my 300k deposit and around 30k in interest payments but am willing to take that hit.

The alternative is to sell it which would mean me owing the bank a further 300k if i sold for 900k so would be 630k out of pocket.

OR i could hold onto it for few yrs, pay a further 250k in interst payments then hope that in 3yrs time the value would have risen to say its original puirchase price of 1.5 million.

What are the implications of me simply walking away from it. The bank actually own the property under the terms of islamic mortgages and loan it out to me so not sure of my right and any penalties if i were to do this.

Anyone help?

 

[dubister]

Hi there,

I purchased a 2 bed property off plan in dubai last October - i took out an islamic mortgage but unfortunately no-one at the bank told me of my financial commitments pre-completion. I find myself having to pay around 6,000 dhs per month just for interest until the place is complete (2-3 yrs time).

As it stands i bought it for 1.5 million but would prob only get around 900k for it now. I put 300k down as deposit. If i were to simply walk away from it now, i would have lost my 300k deposit and around 30k in interest payments but am willing to take that hit.

The alternative is to sell it which would mean me owing the bank a further 300k if i sold for 900k so would be 630k out of pocket.

OR i could hold onto it for few yrs, pay a further 250k in interst payments then hope that in 3yrs time the value would have risen to say its original puirchase price of 1.5 million.

What are the implications of me simply walking away from it. The bank actually own the property under the terms of islamic mortgages and loan it out to me so not sure of my right and any penalties if i were to do this.

Anyone help?

I am pretty much in the same situation, but not been able to get a clear answer yet. The lawyers in this country are mostly corporate lawyers (clueless on how to protect consumers). Most of the ones I have talked to advise "wait and see" approach or to consider fleeing to home country which has solid bankruptcy laws like U.S, UK etc

Neither of which I would want to do. I want to stay and gracefully dump the TOXIC property and mortgage I have, even if it comes with bad mark on my credit rating and they keep my monies paid + interest. But the system here makes me wanna puke; it's basically victimizes people to criminals in bust times like now.

Anyways, I am still trying all avenues. I have talked to the bank. They are not paying anymore to the developer and dont plan to pay, but they donot allow me to cancel the loan till the property is delivered. The developer is not allowing to cancel either or apply Law 13 (even with the shabby interpretation).

The other thing is that the so-called islamic loans here act conventionally when it comes to default. So they will ask for the amount they have paid on your behalf (which makes sense conventionally); although contractually a mortgageee is a lessee of the property and the bank is the lessor. But all those contractual statements are a load of bull... because the court can interpret to the advantage of the DUBAI INC (Developers, Banks etc).

So for now, I am on the "wait and see" path. I am hoping the bank light bulbs turn on and they default on the property on my behalf. Because from a risk perspective it doensnt make sense for them to conitnue paying on a %60 percent depreciated propert for thier own sake. I have tried to convince them, but to no avail. Because net net, i loose %10 and bank looses %30 if they default. Which is better than them loosing 90%...

 

[financier888]

I am pretty much in the same situation, but not been able to get a clear answer yet. The lawyers in this country are mostly corporate lawyers (clueless on how to protect consumers). Most of the ones I have talked to advise "wait and see" approach or to consider fleeing to home country which has solid bankruptcy laws like U.S, UK etc

Neither of which I would want to do. I want to stay and gracefully dump the TOXIC property and mortgage I have, even if it comes with bad mark on my credit rating and they keep my monies paid + interest. But the system here makes me wanna puke; it's basically victimizes people to criminals in bust times like now.

Anyways, I am still trying all avenues. I have talked to the bank. They are not paying anymore to the developer and dont plan to pay, but they donot allow me to cancel the loan till the property is delivered. The developer is not allowing to cancel either or apply Law 13 (even with the shabby interpretation).

The other thing is that the so-called islamic loans here act conventionally when it comes to default. So they will ask for the amount they have paid on your behalf (which makes sense conventionally); although contractually a mortgageee is a lessee of the property and the bank is the lessor. But all those contractual statements are a load of bull... because the court can interpret to the advantage of the DUBAI INC (Developers, Banks etc).

So for now, I am on the "wait and see" path. I am hoping the bank light bulbs turn on and they default on the property on my behalf. Because from a risk perspective it doensnt make sense for them to conitnue paying on a %60 percent depreciated propert for thier own sake. I have tried to convince them, but to no avail. Because net net, i loose %10 and bank looses %30 if they default. Which is better than them loosing 90%...

Considering that the bank has 'stopped' payments to the developer - did you ask them to give you a moritorium on your payments? You should, especially as they have stopped the payouts... The project may indeed be cancelled... if the project is cancelled - where does that leave you? - If the funds are still in escrow - then the bank should recapture and you'd be off the hook? (outside of your down payments... depending on whether or not they went into escrow..... Perhaps you should speak to the loan officer - better in person, if you are in the UAE

 

[dubister]

Considering that the bank has 'stopped' payments to the developer - did you ask them to give you a moritorium on your payments? You should, especially as they have stopped the payouts... The project may indeed be cancelled... if the project is cancelled - where does that leave you? - If the funds are still in escrow - then the bank should recapture and you'd be off the hook? (outside of your down payments... depending on whether or not they went into escrow..... Perhaps you should speak to the loan officer - better in person, if you are in the UAE

I have found out that the project is not delayed, it is on time for Jun 30th, 09' delivery. In fact it is visibly 80% + completed, although the developer is not giving any numbers. The bank says it is only %30 complete.

 

[financier888]

I have found out that the project is not delayed, it is on time for Jun 30th, 09' delivery. In fact it is visibly 80% + completed, although the developer is not giving any numbers. The bank says it is only %30 complete.

That sounds like good news - handover within a few months. better stay the course as it will be easier for you to sell being closer to completion... But the bank saying it's only 30% complete? - no doubt that is based on the paperwork filed to the bank by the developer and the escrow agent / trustee - it would appear that no one from the bank has gone to the site to look at it!! although, becuase the floors look like 80% complete - it maybe misleading... BTW - the developer is not obliged to give you numbers - as they are properly filed in accordance under the law - meaning the land dept & the escrow agent / trustee and the bank. The developer doesn't have to show you his books etc... I'd keep making my payments to protect my equity... I think you are actually in good shape with this..

 

[dubister]

That sounds like good news - handover within a few months. better stay the course as it will be easier for you to sell being closer to completion... But the bank saying it's only 30% complete? - no doubt that is based on the paperwork filed to the bank by the developer and the escrow agent / trustee - it would appear that no one from the bank has gone to the site to look at it!! although, becuase the floors look like 80% complete - it maybe misleading... BTW - the developer is not obliged to give you numbers - as they are properly filed in accordance under the law - meaning the land dept & the escrow agent / trustee and the bank. The developer doesn't have to show you his books etc... I'd keep making my payments to protect my equity... I think you are actually in good shape with this..

I am not sure if it is good news anymore. With the property prices spiralling down like there is no tomorrow and with having a significant negative equity; its not in my interest to get the property. I wouldnt be able to rent out to cover mortgage, nor live with 10% interest rates (unaffordable),nor able to sell it (half the value). I think a delay of 30 yrs would be ideal I dont mind loosing the down, but I do mind a comittment to a toxic asset.......

 

[financier888]

I am not sure if it is good news anymore. With the property prices spiralling down like there is no tomorrow and with having a significant negative equity; its not in my interest to get the property. I wouldnt be able to rent out to cover mortgage, nor live with 10% interest rates (unaffordable),nor able to sell it (half the value). I think a delay of 30 yrs would be ideal I dont mind loosing the down, but I do mind a comittment to a toxic asset.......

I understand. the 10% is high - is that interest and amortization>? or interest only? The problem lies as to whether the bank will release you or hold your feet to the fire for the payment. I beleive the real moment of truth in the market will come in Sept - Oct to see if the market starts to rebound in earnest. (provided the int'l situation is sorted by early summer... which won't directly help Dubai in the summer months...) I have freinds in the same position in many places in the world. from the USA to Asia. In the meantime, I would try to find a buyer - which you might considering you are prepared to forgo the equity you paid. You may find an end user in this regard - provided the bank will allow you to assign the mortgage to a new qualified buyer.... Have you checked that?

good luck and wish I had more options to offer...