Question: Recently Barclays obtained a foreclosure order on some defaulting mortgage holders. In such cases, what should the mortgage holder be aware of when a bank decides to repossess their property? What are the legal issues, and what questions should be asked and what papers signed?

Answer: In January of this year it was announced that Barclays Bank had become the first bank to succeed in obtaining a foreclosure order under Dubai Mortgage Law 14 of 2008. At the time it was thought that this landmark decision could result in other lenders following suit, resulting in a sharp rise in home repossessions.

Although it is undoubtedly the case that UAE-based banks are making tougher calls on their borrowers on loan defaults and, in some instances, going to court, there has not been an exponential rise in mortgage litigation. Banks are still more likely to negotiate with borrowers and are not averse to extending payment periods, reducing interest payments, or allowing borrowers to return properties, rather than foreclose on them. Given a general lack of appetite for litigation, it is important for borrowers to be flexible, co-operative and to engage their bank in a dialogue about finding an out of court settlement. The reasons we have not seen a rush to litigation in mortgage default cases are complex, but primarily banks are concerned that large scale foreclosures will have a negative effect on the real estate market as a whole by driving down property prices further.

It remains the case that litigation is a costly and time consuming procedure, and although the Barclays decision favoured the bank and appeared to set a precedent for the future, it is important to bear in mind that the UAE is a civil law jurisdiction and that courts are not bound to follow prior decisions. The Barclays case provides guidance rather than precedent.

There is also concern about a lack of clarity, and uncertainty of outcome, arising from the requirement that foreclosed properties can only be re-sold at public auction, in accordance with a judicial sale process which is largely untried and untested. With banks denied the so-called "self-help" remedy of taking possession of a property and selling it themselves, they are likely to hold off in all but the worst cases, such as when borrowers have absconded. Where negotiation fails to provide a solution, temporary or otherwise, and the bank has decided to move against the borrower under Law 14, there is a formal procedure that the bank must follow.

Court proceedings cannot be commenced until there is a default in payment under the terms of the mortgage and the bank has served the borrower, or occupier of the property, with a notarial notice of at least 30 days.

Before the situation gets to this point, it would be wise to consult an independent financial advisor for a rigorous assessment of your finances to determine if you can free up any cash to meet the mortgage payments. Because if the default is not dealt with, or cured, by the borrower within this 30 day statutory period the bank may then proceed with court action, by asking the court to issue a debt judgment. This judgment is attached to the mortgaged property and enables the property to be sold by the Land Department at a public auction.

The borrower may petition the court to ask for the public auction to be delayed for 60 days if there is a prospect of the debt being settled in that period, or if the sale of the mortgaged property will cause the borrower substantial damage.

 

The writer is is a Solicitor and Senior Estate Planning Consultant with Nexus Insurance Brokers LLC.