Buyers unanimously argue that project delays are not within their control, so they should not be charged extra.
One such investor, P. P., was asked by her mortgage lender to sign a document confirming that she was okay with the condition of the property before the last instalment is released.
"How can I, when the developer refuses to show me my unit unless the bank has paid?" she frets. "And then I am told, I may have to pay the developer for late payments by my lender!"
Confusion among buyers
This is not an isolated case. There are many confused buyers running between developers, lenders and the Land Department trying to determine which party should take responsibility.
The timing of lenders' instalments is usually tied to payment schedules between developers and buyers. However, the Real Estate Regulatory Agency (Rera) later linked them to construction milestones.
Lenders, though, often do not amend instalment plans and end up charging a surprised buyer the resulting increased interest. And developers have no sympathy as they say it was the investors' choice to take out a mortgage.
"The burden should be on the bank, to protect their money, it is in their interest to supervise construction progress," says Ludmila Yamalova, partner at Al Sayyah Advocates & Legal Consultants.
Bound by law
The result is that buyers end up pulling the short straw. Borrowers are bound by so-called security cheques to pay what is due, even if it differs widely from what they were told when they took out the mortgage. In addition, construction fees under an Ijara lending agreement is in conflict with the principles of Sharia law.
"This is unfair. I only paid because they (the lender) hold undated and blank cheques, which could land me in jail if they bounce," laments P.P. The pressure borrowers feel to hand over undated cheques — and the related stress should it bounce when presented — may be unjustified.
"It is not okay to require customers to sign blank or undated cheques. They are illegal under the Code, indicating a disconnect between common use and the law," Ludmila explains as she cites Article 596 of the Federal Commercial Transaction Law, which invalidates cheques without dates. While lenders have to protect themselves, the question is whether cheques are an effective way to do it. Mortgages are usually secured against an asset, not the money the buyer may not have, and can be auctioned. Equally, borrowers should be more careful about signing cheques and agreements with prices and dates left blank.
"Dubai Courts consistently invalidates contracts with essential elements missing," Ludmila remarks. "Also, unfair clauses in mortgage agreements resulting in exorbitant termination penalties are unenforceable under the law. Only the judge can decide the fair amount of penalty. "Normally, such disputes would be addressed in court. But with the cheques on hand, the lender could hold the key to your cell."
The recent decree forming a special committee to resolve cheque issues related to real estate transactions instead of the police does not mention bounced cheques to a lender by letter, but could be interpreted to include them. "Maybe this law has been developed in part to encourage lenders to find an alternative to address these issues," Ludmila adds.
"Signing undated security cheques is common. Dated security cheques would expire after six months, which would leave the bank without this form of security. However, these cheques should have amounts completed, normally for one, six and 12 months of repayments and/or full loan plus interest cheque. This can be an unnerving experience for someone buying for the first time, especially when the full loan plus interest cheque can run in to millions of dirham."
A common practice
“Signing undated security cheques iscommon. Dated security cheques would expire after six months, which would leave the bank without this form of security. However, these cheques should have amounts completed, normally for one, six and 12 months of repayments and/or full loan plus interest cheque. This can be an unnerving experience for someone buying for the first time, especially when the full loan plus interest cheque can run in to millions of dirham.” Jean-Luc Desbois, managing director,
Home Matters Mortgage Consultancy
