Dubai's Mortgage Law and Foreclosure Ruling: A Speedier Path to Asset Recovery

In January 2010, Barclays Plc won a court order against borrowers who had taken mortgages on their real estate assets with the bank. The ruling was based on Dubai Law No. 14 of 2008 (Mortgage Law), which governs mortgages in Dubai. The Mortgage Law streamlines the foreclosure process, allowing lenders to recover assets more quickly. However, the process remains uncertain, and the effectiveness of the Mortgage Law is yet to be tested.

Key Takeaways:

• The Mortgage Law reduces the time spent on the litigation process, allowing lenders to recover assets more quickly.
• The judicial sale process itself is relatively untested, and the process of valuation, setting reserve prices, and auctioning the property remains unclear.
• Islamic financial institutions typically own the assets and can take possession and rent them out or sell them in their own time.
• The Barclays case may have set a precedent to speed up the process of proving the debt but does not necessarily speed up the enforcement process of selling the asset.
• The Mortgage Law only appears to allow judicial sale for conventional banks, and judicial sale is an auction process which may not be the preferred enforcement action of the conventional banks.
• Most of the conventional banks have claims, and there may be around 200 foreclosure cases coming through the courts at the moment.
• The Dubai Land Department has announced that there will be auctioning of foreclosed property, but it is unclear how this process is working.
• The success of the Barclays foreclosure case is premature to assess in the current market due to the depressed state of the Dubai real estate market.
• Lenders are actively applying to the courts to call in their debt and realize their assets, but the actual execution and realization of their debts have not been implemented.

Statistics:

• The Mortgage Law has been in effect for three years, but it is unclear how effective it has been in streamlining the foreclosure process (Source: Hadef & Partners).
• The judicial sale process itself is taking between six to eight months (Source: Hadef & Partners).
• There have been no other foreclosed properties in Dubai other than the Barclays case, where the reserve price set by the courts was not met at auction (Source: Hadef & Partners).
• Lenders in Dubai have extended payment periods or restructured loans instead of resorting to the courts (Source: Hadef & Partners).
• The reserve price set by the courts in the Barclays case was not met at auction (Source: Hadef & Partners).

Sources:

• Dubai Law No. 14 of 2008 (Mortgage Law)
• Hadef & Partners article on foreclosure in Dubai
• Mondaq article on foreclosure in Dubai