Dubai to restart property auctions this month

Foreclosed properties may be included in the sell-off

The Dubai Land Department (DLD) is likely to restart property auctions, including foreclosed properties, from this month, according to a law firm.

“Recent discussions with the Land Department of Dubai indicated that they are now ready to re-commence property auctions, including foreclosed property, as the number of transactions processed daily by the department increases and they see the market stabilising. They hope to hold the next property auction in November,” Nick Clayson, Partner and head of real estate, Middle East, Norton Rose Group, told Emirates 24/7.

Procedurally, once the Dubai courts have made an order for a property to be sold at public auction in accordance with the Dubai Mortgage Law, the court will send a letter to the land department requesting that they arrange for the property to be auctioned. The department will arrange for the auction to take place subject to the procedures and rules put forward by them. Currently, the department has its own informal rules and procedures governing auctions.

“However, they have indicated that a formal set of auction regulations are expected to come into force within the next few months,” Clayson added. Informed sources confirmed to this website that an auction guideline book will be published soon.

In order to set a reserve price on the property, the department will arrange for a valuation of the property to be undertaken. It is not clear on what basis this valuation is carried out or the factors taken into consideration and there is a risk that the resulting value will be much lower than the mortgage amount.

The Mortgage Law also provides that where the proceeds of the sale are not sufficient to cover the debt, then the bank may claim the difference from the borrower.

“However, this appears to contradict the provision that any debt may only be covered out of the mortgaged property. Further guidance will be needed from the Dubai Courts and the Land Department as to what actions banks may take against a borrower if the sale proceeds are not sufficient. If the property is not sold for the reserve price or higher, the department has indicated it will be placed in the next auction to be held. It is not clear whether this will result in a new valuation being undertaken and the risk is that such failure to sell will likely decrease the value of the mortgaged property even more.”

Clayson believes as the market stabilise and auctions re-commence, the Dubai Courts will see an increase in litigation brought by banks against borrowers in default.

“Previously, banks have taken a cautious approach with defaulting borrowers and negotiated with them at the time of default. However, such negotiations are not provided for under the Dubai Mortgage Law and it appears that, following on from the cases brought by Barclays and Tamweel, banks may now be more willing to follow the statutory position of applying to a court for an order to sell the property at auction.”

Besides, the Mortgage Law does permit a judge to postpone a sale by auction if he believes that the borrower will be able to repay the mortgage amount in a specified period or the sale of the mortgaged property will cause the borrower substantial damage.

“However, it is not clear how ‘substantial damage‘ will be interpreted by the courts and this presents some uncertainty for banks in bringing proceedings, Clayson added.
 

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