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Lenders enjoy full spectrum of legal remedies

By Shahram Safai

The recent decision by the Dubai Court ordering the foreclosure of a property has focused the spotlight on enforcement of mortgages in the emirate.

This article reviews some of the important provisions of the Mortgage Law No 14 of 2008 of the Emirate of Dubai (the 'Mortgage Law'). This law contemplates the registration of mortgage contracts with the Land Department, and the subsequent enforcement of such mortgages.

General principles

The Mortgage Law applies to the mortgage of property as security for a debt whether the debt is secured by the whole property or otherwise (Article 3). The mortgagee must be a bank or a financing company or institution duly authorised and registered with the UAE Central Bank for providing property financing (Article 4). A purchaser of a property sold off-plan or under-construction may also mortgage it as security for the debt amount, provided that such property is entered in the Initial Property Register with the Land Department (Article 24). Importantly, the mortgage shall be valid only when it is registered with the Land Department, with any agreement to the contrary to be deemed invalid (Article 7).

Legal effect of mortgage

The mortgagor may not dispose of the mortgaged property by sale, grant or otherwise or create any real or personal right thereon without the approval of the mortgagee, and upon certain conditions (Article 10).

If it is stipulated in the mortgage contract that the mortgagee shall own the mortgaged property for its debt if the mortgagor fails to pay its debt on the appointed date, or that the property shall be sold without regard to legal procedures, the mortgage shall be valid but such conditions shall be void in both cases, even if it is agreed subsequently (Article 11). As a result, Article 11 confirms that the remedy of "self help" is not available in UAE. The mortgagee must obtain a court order from the execution judge to sell the property through public auction.

Attachment of mortgaged property

Articles 25 through 30 address the procedure for attachment of a mortgaged property.

The mortgagee may commence procedures to sell the mortgaged property in the event that the debt is not settled on the due date provided that the debtor or the possessor of the mortgaged property is served a notice within a period not exceeding 30 days (Article 25). In the event that the mortgagor fails to discharge the debt within the time period stipulated under the Law, the execution judge shall at the request of the mortgagee issue a decision for attaching the mortgaged property in preparation for selling the same by public auction pursuant to Land Department procedures (Article 26). Article 27 provides that without prejudice to Article 26, in the event that the debtor petitions the execution judge to delay the public auction, the execution judge may delay the sale by not more than 60 days for only one time, if the judge is convinced that:

- The debtor can discharge its debt if given such time; and

- The sale of the mortgaged property may cause serious damage to the debtor.

Pursuant to Article 28, if the debt is not settled within the stipulated time, the mortgaged property shall be sold by public auction in accordance with the procedures applicable at the Land Department not later than 30 days from the date of expiry of such time. The mortgagor may still discharge the debt secured by the mortgage before such due date (Article 29).

Finally, Article 30 of the law confirms that if the proceeds from the public auction are insufficient to satisfy the debt, the debtor shall be personally responsible for the remainder of the mortgage debt.

The Mortgage Law provides a logical framework for the granting, registering and enforcing of mortgages against property in the emirate.

Such a law along with the most recent foreclosure judgement of the Dubai Court confirm that the full spectrum of regional legal remedies are available to lenders in Dubai.

- The author is a lawyer, professional engineer and a partner at the law firm of Afridi & Angell

(The above information is not legal advice and is neither intended to create nor creates a lawyer-client relationship. Neither the writer nor Afridi & Angell are responsible for anyone relying on the above information. You are recommended to obtain independent legal advice)


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