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Q&A – Mortgage, Bounced Cheques & U.A.E. Contracts

Q&A – Mortgage, Bounced Cheques & U.A.E. Contracts

Emirates 24/7

22 August 2011

Q: After paying my EMI’s for over a year, now I have defaulted on my property’s mortgage due to loss of the job and have returned back to Europe.  Mortgage was obtained from a UAE local bank.  Can the bank come after me in another country?

A: In short, while each case is different, it is highly unlikely that a local UAE bank has a right to pursue a defaulting borrower in a foreign country over a property located in the UAE.  If there is any ground for the bank to do so, it would have to file a court action in that foreign country to pursue its claim.  Despite this, some of the banks are starting to engage services of collection agencies in foreign countries who serve borrowers with default notices and requests for payment.  While the legality of such actions depends on the laws of each country, in most countries such practices and the authority of the collection agencies to enforce such claims are questionable at the very best.

Generally speaking, for a bank to pursue a claim against a defaulting borrower in a foreign country, the bank has to have jurisdiction or legal standing to do so in that country.  The UAE bank with a mortgage over a property located in the UAE does not, on its face, have such standing.  The standing may arise, for example, either by contract, or an international treaty.  But in either case, the bank would have to file a court action against the borrower in the country in which it seeks to enforce the judgment.  This is so even if the bank already has a judgment in the UAE.  Courts are zealously protective of their jurisdiction and do not enforce foreign judgments lightly.  This is especially so in the event of a claim over a real estate, jurisdiction over which is traditionally considered an exclusive domain of a home state.

Q: I am an absentee UK landlord of an apartment in JLT and two rent cheques issued by my tenant have bounced.  I have sent the tenant several emails and made several unsuccessful telephone calls requesting cash payment.  What recourse do I have to evict the tenant and recover the outstanding monies without having to travel to Dubai?  Can I file a police case for bounced cheques in absentia?  Your advise will be most appreciated.

A: Filing a police case in Dubai in absentia, without a legally authorized representative, is difficult, if not impossible.  For the police to open a case, they require the originals of the bounced cheques.  They will also need the details of the addressee of the cheque, who will be filing a complaint.  If the landlord is out of town, his/her authorized representative can act on his/her behalf.  This can be done through a power of attorney, which must either be attested in the UAE or in the UAE Embassy at the foreign country.  Attesting documents abroad, however, often carries significant fees and, as such, it may be cheaper to travel to the UAE instead.

Unless the tenant leaves the premises voluntarily, evicting the tenant in the UAE can be difficult and protracted.  The bounced cheque, which carries the penalty of a jail sentence, usually serves as the strongest leverage to convict the tenant to leave.  If, however, the tenant does not voluntarily leave, a court action must be instituted seeking a court order of eviction.  A similar situation exists even if the tenant is in jail over a bounced cheque.  Without either a police order or a court action, technically speaking a landlord does not have the right to enter premises.  Even if the landlord does decide to enter the premises because, for example, the tenant has left the country, either a court or police order is required to de-register the tenant from DEWA.

All of this is much better to try to resolve by either being personally in the country or at least authorizing a legal representative to act on the landlord behalf.  This may also involve retaining a lawyer, in case a court action needs to be filed.

Q: I purchased a (Studio) off-plan property in Jumeirah Village in 2009 for Dh 370K.  As per the contract with developer this unit delivery date was fixed June 2011.  But till date the project was not yet started.  As per the agreement I am keep paying my installment without any delay.  Moreover as per the agreement, if developer delayed the hand-over date then they must pay penalty 9%/PA.  Please advise what to do in this condition. It is safe to keep continuing my installment (Escrow a/c Badar Al Islamic Bank) even they are not started the project? It is possible to get 9% penalty from developer and adjusted from my monthly installment? Or I can go for any other project from the same developer, if I have on offer from the developer?

A: Developer’s failure to deliver the project as per the agreement constitutes default under the UAE contract law.  In such event, under the same law, the non-defaulting party is excused to perform its obligations until the defaulting party remedies the breach.  Therefore, the law permits the investor to stop making the installment payments if the developer fails to build.  Furthermore, all payment plans were required to be reviewed and approved by RERA.  The new RERA approved payment plan may very reflect a new repayment schedule, to correlate with the construction progress.

If the contract provides for a right to seek penalty for the developer’s default, then the investor should most definitely claim that penalty as an offset against future payments.  This is assuming that the developer agrees.  If he does not, the only way to enforce him to do so is through a court proceeding, in which the existence of the penalty clause will form a strong basis.

If the construction has not even started, it is advisable that the investor tries to convince the developer to transfer the investment into another project, the construction of which, if not complete, is at least ongoing.  This too, however, is subject to whether the developer has any alternative projects to swap into and whether he agrees to offer such a settlement.