The Islamic financial investments are radically different from the Western home buying investment companies, in terms of interest – Quranic prohibitions apply to interest and uncertainty render mortgages (riba and gharar) that are widely available in the United States of America. Having said that, before detailing how Islamic finance handles foreclosure, it is important to mention that the financial investments under the Sharia law avoid the use of interest: instead of receiving an interest as it would normally happen, the investor receives the rent directly from the property. Otherwise stated, the traditional interest is converted into leases on the property. In fact, if you had a traditional mortgage in 2008 backed by the FHA & Freddie Mac you may need to sell your home “as-is”, due to declining home values across the nation, or else foreclosure would be imminent for you and your family.
A Deeper Insight Into The Sharia-Compliant Mortgages And Foreclosure, As Handled By The Islamic Finance
Lenders are always struggling to create comfortable environments for all those who think about taking out a mortgage or any other type of credit, and accommodating both the needs and the religious beliefs of Muslim US citizens is paramount – this is why many lenders have come up with Sharia-compliant mortgages that allow Muslims to take out a mortgage while still complying with the Quranic finance-related principles. Some of the most notable US lenders who are currently offering Sharia-compliant mortgages include the Devon Bank, the Guidance Financial Group, or the LaRiba in California, all of these financial institutions being considered pioneers in the niche.
There are three main types of financing that are specifically designed for Muslims in the United States of America – the Murabaha financing, where the lender buys the property on the behalf of the homebuyer and allows the homeowner to make payments that are identical to fixed rate mortgages, the Ijarah-wal-iqtina financing which is similar to rent-to-own programs and ultimately, the Musharakah financing where both the homebuyer and the lender are co-owners of the same house.
When talking about the foreclosure of Sharia-compliant financial investments, most of them go smoothly and without the hassles, and the lender can easily foreclose on a mortgage, thus cancelling the lease as described above. Statistically speaking, there are more than 100,000 homeowners who face foreclosure on a monthly basis, in the United States alone and, in some instances, the Muslim homeowners tend to worry even more about the foreclosure. As mentioned above, the interest and uncertainty render mortgages are forbidden under Islam, which means that for most Muslims who live in the US, mortgage is not an option – be it a fixed or an adjustable-rate mortgage.
One of the most notable difference between conventional financing methods and financing under the Sharia law is that the Islamic home financing is considerably less likely to foreclose, given the lack of riba (interest). The Sharia home buying concept offers future homeowners the chance to opt for “ethical financing”, thus offering borrowers the peace of mind they so much need.
Another reason why the Islamic financial transactions are less likely to go through foreclosure is because the Islamic financing is still in its incipient stages, and the ratio to traditional financing is smaller. Generally speaking, when such a financial transaction is doomed to foreclosure, the two parties are usually able to work out a mutually beneficial deal – the lender often provides the homeowner with the necessary tools to sell the property, and this is precisely why very few cases actually reach the court.
The Islamic financing options are vetted by Sharia advisers, therefore borrowers can rest assured knowing that there are no hidden costs or predatory practices they should be worries about. Also, what truly makes the difference between the Islamic finance and the conventional finance as we all know it is the fact that the first one encourages lenders and other financial institutions to actually show forbearance (an agreement that takes place between the two parties to delay the foreclosure for loan borrowers who have a hard time making payments), and it also allows banks to count the losses that occur that way as part of their “zakat payment”, which is the Sharia version of the charitable tax.
To sum it all up, Islamic financing certainly seems to be a fast growing trend in the United States of America, and there are numerous types of structures that are designed to be Sharia-compliant, thus allowing homeowners to take out a mortgage quickly and without the hassles. These transactions are specifically created to be at least as secure as the conventional ones, both for the lender and for the borrower.