بسم الله الرحمن الرحيم
In the name of Allah, the Compassionate, the Merciful
All praise are due to Allah alone and may the peace and blessings be upon the Messenger of Allah. To proceed:
The AMJA Fiqh Committee Resident Fatwa Committee met in Houston on the
20-22 of Dhul-Qadah 1435 A.H. (September 15-17 2014 C.E.) in order to
issue a resolution concerning Islamic Home Financing in the United
States. This meeting took place after an entire conference had
previously been held on this topic, in which papers were discussed in
the presence and with the participation of representatives of most of
the relevant companies. This was followed up by correspondence between
the Resident Fatwa Committee Fiqh Committee and those companies with an
attempt to clarify and respond to the Shareeah issues that are present
in their contracts. Sh. Jamaal Zarabozo (may Allah preserve him) also
participated in this meeting in Houston.
After looking into the matter, the Committee Resident Fatwa Committee
(RFC) decided upon, according to the majority of its members, the
following resolution:
First, the Shareeah fundamentals concerning the companies that deal in Islamic home financing:
Companies that deal with Islamic home financing in the United States may be divided into three categories:
- The first group is comprised of those
companies whose contracts, in general, are in agreement with the
Shareeah. They are assisted by the fact that they are not in need of
selling their contracts to the Public government-sponsored enterprises
federal, interest-based organizations [such as Freddie Mac]; this gives
them the freedom to design their contracts in a manner in accord with
the Shareeah without facing any restrictions from Public
government-sponsored enterprises interest-based financing institutions.
At the same time, though, it is noted that the capabilities of these
companies are quite limited. They are able to supply houses in the tens
[as opposed to the thousands]. Furthermore, their availability is
limited to certain states. Thus, they are not truly able to fulfill the
needs of the millions of Muslims who reside in America.
The ruling of the RFC Committee is that it is permissible to deal with and purchase homes from companies of this nature.
- The second group is comprised of those companies whose contracts, in general, avoid falling into explicit interest (Ribaa).
They do not deal with interest-based loans. Instead, they deal in types
of contracts that are permissible in the Shareeah in general, such as Murabahahcost-plus purchase order, Musharakah diminishing partnership and Ijarah rent-to-own.
Many of the people who run these companies, we noticed, are anxious to
avoid forbidden transactions and have exerted a great deal of effort
with their legal advisors to produce legally sound contracts that will
allow them to avoid what the Shareeah would consider void contracts.
However, their contracts do contain some forbidden components, such as
invalid clauses, inequity, undue risk, unknown quantities and the like.
Additionally, they need to invoke exemptions allowed by the jurists and
resort to an improper mixing of different schools of jurisprudence in
order to devise a Shareeah-based way out [of the problem of interest].
In order to meet the large demands of the millions of Muslims residing
in America, these companies are in need of selling their contracts to
the federal institutions, such as Freddie Mac. These federal,
interest-based institutions put a number of restrictions on them that
virtually prevent their contracts from being free of these Islamic
violations. These violations differ in intensity from one company to
another.
The ruling of the RFC Committee specifically concerning this set of
companies is that there is an exemption to buy through them in the case
of need or dire need, depending on the different intensities of
violations and the fact that need must be dealt with according to its
severity.
We encourage these companies to continue their efforts in developing
their contracts in order to bring an end to their shortcomings that the
Committee has noted. If someone can find an alternative and not deal
with these companies, he will be safe and will be protecting his faith
and his honor.
- The third group is comprised of
companies that still continue to deal in interest-based loans. Their
contracts are no more than offshoots of traditional interest-based loans
or simply a form of impermissible legal stratagem to get around the
prohibition of interest. The ruling of the RFC Committee with respect to
these types of companies is that it is not allowed to purchase homes
through them. We advise those who are administering these contracts to
adjust them and make them proper.
Second, the Committee would like to emphasize that this
ruling on this issue is directed towards those who wish to deal with
these companies to purchase real estate via their financing and
contracts and the ruling holds as long as the contracts are as they are
in the present state and the modes of purchase are as they are now. Any
change in their contracts or manner of execution would therefore require
a change in the ruling.
As for the companies themselves, this ruling is actually in need of more
clarification from them concerning their relationship with the Public
government-sponsored enterprises federal financing institutions [such as
Freddie Mac], a matter concerning which the RFC Committee was not able
to receive a detailed clarification.
Third, “need” is that which is desired by an individual
or society to make things easier on them and remove constraints. If one
is lacking what is determined to be a “need,” then the individuals or
the society face hardships and difficulties that go above and beyond the
customary efforts required of individuals by the Shareeah. People may
differ in estimating those hardships. However, the RFC Fatwa Committee
views owning houses to be a general need of the Muslim population in
America. As for determining the level of need for specific individuals,
this would depend on the availability of a substitute in the form of
being able to rent without being caused harm.
Fourth, below is the application of these principles to
the Islamic financing companies that are operating throughout the
United States:
Guidance Residential: They are based on a
diminishing partnership with rent to own ending in ownership model in
their relationship to the purchaser. Their contract is sound in general.
However, it contains some Shareeah violations with respect to
maintenance, taxes and insurance, as these expenses are not distributed
in a just manner according to percentage of ownership.
The ruling of the RFC Committee concerning this company is that it is
permissible to deal with them in the face of need. The representatives
of this company are advised to review those defective portions of their
contract.
Ameen Housing: They are based on a diminishing
partnership with rent to own ending in ownership model in their
relationship to the purchaser. Their contracts are not sold to the
federal institutions [such as Freddie Mac]. They also avoid explicit
interest in their transactions. However, their contract does contain
some Shareeah objections glitches , such as unfairness in the percentage
that they discount in the rent to take care of basic maintenance,
expenses that be more or less than that discounted amount. Additionally,
they have just introduced a late payment fee [which is another
violation of Shareeah principles].
The ruling of the RFC Committee is that there is no harm in dealing with
this company in case of need, although one should do one’s best to make
one’s payments on time in order to avoid the late payment fee. The
Committee also encourages the company to abstain from those aspects
pointed out by the Committee.
Devon Bank: This company has two types of Islamic contracts:
The first contract is
Murabahah a cost-plus purchase. This
contract is surrounded by doubts concerning whether the bank truly owns
the property before it is readied for sale. In addition, this contract
also contains some defective or problematic conditions or aspects of
great unfairness, such as with respect to (a) the bank having exclusive
benefits from insurance payouts while requiring the purchaser to pay for
the insurance, (b) the bank’s right to freeze the purchaser’s account
simply on the suspicion that he will not be able to make his payments,
(c) the bank’s right to declare the purchaser in default if he does not
use the property as a residence or due to his death although heirs have
the right to continue the contract after his death, in fact the
cost-plus purchase contract states that the heirs are bound by the
contract.
The ruling of the Committee is that there is no harm in dealing with
this [contract of] this company in the presence of dire need. Whoever
remains away from it has kept himself safe and has protected his faith
and honor. The Committee advises the Bank to correct these aspects and
to affirm the ownership of the property before selling it and to avoid
the other invalid conditions as much as possible.
The second contract is a rent to own contract. This also contains a
number of Shareeah violations and invalid conditions, including having
two different contracts (sale and lease) at one time, about one item
during one time period. Various Fiqh councils have ruled that this model
is not permissible as the legal effects of the two types of contracts
are contradictory. This may be corrected by separating the two contracts
by making them independent of each other time-wise, such that the sale
contract is done after the lease contract, which must be a true lease
and not something meant to simply hide the sale. Or, they [may replace
the sale] with a promise of handing over ownership at the end of the
lease.
From among the defective or void stipulations that this contract
embodies are the fact that the bank can evict the lessee upon default
but the bank still holds him responsible for the rent until they can
find a new renter, the fact that the bank does not pay for the basic
maintenance of the property and the fact that the lessee is required to
pay insurance while the bank retains the right of any payments from the
insurance, allowing the bank to benefit while the lessee bears the cost.
The ruling of the Committee is that there is no harm in dealing with
this [contract of this] company when one is in a state of dire need.
Whoever remains away from it has kept himself safe and has protected his
faith and honor. The Committee emphasizes its recommendation to the
bank to rectify the current model by separating between the two
contracts and avoiding the defective or void stipulations as much as
possible.
University Islamic Financial: The same
comments concerning their cost-plus model and lease-to-own models as
were stated concerning Devon Bank can be repeated here. Thus, their
models have the same rulings and the Committee offers them the same
advice. There is an exemption to deal with this company only if one is
in a state of dire need. Whoever remains away from it has kept himself
safe and has protected his faith and honor.
Ijara Loan: This company starts by directing
the purchaser to get a standard interest-based [mortgage] loan and then
creates a trust with the purchaser a partner in the trust, in order to
borrow from the bank and then get ownership of the property. After that,
the trust will sell the house to the purchaser with a rent-to-own
contract. The purchaser is alone in getting the interest-based loan at
the beginning and then shares in it at the end.
The ruling of the Committee is that it is not allowed to deal with this
company as their model contains clear and explicit interest. We advise
those in charge of this company to review and correct their model and to
fulfill the trust that has been put in them by those who wish to avoid
interest in their financial dealings.
Lariba: The contract of this company does not
differ from a traditional mortgage that interest-based banks provide.
This is the overriding contract between this company and the purchaser
and what they present as an Islamic form to it actually has no existence
in reality and has no legal authority in case of dispute.
The ruling of the Committee is that it is not allowed to deal with this
company as their model contains clear and explicit interest. We advise
those in charge of this company to review and correct their model and to
fulfill the trust that has been put in them by those who wish to avoid
interest in their financial dealings.
Additionally, the Committee would like to emphasize
that the rulings previously made that are on the AMJA website represent
the views of those individual scholars and do not necessarily represent
the views of the RFC Committee. Furthermore, those rulings preceded this
ruling and it could be the case that some of the scholars have adjusted
their views to the views of the Committee. Finally, the Committee would
like to encourage those Muslims who have experience and those who have
funds to invest to create a competitive Islamic alternative, perhaps a
credit union among themselves which may have profit in this world and we
hope also a profit in the Hereafter if the intentions are sound.
May Allah bless everyone with acts of obedience to Him and may be the
blessings of Allah be upon His best creation, Muhammad, and upon all his
family and all of his Companions.
We will also be honoring the law firm Hogan Lovells during dinner. 
