22 May 2012


Authored by: Ashraf Sayed


The Dubai Mortgage Law No 14 (“Mortgage Law”) was enacted in 2008 and sets out rules for default, foreclosure and repossession of financed property in an effort to help speed up the foreclosure process and provide creditors an opportunity to recoup their losses.

Foreclosure became a tested course of action in January 2010 with the handing down of a landmark verdict in favour of Barclays Bank plc in the first real estate foreclosure case since the introduction of the Mortgage Law.

Under the Mortgage Law, upon default of a loan, the creditor must give the borrower 30 days notice through the notary public before commencing execution proceedings. Courts then review the case and may issue a debt judgment which requires the property to be turned over to the Dubai Land Department (“DLD”) for auction. During this period, creditors have the right to administer mortgaged property and collect its yields and revenue until it is sold at public auction.

The DLD has recently placed a number of foreclosed properties on auction. The properties were located in prominent areas of Dubai including The Springs, Dubai Marina and Jumeirah Beach Residence.

Hadef & Partners has attended several of these auctions. The following information has been provided by the DLD:

How is the DLD marketing foreclosed properties and creating awareness of auctions?
Through brochures, banners, SMS and information on the DLD website. The brochures will now also be posted on the Land Department website.

Are there any standard auction papers/documents? Can a bidder review the tenancy agreement if the auction property is rented?
There are currently no detailed documents involved in the process. Bidders need to register on the auction day with the DLD auction committee and provide their identification documentation including contact information and a cheque for 20% of the reserve price of the property that they wish to bid upon. If their bid is successful, the bidder needs to sign a short acknowledgement form containing the details of the property and the price at which they won the bid. The transfer of title process must be completed within 10 days, however, if the purchaser wishes to obtain mortgage finance, the DLD may extend the timeframe.

Can prospective bidders view the property before the auction date?  How can they get access? 
Bidders can request access to the property through the DLD if the property is not tenanted and the DLD will subsequently request access from the relevant bank.
At this point Hadef & Partners recommends bidders consider carrying out property inspection checks. Several companies in Dubai offer such services and provide the prospective new home owner with a detailed report on the property’s condition and any defects. It is further recommended the property is inspected prior to the auction to consider any additional costs that might be required by the successful bidder for purpose of possession/leasing to third parties (i.e. painting, landscaping etc).

What are the various amounts the successful bidder has to pay post auction, including any down payment or security fees, broker fees, DLD fees, transfer fees, negotiation fees and/or mortgage discharge fees, etc?
- 20% of the reserve price in the form of a personal current dated cheque.
- Balance of the bid price within 7-10 days (extendable with DLD consent).
- 1% of the bid price plus AED 315 as title registration fees.

What if a bidder does not pay the balance price after winning the auction? 
The 20% security cheque is encashed and the sum forfeited.

What if a defect in the auctioned property is discovered after the successful bid? Can the bidder reject the property?
The DLD liaises with the bank involved to ensure there are no defects and the property is handed over in a properly habitable condition to the successful bidder. If there are defects in the property that cannot be remedied or make it dangerous for habitation, the DLD will cancel the bid and return the security cheque to the bidder.

Our thoughts
Although foreclosed property auctions in the UAE are in their infancy, most of the properties at the auctions attended by Hadef & Partners were successfully auctioned, with bidders paying 5% to 40% higher than the reserve price. The DLD estimates that up to 80 foreclosed properties will by auctioned throughout the year.

It should be noted that the Mortgage Law only appears to allow judicial sale for conventional banks, and judicial sale is an auction process which may not be the preferred enforcement action of the conventional banks. Islamic financial institutions are different because under their typical financing structure, the Islamic financial institutions own the assets and can therefore take possession and rent them out or sell them in their own time. The most common form of Islamic financing in respect of off-plan property is the Ijara, pursuant to which the Islamic financing institution retains ownership rights in the property, but leases the same to the borrower for a long term period.

We believe further clarity, standardized auctions documents and public awareness will further help the success of foreclosed property auctions.