Selling a mortgaged property in Dubai

A mortgage in Dubai is an entry in the property register, not a private arrangement between a borrower and a lender. Article 7 of Law No. (14) of 2008 Concerning Mortgage in the Emirate of Dubai provides that a mortgage comes into effect only when it is registered with the Dubai Land Department, and that any agreement to the contrary is null and void. Article 20 of the same law provides that the mortgage terminates upon full repayment of the secured debt. Those two sentences set the shape of every sale where money is still owed. The entry has to come off the register before a title deed is issued to the buyer, and it comes off when the bank confirms the debt is cleared.

Article 10 puts the lender inside the transaction rather than beside it. The Department's answer to the practical problem is a dedicated service, Registering the Sale of a Mortgaged Property, handled at real estate registration trustee centres. Agents and buyers call this step blocking. The Department's own service page never uses the word.

The liability letter

The Department's document list for the mortgaged sale service names it first: a liability letter from the bank, or from the developer, stating the remaining amount. It is the lender's own statement of what it will take to close the loan, worked out to a date. Everything downstream is priced off that one number. Where the balance is owed to a developer on a payment plan rather than to a bank, the developer's letter takes its place.

Two things about the letter are not published by any Dubai authority. How long the bank takes to issue it, and how long it stays good. Both are set by the lender, and both vary between lenders and between products at the same lender. Figures quoted online are one bank's practice, not a rule. Ask for the expiry date printed on the face of the letter, and ask in writing what the figure becomes if settlement lands after it. Any early settlement charge sits inside the figure and is a term of the loan agreement.

Three manager's cheques

The Department requires three manager's cheques for this service, and it is specific about who each one is drawn in favour of.

• One to the bank or the developer, for the debt amount shown in the liability letter.
• One to the seller, for the remaining amount, if there is any.
• One to the Department, for the fees of 4 per cent.

On the ordinary Property Sale Registration service the same 4 per cent appears split in two, 2 per cent listed against the seller and 2 per cent against the buyer. On the mortgaged route it is published as a single 4 per cent cheque to the Department. Who actually bears it is a matter for the sale contract, not for the fee schedule. Also required: Emirates ID for seller and buyer, shown for identification rather than copied, or a valid passport for non-resident foreigners, and a legal power of attorney where one is being used. A company that is not already registered with the Department has to register before it can transact.

What the service actually does

The Department describes the service as applying to register a mortgaged property in order to pay the payments due in favour of the bank, so as to ensure the reservation of rights between the parties, with the sale procedure to be completed after a mortgage release letter from the bank is submitted. Read that carefully. Rights are booked. The sale is not finished. The published duration at the counter is 15 to 20 minutes, and the only channel is a real estate registration trustee centre.

Taking the mortgage off the register

Release is its own Department service, covering ordinary, usufruct, provisional and portfolio mortgages, and releases for the UAE citizens' housing institutions. It runs two ways. The bank can file it through the Department's online mortgage system, which for a regular release needs nothing from the owner beyond identification. Or it goes through a registration trustee office with a letter from the bank asking for the removal. Published duration is 10 to 15 minutes. What comes out is the mortgage release letter and the title deed, both as electronic deliverables. Fees payable to the Department can be settled through epay, the Sadad Dubai platform, Noqodi, or a manager's cheque in favour of the Land Department.

The same act carries two published prices, depending on which service it is filed under. The standalone release service lists AED 1,000 for the removal plus a service partners fee of AED 300 plus VAT, which at the UAE rate of 5 per cent is AED 315. Inside the mortgaged sale service the release appears as AED 1,290 for the mortgage release procedure and AED 315 for the registrar to release the mortgage. Budget from the service you are actually using.

When the buyer is borrowing as well

Two banks then have to meet on one morning. The buyer's lender funds the settlement of the seller's loan, the old mortgage is released, the transfer is registered, and the new mortgage goes on the register in favour of the buyer's bank. Mortgage registration is charged at 0.25 per cent of the mortgage value, with AED 250 per title deed and a service partner fee of AED 4,000 plus VAT, or AED 5,000 plus VAT for a provisional registration. The documents include a letter from the mortgagee bank, three certified mortgage contracts signed by both parties, and the developer's no-objection e-certificate. Counter time is 20 to 25 minutes.

There is a sharp incentive to finish on the day. The Department's note on the mortgaged sale service says the registrar's fees will be exempted in the event that a mortgage is registered on the same day, and that if it is made on the next day, a service partners fee of AED 4,000 plus VAT will be charged. A cheque that arrives after the counters close is not a scheduling inconvenience. It has a price.

Timelines, honestly

The Department publishes durations for counter work and nothing else. Registering the mortgaged sale, 15 to 20 minutes. Releasing the mortgage, 10 to 15 minutes. Registering a new mortgage, 20 to 25 minutes. An ordinary sale registration, 25 minutes. Add them up and the Land Department's share of a mortgaged sale is under two hours of desk time.

The calendar belongs to other people. The seller's bank sets when the liability letter is issued and when the release letter follows the money. The buyer's bank sets when its cheque is ready. The developer sets when the no-objection certificate is granted, which for freehold areas the Department expects as an electronic certificate through the Dubai REST app. None of those three publishes a service standard the way the Department does, so a sale that stalls is almost never stalled at a trustee office.

If the debt is not cleared

Law No. (14) of 2008 also sets out what happens when settlement does not occur. Foreclosure begins with at least 30 days' notice through the Notary Public under Article 25. Under Article 26 the execution judge may then, at the mortgagee's request, issue an attachment order against the mortgaged property so it can be sold at public auction. Article 30 provides that debts owed to mortgagees are paid out of the price of the property according to the ranks of the mortgages, even where all of them were registered on the same day. Where a second charge exists, rank decides who is made whole, and a sale price that clears the first loan does not necessarily clear the second.

Article 4 is a useful sanity check at the start of any deal. A creditor-mortgagee has to be a bank, finance company or institution licensed and registered with the UAE Central Bank to provide real property financing in the country.

Start with the liability letter and the expiry date printed on it. Then work backwards: the release letter, the buyer's cheque, the developer's certificate, all landing on one morning at one trustee counter. Miss the day and the published penalty is AED 4,000 plus VAT.