If I lost my job and can't settle the loan, nor can I sell the property, what action can the bank or developer take?
Cases involving loans and mortgages are difficult ones because they inevitably involve post dated cheques (“PDC”), which, in the UAE, if bounced, become a criminal offense. Namely, securing a loan in the UAE requires issuance of PDCs. Any transaction that involves PDCs is a complicated one because if the investor defaults, it quickly shifts from being a civil matter to a criminal one.
Thus, in the case where an investor who took out a loan, secured by PDCs, loses his job and is, therefore, unable to carry on paying the loan, the bank can deposit the previously issued cheque to cover that payment.
If the investor does not have enough money in the account to cover that cheque, then he is, in essenece, in breach of the UAE Penal Code.
Article 401 of the U.A.E. Penal Code criminalizes issuance of a cheque “which has no return, or a deposit that is sufficient, and able to be drawn or taken back after giving the cheque.”
Similarly, under Article 402 of the Penal Code, it is a crime to issue a cheque when “a provision is less than the balance [that] exists for him and that can be drawn.”
Therefore, a case, which started out as a routine commercial matter, now becomes a criminal matter. This is an especially difficult provision because, in many cases, investors who have bounce cheques in such circumstances do not do so with a malicious criminal intent.
They simply cannot honour their payments because of the change in their financial circumstances.
Many investors have been caught in this predicament because of the financial crisis. In such event, in addition to having civil remedies for breach of contract, the developer and the bank can now invoke criminal remedies for bounced cheques.
Criminal cases are viewed as having more leverage because there is a real threat of jail sentence.
Some banks, such as Tamweel, have invoked this remedy in the past, depositing cheques knowing that they will bounce. Developers who hold PDCs can also do the same.
Today, there are a few options available, though most of them are still untested.
First, investors are advised to try to re-negotiate with the banks the terms of their mortgages.
So far, the banks have not been very accommodating in this regard. But many seem to have at least temporarily stopped bouncing cheques and reporting them to the police, thereby providing for more time to negotiate.
Two, if the dispute is with the developer (vs. the bank), bounced PDCs issued to the developer are now subject to the exclusive jurisdiction of a special judicial committee in Dubai Courts established by Dubai Decree No. 56 of 2009 who oversees matters related to real estate based bounced cheques (“cheque committee”). Under this Decree No. 56, developers can no longer report cheques to the police. It is now up to the cheque committee to review and determine the merits of thecase. This takes the case out of a criminal realm, back into a civil one. This cheque committee, however, does not seem to have authority to deal with bounced cheques related to mortgages.
Three, investors who have mortgages with Amlak and Tamweel can now refer their disputes to a Special Judicial Committee Related to Amlak and Tamweel, under Dubai Decree No. 61 of 2009. Under this Decree No. 61, investors can now bring a case to the Amlak/Tamweel committee to have them negotiate with those banks. This committee does have jurisdiction to stop the cheques, pending resolution of the case.
@ Emirates24|7
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