SHARIA-COMPLIANT MORTGAGE UNDERWRITING GUIDELINES FOR GUIDANCE RESIDENTIAL TRANSACTIONS

ATG can insure owners and lenders who make use of Sharia-compliant financing arrangements (mortgages that comply with Islamic law). Please see the article in the November-December 2007 issue ofthe ATG concept, "Sharia-Compliant Mortgages." The following is a description of the usual arrangement employed by Guidance Residential, the primary Sharia-compliant mortgage lender, together with ATG's underwriting requirements. If you have a situation that differs, please contact the Underwriting Department to determine how to proceed.

The borrower and a limited liability company (LLC) created specifically for this transaction (LLC will have a numeric identifier) together buy property, each contributing money to the purchase, and both named as grantees on the deed from the seller. The borrower and LLC sign a Co-Ownership Agreement, which dictates the terms of their relationship. The borrower mortgages his or her interest in the land to the LLC. The LLC assigns its mortgage to Guidance Residential.

The LLC also mortgages its interest in the property to Guidance Residential. Both the assignment and new mortgage from the LLC to Guidance Residential are accomplished in the same document (if you read the assignment closely, the mortgage language appears toward the end of the document). The deed, mortgage, and assignment are signed at once at the closing and recorded in order.

The outcome is that the borrower and the LLC co-own the property, pursuant to the terms of their agreement and Guidance Residential holds a mortgage on 100% of the ownership interest in the land. Guidance Residential plans to sell its mortgage on the secondary mortgage market.

ATG requires the following in drafting the commitment and policies in this situation:

Commitment

  • Show the borrowers and LLC as the proposed insured owners.
  • Show Guidance Residential as the proposed insured lender.
  • Raise an exception for the terms and conditions of an unrecorded Co-Ownership Agreement.
  • Raise LLC exceptions.
  • If there is a requirements page, require that a deed, mortgage, and assignment all be signed and recorded.

Owner Policy

  • Show grantees from the deed as insureds and titleholders. They should be the borrowers and LLC.
  • Raise an exception for the recorded mortgage.
  • Raise an exception for the recorded assignment.
  • Raise an exception for the terms and conditions of an unrecorded Co-Ownership Agreement, identifying the parties and date if possible.

Mortgagee Policy

  • Show the assignee (Guidance Residential) as the insured.
  • Show the mortgage and assignment on Schedule A. ATG cannot insure the mortgage without the assignment. The mortgage and assignment must be recorded.
  • We must review the assignment to see that it contains language that both (1) assigns the LLC's interest as mortgagee in the borrower's interest in the land, and (2) mortgages to Guidance Residential the LLC's interest in the land.
  • It is not necessary to raise the Co-Ownership Agreement exception.

© ATG UB0701vol12no3

 

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