Selling a mortgaged home in Dubai: the release, the fees, the cheques

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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A home in Dubai that still carries a loan can be sold. What makes the sale different from any other is that a third party, the lender, holds a registered right over the property, and that right has to be dealt with in the same transaction that makes the buyer the owner. The seller needs the buyer's money to repay the bank, the bank will not release its security until it is repaid, and the buyer will not pay for a property that is still charged to someone else's lender. The procedure exists to untie that knot in one registered transaction.

The rules are spread over four places. Dubai's mortgage law says when a mortgaged property may be sold and when a mortgage ends. The Dubai Land Department publishes a service page for the sale of a mortgaged property, and separate pages for releasing and transferring a mortgage. The Land Department's fee schedule, approved by the Executive Council of Dubai in 2013, sets the statutory charges. And the Central Bank of the UAE caps what a lender may charge for early settlement and for the letters the seller has to ask for. This guide reads the four together, in the order a seller meets them, and marks the points on which they are silent.

Central Bank of the UAE, annexure to the Consumer Protection Standards (the fee is 1% of the outstanding balance or AED 10,000, whichever is less); Dubai Land Department service page for the sale of a mortgaged property.

What Dubai's mortgage law says about a sale

The starting point is Law No. (14) of 2008 Concerning Mortgage in the Emirate of Dubai, issued on 14 August 2008 and published on the Dubai Legislation Portal. Article 2 defines a mortgage as a contract that gives the creditor a real right in the property, with priority over ordinary creditors when the debt is repaid from the sale price, whoever holds the property at the time. The mortgagor is the owner who grants the mortgage. The mortgagee is the creditor who lends against it and, under Article 4, must be a bank or a financing company or institution licensed and registered with the UAE Central Bank to provide property finance.

Three articles then shape a sale. Article 10 says the mortgagor may sell, give away or otherwise dispose of the property, or create rights over it, only with the approval of the mortgagee. The same article adds that the person who takes the property must agree to assume all of the mortgagor's obligations, and that the mortgagee may require the two to be jointly liable. Read alone, Article 10 describes a property that changes hands with its mortgage still attached, on the lender's terms.

Article 20 offers the other way out: the mortgage terminates when the secured debt is repaid in full. And Article 29 gives the debtor, or a surety, the right to repay the debt and the amounts related to it before it falls due. A seller is therefore never locked in by the calendar of the loan. The law allows early repayment; what it costs is a matter for the loan contract and for the Central Bank's caps, covered below.

Two further articles explain why a buyer insists on a clean register. Under Article 33, a duly registered mortgage deed binds third parties. Under Article 18, once the debt is due the mortgagee may enforce its right against the property in the hands of any holder, and the law treats as a holder anyone to whom ownership passed after the mortgage was made. A buyer who took the home without the mortgage being cleared would hold a property the seller's bank could still pursue.

The law stops there. As published on the portal, it says the mortgage ends on repayment but sets out no procedure and no deadline for removing the entry from the Land Department's register. That part is found on the Department's service pages.

Release or transfer: two different services

The Land Department runs two services that are easy to confuse, and its pages describe them differently.

The first is the mortgage release application. The Department's page says it covers the release of regular, usufruct, provisional and portfolio mortgages on properties mortgaged to banks, as well as releases for the housing institutions that serve UAE citizens. A release removes the lender's entry from the register. In the fee schedule attached to Executive Council Resolution No. (30) of 2013, it corresponds to the row "Discharging a mortgage", charged at a flat AED 1,000.

The second is the mortgage transfer application. The Department describes it as the service through which a property owner or a bank registers a mortgage in favour of a financing entity, and the documents it lists for individuals show what that means in practice: a no-objection letter from the previous bank, a letter from the new bank confirming the mortgage registration, and three certified mortgage contracts. The mortgage moves from one lender to another while the property stays charged. The schedule prices that at 0.25% of the mortgage debt, the same rate as registering a new mortgage.

For a sale, the page that matters most is a third one, titled "Registering the Sale of a Mortgaged Property". It combines the release of the seller's mortgage, the sale itself and, where there is one, the buyer's new mortgage. Nothing on the three pages describes a buyer taking over the seller's own loan as a service of the Department, although Article 10 of the mortgage law contemplates a transferee who assumes the mortgagor's obligations. Whether a given lender would agree to that depends on the lender and the case.

A worked example shows the gap between the two. Assume a debt of AED 1,200,000. Discharging the mortgage costs AED 1,000 under the schedule. Transferring it costs 0.25% of AED 1,200,000, which is AED 3,000.

The liability letter and what the bank may charge for it

The first document on the Land Department's list for the sale of a mortgaged property is a liability letter from the bank. Where the amount is still owed to a developer and not to a bank, the page asks for a letter from the developer for the remaining amount. The letter is what tells the buyer, the registrar and the Department how much has to be paid to clear the property, and the first of the three cheques is written from it.

The Department's page does not define the letter further. It does not say how long a liability letter stays valid, nor whether the figure in it includes the lender's early settlement fee. Both points belong to the lender's own practice and to the loan contract.

What the bank may charge for its paperwork is, by contrast, published. The Central Bank of the UAE's rulebook carries, as an annexure to its Consumer Protection Standards, a table headed "Maximum Limits for Fees and Commissions Charged on Retail Customer Service". The rulebook lists it under notice 1158 of 2021 and marks it as in force. Ten of its rows concern home loans and home financing, and several of them are documents a seller is likely to request on the way to a sale.

The table lists a liability letter and a clearance letter as separate items without explaining when each is issued. Nor does it use the term "manager's cheque": the nearest row, under remittances, caps the issuance or cancellation of a demand draft or pay order at AED 75. The annexure page carries no issue date of its own.

The Central Bank's cap on early settlement fees

A sale repays the loan before its term, so the lender's early settlement fee comes into play. The annexure sets its ceiling for home loans and home financing in one line: at most 1% of the outstanding balance, or AED 10,000, whichever is less.

Two features of that line matter. The percentage applies to the outstanding balance, meaning what is still owed, and not to the original loan or to the sale price. And the dirham ceiling takes over as soon as 1% of the balance would exceed it. The two limits meet at a balance of AED 1,000,000, where 1% is exactly AED 10,000. Below that balance the percentage is the binding limit; above it, the fee cannot go past AED 10,000 however large the loan.

On the largest balance in the chart, the ceiling of AED 10,000 amounts to 0.25% of what is owed. The figures are maximums. A lender may charge less, and the loan contract says what it actually charges.

A second Central Bank text touches the same subject in different words. The Regulations Regarding Mortgage Loans, issued as Circular 31 of 2013 and consolidated in the rulebook as of 8 April 2020, say in Article 4 that the maximum charge for early repayment, or for refinancing with another institution, is the lender's actual cost of breaking a fixed loan and, or, the fees and charges set out in the Central Bank's Regulations No. 29 of 2011. That earlier regulation was not read for this guide, so the figures here come from the Consumer Protection Standards annexure alone. The two texts are not presented as saying the same thing; a seller whose loan is on a fixed rate has reason to read the prepayment clause of the contract against both.

The same Article 4 gives the seller two tools for doing that. Loan documents must contain a clear prepayment policy, and fees and charges must sit in a separate schedule attached to the contract. The regulations also bar a lender from changing the terms of the loan during its life without the borrower's written agreement, and require at least two months' notice before any change to commissions or fees takes effect.

The three manager's cheques

The Land Department's page for the sale of a mortgaged property asks the parties to bring three manager's cheques, and names what each is for:

• one to the bank, or to the developer, for the amount of the debt;
• one to the seller for the remaining amount, if there is any;
• one to the Department for the 4% fee.

This is how the buyer's funds clear the seller's loan. The price is not paid to the seller in one piece and then passed on. It is divided before the meeting, so that the lender's share is already made out in the lender's name when the parties sit down. The words "if any" on the second line cover the case where the debt takes the whole price and nothing is left for the seller.

A worked example, with assumed figures. A villa is sold for AED 2,000,000 to a buyer who pays without borrowing. The seller's liability letter states that AED 1,210,000 is owed to the bank; the example assumes that figure already contains whatever the bank charges for early settlement, which the sources do not confirm as a general rule. The cheque to the bank is AED 1,210,000. The cheque to the seller is the price less that amount, AED 790,000. The two together make AED 2,000,000, the price. The cheque to the Department is 4% of AED 2,000,000, which is AED 80,000.

Who funds the third cheque is a matter between the parties. Article 3 of Executive Council Resolution No. (30) of 2013 says that, unless they agree otherwise, the sale registration fee is shared equally between seller and purchaser, which would be AED 40,000 each in the example. The Department's page does not say who pays; it says only whom the cheque is made out to. If the seller in the example carried half of the fee, the seller's net proceeds would be AED 790,000 less AED 40,000, or AED 750,000, before the release charges and any commission.

The value written into the sale matters for more than the fee. The same resolution treats false information about the value of a disposition as fee evasion, and sets the fine at double the prescribed fee.

At the trustee centre, step by step

The service is delivered at Real Estate Registration Trustee centres, the offices that register transactions on the Department's behalf. The page gives a processing time of 15 to 20 minutes for the registration itself and sets out six steps.

1. The purchaser and the seller go to a trustee centre. Each brings an Emirates ID, which the page says is used for identification only, with no copy taken; a non-resident foreigner brings a valid passport. Anyone acting for a party brings a legal power of attorney.
2. The documents are handed to a registrar, who checks that nothing is missing and uploads them to the Department's digital safe.
3. The registrar enters the details of the transaction in the system.
4. The fees are paid and a receipt is sent by email.
5. The Department's auditor reviews the transaction. A link to a registration certificate is emailed to both parties, and the cheque for the bank's debt goes to the seller, who uses it to obtain a mortgage release certificate from the bank.
6. Once the seller or the purchaser submits the bank's mortgage release letter, the registration is completed: the release of the mortgage, the sale and any new mortgage.

The fifth and sixth steps are the heart of it. The bank is paid with a cheque that was produced in front of the registrar and recorded in an audited transaction, and the buyer's ownership becomes final only when the bank's release letter comes back. The page says so in its own description of the service: the sale is completed after the mortgage release letter from the bank is submitted.

The page does not give a deadline for the bank to issue its release letter, and it does not say what happens to the transaction if the letter is late. It also restricts who may apply: individuals as seller and purchaser, with a company required to complete its registration with the Department first.

What the Land Department charges

The fee section of the mortgaged-sale page lists three groups of charges: those for the release, those for the sale and those for a new mortgage. The table sets out the lines that the page describes clearly.

For the villa in the worked example, the two release lines come to AED 1,290 plus AED 315, or AED 1,605. The registrar sale fee is AED 4,200, because the value is above AED 500,000.

Some lines are less clear. The page shows an amount of AED 1,000 with no description and an entry of AED 525 whose wording is ambiguous. The AED 1,290 for the release procedure is not broken down. On the separate mortgage release page, the Department lists AED 1,000 for the release of an ordinary mortgage, AED 250 for the title deed, AED 10 as a knowledge fee and AED 10 as an innovation fee, which add up to AED 1,270, together with a service partner fee of AED 300 plus VAT. The two pages therefore do not give quite the same total for the same step, and neither explains the difference.

The page names four ways to pay the Department's charges: ePay, Sadad Dubai, Noqodi, or a manager's cheque in favour of the Land Department. As with the 4%, it does not say which party bears the release charges. Under Article 3 of the 2013 resolution, a fee with no other rule is paid by the applicant.

When the buyer borrows as well

If the buyer is financing the purchase, the transaction carries a third registration: the buyer's own mortgage. Under Article 7 of the mortgage law, that mortgage takes effect only once it is registered with the Land Department, and the mortgagor, here the buyer, pays the registration fees unless the parties agree otherwise. The Central Bank's mortgage regulations add, in Article 3, that a lender must take a first-ranking mortgage in its own name over every property it finances. The buyer's bank therefore needs the seller's mortgage gone before its own can take first place, and the Department's page completes the release, the sale and the new mortgage together.

The page prices the new mortgage at 0.25% of the mortgage value, with AED 250 for the title deed. A worked example: if the buyer of the AED 2,000,000 villa borrows AED 1,400,000, the mortgage fee is 0.25% of that sum, which is AED 3,500.

Timing has a price. A note on the page says the registrar's fees for the mortgage are waived when it is registered on the same day as the sale, and that a service partner fee of AED 4,000 plus VAT applies when it is registered the next day.

The page still asks for three manager's cheques when a lender stands behind the buyer. It does not say which of them the buyer's bank issues, or how the buyer's own contribution and the bank's money are combined. Those arrangements are made between the buyer and the lender.

Clearing the mortgage before the sale

A seller with the means to repay the loan from other funds can take the mortgage off the register before any buyer appears, and then sell the property as an unencumbered one through the ordinary sale service. The Land Department's mortgage release page describes that standalone route.

It offers two channels. Online, the customer agrees the release requirements with the bank; a bank employee enters the documents in the Department's online mortgage system and a bank auditor reviews them; the transaction passes to the Department for audit, with the Department's fees deducted from the bank's account; and the outputs are emailed to the customer. The only document the page lists for the owner on this route is a UAE ID, shown for identification. At a trustee centre, the owner brings the bank's letter for the release and the same ID, and the centre checks the documents, enters and audits the transaction, takes payment and emails the outputs.

The page gives a processing time of 10 to 15 minutes. What comes out is a mortgage release letter and the updated title document, issued electronically. The early settlement cap applies in the same way as in a sale, since the loan is repaid before its term in both cases.

What the sources leave open

Read together, the law, the fee resolution, the three service pages and the two Central Bank texts answer most of what a seller asks, and leave a handful of points to the loan contract and to the lender:

• how long a liability letter remains valid, and whether its figure includes the early settlement fee;
• how soon after payment the bank must issue its release letter;
• which party pays the release charges, and how the 4% is shared when the agreement is silent on it beyond the equal split in the resolution;
• what the undescribed AED 1,000 and the AED 525 entries on the mortgaged-sale page stand for;
• how the Central Bank's cap in the Consumer Protection Standards annexure sits beside the "actual cost" wording of the mortgage regulations for a fixed-rate loan;
• whether, and on what terms, a lender would approve a buyer taking over the seller's loan under Article 10 of the mortgage law.

The bank's cheque is written before anyone signs, and the buyer's ownership is final only when the bank's release letter comes back.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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