What happens when a borrower defaults on a mortgage in Dubai?

There are various legal issues that one may face in Dubai if he or she fails to repay the mortgage. Here’s a comprehensive look at the process and consequences when a borrower fails to meet their mortgage obligations in Dubai:

Initial Consequences of Default

The most common situation of default is when a borrower misses two or more payments and then the lender will attempt to come to an agreement with the borrower to solve the issue. But this does not mean that the lender will sit back and watch the borrower default on his or her payments endlessly.

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As per the Dubai Mortgage Law in case of default by the borrower, a Notary Public is required to serve a 30 days’ notice to the borrower. This notice gives the borrower the information that he or she is in default and allows time for the borrower to cure the default. In case the borrower does not rectify the default within this time, then the lender has the right of taking the legal procedures in order to reclaim the property.

Repossession and Auction

In case there is no solution to the foregoing default, the lender may make an application to the execution judge for redemption of the property through a public auction. The money obtained from the auction is then utilized in paying the remaining mortgage, penalties, legal fees and any other cost that may be incurred. In case the total proceeds from the auction are more than the amount that is owed, the difference is given back to the borrower.

Impact on Credit Score

It is worth mentioning that missing a mortgage payment is very detrimental to the credit score of the borrower. This is a negative credit listing that may remain on the credit report of the borrower for a period of up to six years and this makes it hard for the borrower to get future loans or any other credit facilities.

Measures taken regarding Travelling and Legal Issues

Sometimes, if the borrower defaults the payment of the debt, then the borrower is restricted from traveling out of the United Arab Emirates until the time the debt is cleared. Also, the lenders can ask for the freeze of the borrower’s bank accounts and other forms of assets. It can also result in civil suits and in the worst scenarios criminal charges such as issuing of bad checks among others.

Negotiation and Debt Restructuring

Those borrowers who are in the middle of financial problems should approach their creditors to come to an agreement of altered terms of repayment of the debt. This can include offering the borrower an option to lengthen the loan period, change the interest rate or come up with a new payment plan that will suit the borrower. This means that, to prevent the most severe penalties which come with default, it is advisable to communicate with the lender as soon as possible.


Mortgage Default in Dubai Quiz


Seizes the property immediately
Serves a 30-day notice through a Notary Public
Files a lawsuit

The lender initiates legal proceedings to repossess the property
The borrower is arrested
The lender writes off the debt

No impact
Negative impact for up to six years
Positive impact

Yes
No
Only if they request it

Ignore lender communications
Negotiate with the lender to restructure the debt
Leave the country

Quiz based on information from 95dubai.com