Dubai Mortgage Law: Procedures for Selling a Property with an Outstanding Loan Detailed

A Dubai resident who lost their job and intends to return to their home country has sought legal clarification on selling a home that still carries an outstanding mortgage. The key issues are whether a buyer can take over the remaining loan and what approvals the seller must obtain.

Legal Framework for Mortgage Transfers

Ashish Mehta, founder and Managing Partner of Ashish Mehta & Associates and a lawyer qualified in Dubai, the United Kingdom and India, outlined the applicable rules. Under Dubai law, specifically Article 10 of Dubai Law No. 14 of 2008 Concerning Mortgage in the Emirate of Dubai, a mortgagor may sell, donate or otherwise dispose of a mortgaged property only with the approval of the mortgagee (the lending bank). In addition, the purchaser must agree to assume all obligations under the original mortgage contract. The mortgagee may also require that both the mortgagor and the purchaser be jointly liable for those obligations.

“A Mortgagor may sell, donate, or dispose, in any other manner, of the mortgaged Real Property Unit or Real Property, or create any Real Right or personal right on the same only with the approval of the Mortgagee and provided that the person to whom the Real Property is disposed of agrees that all obligations of the Mortgagor under the Mortgage contract will be transferred to him,” the provision reads. It also allows the mortgagee to stipulate joint liability in the contract.

Two principal options exist for the seller, Mehta explained.

Option 1: Sell the Property and Clear the Mortgage

The homeowner may sell the property and use the sale proceeds to repay the outstanding loan. The practical steps are as follows.

First, obtain a liability letter from the bank that confirms the outstanding amount, the sum needed to settle the mortgage, and any early settlement fees. Second, agree on the sale terms with the buyer, factoring in the outstanding mortgage, and arrange to discharge the loan from the sale proceeds.

Third, register the transaction with the Dubai Land Department (DLD), which offers a service called “Registering the Sale of a Mortgaged Property.” Both seller and buyer must attend a Real Estate Registration Trustee Centre with the required documents. The transaction is initially registered to protect each party’s interests while the mortgage is being settled.

Fourth, settle the outstanding loan. Under DLD procedure, manager’s cheques are used: one payable to the bank for the debt and another made out to the seller for any remaining proceeds, if applicable. The bank then issues a mortgage release letter.

Fifth, complete the ownership transfer. Once the mortgage release letter is submitted, the DLD finalises the mortgage release and property sale registration. If the buyer is obtaining new financing, the corresponding mortgage registration steps must also be completed.

This route is appropriate when the buyer pays from personal funds or arranges separate financing, and the seller’s existing loan is cleared from the sale proceeds. Mehta advised confirming the precise documentation and payment arrangements with the bank and the Real Estate Trustee Centre before closing.

Option 2: Transfer the Mortgage Obligations to the Buyer

Alternatively, the seller may seek the bank’s approval for the buyer to assume the existing mortgage, provided the buyer is willing. In that case, the seller should approach the bank with details of the proposed transaction and ask whether the lender will permit the transfer.

The bank may assess the buyer’s financial situation and require revised or entirely new financing documentation. Any transfer of the property and the associated mortgage obligations must be documented and registered in line with the bank’s approval and applicable DLD requirements.

Next Steps and Clarifications

Based on the legal provisions and procedures described, the seller can consider selling the property before leaving the country. The best option depends on whether the bank allows the buyer to assume the existing mortgage or insists on repayment from the sale proceeds. The seller should obtain written confirmation from the bank of the chosen arrangement and coordinate with the DLD or a Real Estate Registration Trustee Centre to complete the transaction.

For further guidance, the lender and the Dubai Land Department should be contacted directly.

Mehta noted that the information is provided for general guidance only and does not constitute legal advice; seeking formal legal counsel is recommended. Full details of his firm are available at www.amalawyers.com. Readers can email questions to [email protected] or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.