We are excited to introduce our new ribbis awareness initiative, addressing various transactions that raise ribbis concerns. Over the next few weeks, we will publish a series of articles that highlight ribbis issues that people might not be aware of, which could pose problems during the home purchasing process.
PART I
Many business transactions can potentially involve problems of ribbis (halachically prohibited interest). Often, the first major transaction involving issues of ribbis that people encounter is the purchase of their first home.
As we will see, the way to avoid ribbis in each particular situation will depend on the specific conditions of the loan being taken for the home purchase. BHI is on the verge of launching an initiative enabling people to generate a heter iska document tailored to their specific loan, and these articles provide the background necessary to understand the need for the heter iska and how this document works.
Many ribbis issues can be avoided through minor adjustments made before a loan is issued. Once the parties have already signed on a mortgage loan document, however, these issues become much more complicated, and some might even be irreparable.
The first step in avoiding ribbis is choosing a suitable lender from which to take a mortgage or other loan. If a bank or lending institution is owned by Jews or at least one Jewish partner, and it does not have a heter iska, it is categorically forbidden to take an interest-bearing loan from them.
(This applies only if the Jewish-owned company issues the loan — not if it merely manages it.)
Therefore, before beginning the approval process for the loan, you must find out whether the lender is Jewish, to determine whether a heter iska is needed. Do not assume that simply because your mortgage broker is frum, he will ensure that the loan involves no ribbis issues; remember to ask whether the lending institution is owned by Jews.
Furthermore, do not rely on someone’s assurance that the lender has a heter iska from such-and-such Rav and that everyone borrows from him. Often, these claims are simply untrue, or the heter iska isn’t appropriate for the specific type of loan the customer is taking.
(As we explained in BHI issue 720, a heter iska establishes that the money being given by the financier is not a loan, but an investment that involves risk for the financier if the investment loses money.)
We recommend that you procure a copy of the heter iska the lender is using early on and ask a Rav who is well-versed in ribbis matters to review it and ensure that it is valid.
Enhancements to the Heter Iska
Beyond the basic heter iska documents that are widely used, Rabbanim with expertise in ribbis matters may add elements to enhance the validity of the heter iska document. The following are a few examples:
Many banks that are owned by nonreligious Jews have a heter iska, but consider this document rabbinic mumbo-jumbo. Sometimes, they refuse to sign the document themselves, or to give a copy to a customer asking for it. According to many poskim, this invalidates the heter iska. Even if they do sign, some lenders assume that if they ever have to fight in court to override the heter iska, they will claim that it was a mere religious document and does not have legal legitimacy. In order to ensure that the heter iska is valid, some Rabbanim add an arbitration clause, appointing beis din as the arbitrators if any issue arises. According to many poskim, only a heter iska with this clause is reliable.
Today, banks typically sell their loans to other financing corporations. Such banks generally include in their heter iska, that the heter iska is valid only until the loan is sold, because federal agencies that buy loans (such as Fannie Mae and Freddy Mac) would never agree to buy a loan that includes a heter iska. Now, a heter iska is not necessary if a loan is taken from a non-Jew, but the Chavas Daas (Yoreh De’ah 168:1) rules that if a Jew issued a loan with a heter iska and included a clause requiring the borrower to pay interest to a non-Jew if he sells him the loan, then all the ribbis paid to the non-Jew is considered as though it is paid to the original Jewish lender, and because this is ribbis d’Oraysa, the lender must return it to the borrower (see, however, Sh’eiris Chaim and Chelkas Binyanim ibid.).
To remedy this issue, an enhanced heter iska includes a clause that if the loan is transferred to a non-Jew, that transaction will not be framed as a sale. Rather, the iska structures this transfer in such a way that the Jewish lender serves as an agent to find a non-Jewish bank to lend money to the borrower to repay the first bank. The borrower will then owe that money to the non-Jewish bank (see Mishnas Ribbis p. 587 and Yeshurun vol. 39 from p. 935).
These clauses are some of many other improvements that have recently been added to the basic heter iska texts.
For more information and iska templates, visit Ribbis.businesshalacha.com
