Dubai's Property Court hears first default cases

'Two years ago the legal framework for mortgages was very skeletal,' Lynette Brown, Partner - Banking & Finance Department of legal firm Al Tamimi, told delegates at Cityscape Connect. 'Now we have a mature legal system.'

According to Brown, the two most important laws to be enacted over the past year were the Interim Registration Law - allowing banks and buyers to register properties prior to completion - and the Mortgage Law.

The latter is likely to be tested as more cases of investor defaults come to light, following the economic crisis and the steep fall of property prices. The Mortgage Law allows banks to give borrowers 30 days notice in the event of a default before passing the case before a judge. The judge can then at his discretion allow borrowers a further 60 days extension if they can show particularly distressed circumstances or can find means of payment. The property then passes to the Land Department for auction.

The regulatory bodies have also recently issued a confirmation that non-UAE nationals are also eligible to purchase properties at auction if these are in zones where foreigners may own.

The Property Court will see a number of cases of mortgage defaults within the coming months as borrowers who find themselves unable to make repayment schedules leave the country.

'One of the major problems between borrowers and banks is the lack of trust,' said Brown. 'Borrowers are often scared to go and see the banks if they are having problems paying because they have heard stories of people going to jail for a bounced cheque.'

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