Question:
Respected Muftis at the Jameah.
Assalamualaikum,
I am writing to you from Toronto Canada. I came to know of your organization from Sheikh Hanif Hanslot who visited Canada during Ramadan. I would appreciate it if you could answer the question below at your earliest convenience. May Almighty Allah reward you abundantly for your service.
I would like to know if the following finance agreement is permissible or not according to the Shari’ah.
Please find below an example of the financing agreement.
1. Buyer agrees upon a price with the Seller of the house as follows:
Option 1: If entire payment that is agreed upon is paid today, then the price is $200,000
————
Option 2:
————-
Alternatively the buyer agrees to pay over a 5 year period the following, on the condition that the seller of the house can sell this contract to a third party:
Deposit $ 50,000
monthly payments of $1,013 for 60 months $ 60,780
Payment at end of 5 years $ 135,483
——————
Total Payment $ 246,263
2. Seller accepts 5 year contract from the buyer and sells the contract to the bank, the bank pays the seller $150,000 and accepts to honour the contract that was originally made between the buyer and seller i.e. the buyer now makes the payments of $1,013 for 60 months and the final payment of $135,483 to the bank instead of to the seller
Please let me know if this contract would be acceptable and any other considerations that need to be addressed to ensure that this contract would meet the requirements under Shari’ah.
Jazakallah.
Answer:
The transaction should be conducted in the following manner:
The seller makes a proposition, that he seeks $200 000 for his house if bought cash and $246 263 if bought on credit, the payment of which will be made in a specific manner e.g. instalments. Thereafter the buyer should choose any one of the two options given to him.
At the time of the agreement, neither should the seller nor buyer make the condition that the seller can sell this contract to a third party, infect no mention of this condition should be made, or the buyer should merely be asked to make the payments to so and so (a third person).
If the seller, after presenting his deal, does not get any response from the buyer during their meeting (the sitting in which the agreement is taking place) and after one month he (the buyer) pays his first instalment, then this transaction is invalid.
The condition you make mention of in your question, that the seller sells the contract to a third party for $150 000, is unlawful and takes the ruling of Riba (interest). It is incumbent upon the buyer to prevent the seller from doing so and he should express his resentment towards it. If the seller now sells the contract to a third party for that price, despite the disapproval of the buyer, then he (seller) will be sinful and the buyer will be allowed to purchase the house.
And Allah Ta’ala knows best
Mufti Muhammad Ashraf
Darul Iftaa
Jameah Mahmoodiyah
Springs
15 January 2005
04 Thul Hijjah 1425