It is Forbidden to Mortgage one`s Property in Favor of Another in Exchange for a Sum of Money
A certain company wants to get a loan from a certain bank, but the latter stipulates that the former mortgage a property in its favor. Since the company has no property, a friend volunteered to mortgage his property as collateral. Is it permissible for the friend to receive an amount of money in exchange for that?
Praise be to Allah the Lord of the Worlds.
Mortgaging one`s property in favor of another person is a bare contract free of charge; thus, it isn`t permissible for the owner of the property to receive any sum in exchange for mortgaging it in favor of the debtor (Company). This is because the property and its benefits belong to the owner.
If the debtor is unable to make payments, the property is sold to settle the debt and the company becomes indebted to the owner of the property. And Allah The Almighty knows best.