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Ribis: A Halachic Anthology
Rabbi Joseph Stern

B. Mortgages

Real estate transactions can be structured in several formats. The most common occurrence is for a bank to finance the purchase of a house. The bank receives regular interest payments as well as the gradual return of the principal. Generally, this type of transaction poses no halachic problems, especially if a bank controlled by non-Jewish interests is utilized. (The status of a financial institution controlled by Jews will be discussed in a subsequent section.) Occasionally, however, the financial intermediary is bypassed, and a mortgage agreement is contracted directly between the parties. Rav Moshe Feinstein considers such a transaction to be Ribis K'zuza (a biblical violation). He considers this to be analogous to the Talmud's case, "I am selling you a field. Take title now and pay me later."

Under those circumstances, the seller may not consume any of the field's produce nor may he derive any benefit from the purchaser. Any consideration rendered to the seller would be in effect a reward for temporary use of his funds and, consequently, Ribis. Rav Breish agrees that any mortgage agreement contracted between Jews is prohibited without a Heter Iska, differing only slightly to assert that the Ribis involved would be mid'rabbanan, of rabbinic origin.

He then considers the halachic ramification of a further sale of the property, a second mortgage. A sells a house to B, utilizing a Heter Iska. Now, B proceeds to sell the house along with its mortgage to non-committed Jew C. C refuses to accept (to comply with) a Heter Iska. Rav Breish considers the possibility that the original Heter Iska between A and B would apply to C as well. This hypothesis is only tenable if one maintains that A and B have a unique relationship, that A in effect has a , personal lien, against B as well as the right to foreclose the house if payments are not met. If such a personal obligation exists and if one postulates that B maintains that relationship even after he has sold the house (e.g. if C can't meet his obligations B might be responsible to reimburse A), the original document of Heter Iska between A and B might devolve upon C as well. However, the Chelkas Yaakov proves conclusively that a separate Heter Iska is required between A and C, especially in light of dina de'malchusa dina (civil law), which asserts that B's obligation to A only exists while B is in possession of the home.

In a marginal note, Rav Breish's children question the permissibility of a far more frequent transaction. A's mortgage is financed by a bank. He then sells the home complete with the mortgage to B. Wouldn't this be analogous to the following case cited in the Talmud?

A, who had borrowed money from a Gentile, is now ready to pay his debt. His colleague B proposes to take over the debt and eventually pay the Gentile. This transaction is prohibited.

Despite the Gentile's presence in the deal, our Rabbis consider such an arrangement to be . Similarly, the presence of the non-Jewish bank should matter little. The mortgage is being transferred from Jew to Jew and should be prohibited rabbinically, if not biblically. Rav Breish strongly differs, noting that selling a mortgaged house from Jew to Jew was a very common practice even amongst the most devout.

This practice is not analogous to the above Gemara but rather to a similar case cited in that context.

Jewish debtor A presents his colleague B to the Gentile creditor, who instructs the debtor to place the money on the ground. Only then does B take title to the money. The Chelkas Yaakov argues that so long as no money is transferred from Jew to Jew (even if the Gentile doesn't instruct the debtor to place funds on the ground), no Ribis prohibition exists.

C. Penalty Fee

May a fee be levied for late payment? Unlike the ordinary Ribis construct, the interest involved is only conditional. Only if the funds are not returned by a certain date, is a surcharge imposed. Arguably, this payment could be considered a fine rather than Ribis. This question, discussed at some length in the responsa Chelkas Yaakov, was in actuality already a matter of controversy among medieval commentators (Rishonim). Both Rav Yosef Karo and Rabbi Moshe Isserles (codifiers of the Sephardic and Ashkenazic viewpoints in Shulchan Aruch, respectively) prohibit such an arrangement. However, the Sma not only tolerated penalty fees but actually saw the practice as a preferred manner of structuring all loans so as to overcome Ribis. The Sma's Heter Iska was designed as a penalty fee in case prompt payment was not received.

Rav Breish suggests a compromise, proposing that if the creditor insists on payment of the penalty, the debtor should arrange for an agent's involvement.

The agent's primary function is to persuade the creditor not to sue in court. As compensation for his efforts, he is paid a sum equivalent to the penalty fee. If, despite the agent's best efforts the creditor still insists upon payment of the Ribis, the middleman is permitted to give this sum to the lender. In this instance, no Ribis is being transferred from the creditor to the debtor. Rather, the agent is giving his own funds to the creditor.

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