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The Arabic word "rahn" means withholding or holding back. Derivatives of the word are used in Quranic verses; for example (Al Tur: 21)
And those who believe and whose families follow them in Faith, to them shall We join their families: nor shall We deprive them (Of the fruit) of aught of their works: (Yet) is each individual in pledge for his deeds.
Every soul will be (held) in pledge for its deeds.
The word "rahn" (mortgage or security money) in Islamic jurisprudential terminology means: "Possessions offered as security for a debt so that the debt will be taken from them in case the debtor failed to pay back the due money." This kind of contract is Islamically legal for the following reasons:
In the Quran we read the stipulation to people in travel conducting business transactions to have the conditions put in writing by a scribe; and if they could not find a scribe, then a pledge with possessions may serve the purpose. (AI Baqarah: 283)
If ye are on a journey, and cannot find a scribe, a pledge with possession (may serve the purpose). And if one of you deposits a thing on trust with another let the trustee (faithfully) discharge his trust, and let him fear his Lord. Conceal not evidence; for whoever conceals it, his heart is tainted with sin. And Allah knoweth all that ye do and (Al Muddathir: 38)
Every soul will be (held) in pledge for its deeds.
It is reported in the sunnah and the biography of the Prophet (PBUH) that he borrowed food from a Jew in Madinah and offered his shield as pledge. Abu Huraira reports that the Prophet (PBUH) said, "A riding animal is used in return for its expenses if it is pledged; and milk is drunk in return for its expenses, if [the animal] is pledged. He who rides the animal or drinks the milk has to pay the expenses." He (PBUH) said, "A pledge does not become the property of the mortgagee; it remains the property of its owner who mortgaged it: he is entitled to its benefits, and he is liable for its expenses."
This kind of contract is legal both in travel and in residence according to almost all scholars. Only Mujahid differed and said that a pledge is legal only in travel by the evidence of the Qur'anic verse cited above. However, the opinion of the majority is nearer to the truth, and travel is mentioned in the verse, as a scribe is very hard to find in travel.
The pledge does not become binding except with reception of the object. It cannot be conducted by other then by a person who is free, accountable, adult and discerning under no interdict for insanity or bankruptcy. Moreover, it has to be by permission of the mortgagor if the pledge is transportable, then receiving it means vacating it on the part of the mortgagor and taking hold of it free of any hindrance by the mortgagee.
As a rule, any object, which can be sold, can be pledged. This is because the aim of the mortgage is get security for a debt, which can be taken from the price of the pledge in case the mortgagor failed to pay back the debt and get back the pledged object. What cannot be sold cannot be mortgaged, except fruit before its goodness appears. However, certain scholars do not give a definitive judgment on that.
It is legal for a person to borrow something, which he can pledge with a man whom he should specify and name to the lender. This practice is legal by agreement among all scholars. The mortgagor should mention to the owner of the object the name of the mortgagee, the period and the amount of the pledge. This is to safeguard the interests of the owner. If the mortgagor breaks any one of these conditions, then the mortgage is incorrect, and the owner would be considered as if not permitting the mortgage in principle.
If the mortgagor and the mortgagee agree to place the pledge with a third person, then they cannot change this agreement as long as the third person remains honest and true. Thus they cannot move the pledge from his hold.
If the mortgagor and the mortgagee agree to give permission to the third person to sell the object for a specified sum of money, it is not up to him to disagree or sell the object for a lesser amount. However, he can sell it for a higher price, as this is in the interest of both parties.
If the mortgagor pays back part of the debt, the mortgage does not terminate; rather, it stays till the whole sum is paid back. This is because the debt is linked to the entire pledge. Thus the pledge is withheld until the entire debt is paid back. The author of Al Mughni quotes from ibn al Mundhir: "All scholars from whom I have taken knowledge agree that if a person pledges something against money, and then paid back some of this money and wanted to take back any part of the pledge, he is not entitled to that. He cannot take back any part of the pledge until he has paid back all the due money or is exempted by the creditor. This is the opinion of Malek, al Thauri, al Shafi'i, Ishaq, abu Thaur and all people of knowledge. This is because the pledge is a security for a right, and it cannot be removed except by paying back the entire due money, as in guarantee and testimony."
The mortgagor cannot dispose of the object by selling, renting, granting or endowing it or in any other way. Such practice is incorrect as it harms the interests of the mortgagee. Thus it cannot be done except with his permission.
A pledge is a trust in the hands of the mortgagee. Thus, if it is damaged or perishes, but not out of neglect or misuse on his side, he is not liable for that. This is the opinion of Imam 'Ali which is adopted by 'Ata' , al Zuhri, al Auza'i, al Shafi'i, Abu Thaur and Ibn al Mundhir. Shuraih, al Nakh'i and al Hasan say that the pledge covers the debt in its entirety even if it exceeds its value, as it is reported that the Prophet (PBUH) said, "A pledge is for what it is for."
Imam Malik says, "If the damage is by some apparent reason like death or fire, it is the liability of the mortgagor; and his claim otherwise is not to be accepted.
According to Abu Hanifa - and this is al Thauri's opinion - the mortgagee is liable for the value of the pledge or for the debt whichever is less. 'Ata' narrates that 'Omar reported that a man pledged a mare and it died in the keep of the mortgagee. The man came to the Prophet (PBUH) and told him that, and the Prophet (PBUH) judged that he was liable. Those who adopted the first opinion provide as proof the statement of the Prophet (PBUH), "A pledge does not become the property of the mortgagee; its owner is entitled to its benefits and is liable for its expenses."
Conditions accompanying a mortgage:
These conditions are of two kinds:
First: Valid conditions: These do not go against the requirements of the contract. An example is the mortgagor's stipulation for the pledge to be kept with a trustworthy person (or persons); and that this person (or these persons) sells the pledge if the mortgagor failed to pay back the debt. Abu Hanifa and Malik see that it would be a valid condition for the mortgagor to stipulate that the mortgagee sells the pledge in this case. However, Al Shafi'i does not see this as a valid condition as it is a delegation in something that goes against the purposes of the two parties.
Second: Incorrect or corrupt conditions. Examples of these conditions are the following: The mortgagor stipulates that the pledge should not be sold if he failed to pay back the debt on time; or that the debt should not be deducted from the price of the pledge; or that the pledge should be sold at any price. These conditions render the mortgage contract corrupt.
Another such condition invalidating the contract is the stipulation that the mortgagee could benefit from the pledge.
Benefiting from a pledge according to Islamic Shari'ah and differences on it:
Is a mortgagee entitled to benefit from the pledge? For example, if the pledge is a house, can the mortgagee reside in it?
This question needs to be delineated in detail. If the mortgagee seeks permission from the mortgagor to dwell in the house, and even if the mortgagor gives this permission (in the case of a pledge against a debt), then the mortgagee is not entitled to dwell in the house. This is because using the house in this case would be a benefit resulting from a loan. The Prophet (PBUH) stated, "Every loan resulting in a benefit is usury;" thus it is illegal. If the pledge is a house, and the mortgagee hires it from the mortgagor for an adequate rent without favoritism, the rent is correct and legal. It would be different from the mortgage contract and would be considered a rent contract. This is the opinion of Imam Ahmad. On the expiry of the rent the mortgage goes back to its origin, and the mortgagor is not entitled to dispose of the house by way of selling, renting or by another mortgage except with the permission of the mortgagee.
The mortgagor is not entitled to draw any benefit from the pledged object except with the permission of the mortgagee. Thus he cannot let, lend or pledge the house in another mortgage except with the permission and consent of the mortgagee. However, in case the house was far superior in value to the debt (say, the debt was one thousand Dollars and the house was worth 20 thousand) and in case the mortgagor needed to borrow another thousand, then he can pledge the house in another mortgage for that amount; and he does not need the mortgagee's consent for that. Nevertheless, if the debt exceeds the pledge in value, the mortgagor cannot pledge it in another contract.
If the mortgagor wishes to repair the pledge, it is within his right to do that; and the mortgagee cannot prevent him. If the pledge needs expenses for maintenance, these would be the liability of the mortgagor, as the Prophet (PBUH) stated, "A pledge is the property of the mortgagor: he is entitled to its benefits and he is liable for its expenses."
When the time comes, it is legal for the mortgagee to give his permission to the mortgagor to sell the pledge; and he would get his money back from the price of the pledge. The mortgagee has supreme right to get his debt back from the price of the pledge over all other creditors regardless whether the mortgagor was alive or dead. This is the rule, which banks go by nowadays.
Reference:
www.islamic-world.net/economics/mortgage.htm
