Pawning and Mortgaging
Its Definition
It is the security for a debt against an article that can cover it or its value (in case of non-fulfillment). For example, a person seeks to borrow something from another as a debt and the latter demands from the former to give him an article as a security, such as an animal, real estate properties, or something else, in order to secure the debt. If the fixed term ends and he does not repay the debt, he can take it from the collateral that is kept with him. The creditor is called the Murtahin, the debtor is called the Rahin and the article given as collateral is called rahn.
Its Ruling
Pawning or mortgaging is permissible. Allah (SWT) says:
(And if you are on a journey and cannot find a scribe, then let there be a pledge taken (mortgaging).) (2:283)
The Messenger of Allah (SAW) said:
“The one who pawned an item has not been completely closed off from it; any increase in its value goes to him and any loss or liability must be borne by him.” ( Ash-Shafi‘i, Ad-Daraqutni and Ibn-Majah, and it is Hasan due to its numerous routes of transmission.)
Anas said, “The Messenger of Allah (SAW) pawned his armor with a Jew in Al-Madinah, and he took some barley for his family from him.” (Al-Bukhari)
Its Regulations
The regulations for pawning are as follows:
1) The collateral must be owned by the debtor and not the creditor. If the debtor seeks to take the collateral back from the possession of the creditor, he may not do so. As for the creditor, he may return the collateral, because it is his right in this regard.
2) Anything that is not valid for selling, is also not valid to put them up as collateral. The fruits and crops before the appearance of their goodness are an exception to this rule. The sale of such produce is forbidden, but using them as collateral is permissible. This is because there is no deceit of the creditor involved, as his debt is still confirmed as an obligation (to be repaid) even if the vegetation or fruits are damaged or ruined.
3) Whenever the fixed term of the collateral ends, the creditor can demand the repayment of the debt. If the debtor pays the debt, the creditor returns the collateral to him. Otherwise, his due should be deducted from the collateral, which is kept in his possession. If the collateral is used in trading and earns yield and growth, the creditor should recover his debt from it. If he fails to deduct, he can sell the article from his custody and deduct his due from it. Whatever is left after his deduction should be return to the debtor. If he cannot recover the whole debt even after selling the article and deducting the amount due, the rest of the amount will remain due to the debtor.
4) The pawned article will be entrusted to the creditor. If the article is damaged due to his negligence or breaking it, he will be responsible for it. If he does not cause its damage, he will not be responsible for it and the debt will continue to remain in the obligation of the debtor.
5) It is permissible to keep the pawned article with an honest person other than the creditor. This is because the objective of collateral is to secure the debt, and by keeping it with a trustworthy person it is achieved.
6) If the debtor stipulates a condition that the pawned article should not be sold after the fixed term ends, such collateral will become invalid. Similarly, if the creditor makes a condition that when the fixed term ends and the debtor does not return the debt to him, the pawned article will be belong to him, such collateral is also invalid.
The Messenger of Allah (SAW) said:
“The pawned item is not completely closed off; any increase in its value goes to him and any loss or liability must be borne by him.” (Ibn Majah with a Hasan chain of narration.)
7) If any dispute arises between the creditor and debtor over the value of the debt, the statement of the creditor should be accepted by his swearing an oath. This is the case if the debtor does not produce any proof. If they both disagree about the pawned article, for example, the debtor claims that an animal with its child was the pawned article, but the creditor denies it and claims that it was only the animal. In such case, the statement of the creditor should be accepted by his swearing an oath, unless the debtor produce evidence to prove his claim.
The messenger of Allah (SAW) said:
“The proof is to be provided by the plaintiff, otherwise the defendant has to take an oath.”
( Al-Bayhaqi with a Sahih chain of narration and its basis is in Al-Bukhari and Muslim.)
8) If the creditor claims that he returned the pawned article and the debtor denies it, the statement of the debtor is accepted by his swearing an oath, unless the creditor produces the proof to confirm that he returned the article.
9) It is permissible for a creditor to use a pawned animal for his ride and drink its milk if such usage does not exceed his actual expenditures on the pawned animal. He must observe fair and just consideration regarding the use of the collateral and therefore, he should not benefit from it more than the actual expenses that he spends on it. The Messenger of Allah (SAW) said:
“A pawned animal can be used for riding due to his spending on it if it is collateral, and the milk of a pawned camel may be drank due to his spending on it if it is collateral. The responsibility of carrying for it and feeding it is upon the one who rides on its back and drinks its milk.(Al-Bukahri)
10) The earnings received from the collateral such as rent, yield and progeny belong to the debtor. Therefore, it is his responsibility to give it drink and provide whatever it requires for its livelihood. The Messenger of Allah (SAW) said:
“A pawned item belongs to the one who gave it as collateral. Any increase in its value goes to him and any loss or liability must be borne by him.” (A similar Hadith has been mentioned previously. )
11) If the creditor spent on the pawned animal without permission from the debtor, he does not have the right to demand it from him. In cases where obtaining such permission is too difficult because he is far away, then he can demand reimbursement from him for what he spent on it. This applies only if he spent on it with the intention of seeking reimbursement for it from the debtor. Otherwise, it is not refundable to him, because whoever perform an act voluntarily, he has no right to demand compensation for it.
12) If a pawned building becomes damaged and the creditor repairs it without permission from the debtor, he has no right to demand compensation from him for it. If a damaged item becomes too difficult to remove, such as a piece of wood or a rock, he can demand its labor charge from the debtor.
13) If the debtor dies or becomes bankrupt, the creditor has more right to the pawned article than other people whom the debtor owes. If the fixed term ends, he can sell it and recover his debt from it. Whatever is left over after his deduction should be returned to the debtor. If the debt is not covered by selling the collateral, he should share the rest of debt with other debtors.
Textual Format for Registering the Mortgage
In the Name of Allah and all praises are due to Him.
“So-and-so agrees that he owes a debt of such and such amount payable to so-and-so. The fixed term of the debt is the end of so-and-so month or year. The above-named has given collateral under the custody of the named creditor being a security for his above-mentioned debt. The above mentioned will be in his possession and under his custody until the term expires. The collateral is the entirety of such and such building or the entirety of such and such thing, which is legally sound, free from any defects, possessed and held by the creditor. Therefore, the above said collateral is legally acceptable to the creditor. This agreement has been ratified on such and such date.