Mortgage Finance Terms

Definitions:

• Financier: Any entity licensed to engage in real estate financing activities in accordance with the provisions of the Real Estate Financing Law No. 148 of 2001, as amended by Law No. 55 of 2014.

• Investor: Any natural or legal person desiring to obtain real estate financing through one of the entities licensed to engage in this activity.

• Real Estate: Residences, administrative units, service facilities, and buildings designated for commercial activity.

• Financing Agreement: The contract concluded between the investor and the financier for the purpose of real estate financing under one of the financing systems specified in the Real Estate Financing Law.

• Repayment Schedule: A schedule attached to the real estate financing agreement that outlines the number and value of installments due from the investor according to the agreed-upon time periods in the contract.

• Lease: Leasing a property with ownership transfer at the end of the lease period or during it (unless the investor expresses a desire not to take ownership during the agreed-upon contract period).

• Murabaha: A contract in which the financier purchases the property at a known price to sell it to the investor on installments, adding a specified profit, as outlined in the contract.

• Participation: A system of real estate financing in which the financier enters with its share as a partner to the investor. The financier commits to gradually transferring this share to the investor until it becomes fully owned by the investor at the end of the contract or to another party (subject to the investor’s approval).

Section A: Real Estate Financing Activities

Real estate financing for investment purposes, including residential properties, administrative units, service facilities, and buildings designated for commercial activities, encompasses the following activities:

1. Financing the investor’s purchase of real estate, construction, renovation, or improvement of a property.
2. Financing the investor’s purchase of real estate under the lease system.
3. Financing through the Murabaha system.
4. Financing the purchase of properties through the participation system.
5. Financing the purchase of usufruct rights for properties.
6. Financing the construction, improvement, or development of properties transferred to the investor under the usufruct right system.

The practice of real estate refinancing is carried out by refinancing entities engaged in real estate financing activities, using the formats approved for such activities by these entities.

Secondly: Financing Agreement

1. Financing procedures must be clear and specified to ensure that the investor is aware of all rights and obligations.
2. The value of the property or the costs of construction, renovation, or improvement are determined by an approved appraiser whose names are listed in the tables prepared by the regulatory body. This is done in compliance with the decision of the Board of Directors of the Authority No. 39 of 2015 regarding the Egyptian standards for real estate appraisal.
3. Real estate financing is based on an agreement between the financing parties according to the models approved by the Authority. This agreement includes, in particular, the following:
   • The terms accepted by the seller and the buyer regarding the installment sale of the property, including the property description and its price.
   • A description of the property free of defects and its price or the consideration for the usufruct.
   • The amount of the accelerated payment to be made from the property price or the lease deposit.
   • The number and value of the remaining installments of the price or the rental value or the consideration for the usufruct, with conditions for fulfillment that are specific or determinable, using a fixed equation tied to one of the official indicators specified by the Authority to calculate changes in the financing cost, whether an increase or a decrease, until it is fully paid.
   • The discounted value to be fulfilled in the case of early settlement according to the date of fulfillment from the years of financing installments.
   • The seller’s acceptance of the assignment of his rights from the installments of the price or the rental value or the consideration for the usufruct and the guarantees associated with them to the financier, under agreed-upon conditions.
   • The investor’s acceptance of the financier’s right to assign his rights to the investor’s side, the company, or one of the entities licensed to engage in the documentation activity.
   • The commitment of the investor, in the case of financing the purchase, construction, renovation, or improvement of the property, to mortgage it or register the right of the installment price to the financier, ensuring compliance with it.
   • The commitment of the agreement parties to prove its date.

Thirdly: Investor Awareness and Protection

1. The investor should disclose whether they have conducted a due diligence in accordance with religious and legal norms for the property subject to financing and have examined the ownership documents.
2. Financing procedures must be clear and specified to ensure that the investor is aware of all rights and obligations, including the risks of non-repayment.
3. Correspondence and documents sent to the investor should be written in a clear and specific manner, avoiding any ambiguous statements.
4. Disclosure of all expenses, commissions, and service fees provided by the financier to the investor for any reason and under any name.
5. The financier is committed to disclosing to the investor, at the time of contracting, all details of the expenses that will be added to the financing cost. The financier is not allowed to add to the financing cost except for other administrative expenses that are disclosed to the investor.
6. Notify the investor at least twice a year of all data related to the financing agreement, as well as in the event of any modification to this data. The notification should include the minimum information specified by the valid decision of the regulatory body in this regard.

Fourthly: Disclosure of Repayment Schedule

The financier commits to attaching to all real estate financing agreements a schedule for the repayment of financing, according to the following:

1. The repayment schedule should include the total value of the financing, its costs, the number of installments, their values, and due dates, as well as any other expenses added to or deducted from the investor’s account.
2. Investors should be notified of any modifications to the information provided in the repayment schedules within a maximum period of fifteen days from the date of the modification. The notification should include the reasons for the modification and supporting documentation.

Fifthly: Pledging and Guarantees

The financier commits to obtaining sufficient guarantees before granting real estate financing to investors, securing the value of the granted financing, according to the following:

1. The registration of privilege or mortgage on the secured property, specifying the priority order of the mortgage. In case the provided guarantee is insufficient, the financier has the right to register a mortgage on another property as collateral for the granted financing, as agreed upon with the investor.
2. In cases where the financier accepts additional guarantees for financing other than privilege or mortgage on the secured property, the proportionality of guarantees to the value of the granted financing for each investor should be considered. The type, conditions, and evaluation procedures of these guarantees, as well as the entity responsible for their assessment, should be specified.
3. The parties to the agreement must commit to proving the date of the financing agreement and documenting it officially in the real estate registry or by certification according to the circumstances, including the implementation formula.
4. Detailed information about alternative guarantees should be clarified in cases where the financier accepts guarantees for financing other than the privilege on the property or mortgage on the secured property, specifying the type, conditions, and value of these alternative guarantees.

Sixthly: Insurance

The financier is entitled to require the investor to insure in favor of the financier the value of their rights according to the real estate financing agreement against the risks of non-payment due to death, disability, or default in case the investor is a freelancer. This is subject to the following conditions:

1. The insurance must be with one of the licensed Egyptian insurance companies regulated by the authority.
2. The insurance company should pay the insurance amount to the beneficiary based on the investor’s death certificate or a medical certificate indicating their full or partial disability, issued by one of the specified medical entities designated by the insurance company.
3. In cases where the investor agrees to bear the cost of insurance, the value of the insurance installment that the investor is responsible for should be added to the financing installment that the investor commits to paying to the financier, who will then pay it to the insurance company.
4. In the event that the financier receives preferential treatment from one of the insurance companies, the financier must disclose this to the investor.
5. The insurance installment should be calculated on the outstanding debt balance rather than the total financing amount.

Seventhly: Criteria for Granting Financing

1. Real Estate Financing for Residential Purposes:
   • Financing should not exceed ninety percent of the unit’s value or the provided collateral, depending on the circumstances. In cases of construction, renovation, or improvement, financing can cover the entire value, not exceeding ninety percent of the unit’s value or the provided collateral.
   • The value of the property, construction costs, renovation, or improvement should be determined by one of the certified valuation experts listed in the tables prepared by the authority, taking into account the commitment to the decision of the Board of Directors of the authority No. 39 of 2015 regarding the issuance of Egyptian standards for real estate appraisal.
   • Verification of the investor’s creditworthiness and ability to repay through inquiries about the investor.
   • The value of the financing granted to a single investor should not exceed ten percent of the financier’s net ownership rights, for natural persons, their spouses, and minor children.
   • The value of financing and repayment terms should be proportionate to the investor’s income, with income being proven through documents that the financier finds reliable, including:
     • A recent income certificate issued by the employer.
     • A certificate from the legal accountant or the tax authority indicating the annual or monthly income of the investor.
     • Extract from the insurance statement instead of income items from the employing entity where the investor works.
     • The financier may accept other documents that they find reliable to prove the investor’s income.
     • Additional criteria regarding credit limits:
     • For individuals with low incomes: The financing installment should not exceed the maximum limit determined by the Board of Directors of the authority, not exceeding 35% of the investor’s total income, according to the decisions of the authority in this regard.
     • For individuals with incomes other than low incomes: The financing installment should not exceed 40% of the investor’s total income.

• Financing Percentage:
  • Financing should not exceed 80% of the unit’s or collateral’s value, with the possibility of financing the full value in cases of construction, renovation, or improvement, not exceeding 80% of the unit’s or collateral’s value.
  • The financing value for a single investor should not exceed 20% of the financier’s net ownership rights, whether for a natural person, their spouse, minor children, or for a single legal entity and affiliated parties (holding, subsidiary, and sister companies, provided that the contribution ratio is not less than 20%).
• Investor Evaluation and Property Valuation:
  • Inquiry about the investor’s creditworthiness, business management efficiency, the accuracy of information provided, and ensuring their good reputation in the market.
  • Determination of the property value or construction, renovation, or improvement costs by a registered appraisal expert, following the guidelines set by the authority.
  • Reassessment of the financed property at least once every five years, at the expense of the financier, considering the expected risks in non-residential real estate financing.
• Self-sufficiency and Cash Flow:
  • Verification of sufficient self-resources by the investor to service the provided financing and the adequacy of expected cash flows to meet their obligations.
  • Proportionality of the financing amount and repayment terms with the investor’s cash flows, with proof of repayment capability through income statements, a certificate from a legal accountant, or a tax certificate. For investors (legal entities) under construction, repayment capability is determined through estimated future cash flows outlined in the feasibility study.

Lease:

• The investor (lessee) commits to applying for financing to purchase a property under the lease system. The investor must commit to renting the property subject to the financing, and the financier may request a cash amount as an advance rental payment, constituting part of the rent at the time of contracting and not less than 5% of the total basic cost borne by the financier for owning the property.
• The lease contract should include the investor’s right to own the property during the contract period through early payment or after the investor has completed the payment of all lease installments.
• Rental payments should commence only after the investor (lessee) has taken possession of the property.
• The financier is responsible for the leased property throughout the lease term unless the investor (lessee) commits a violation or negligence. The financier may insure the property, and the cost of insurance is considered when calculating the rent paid by the investor (lessee).
• The ownership method for the investor (lessee) should be through a separate contract, independent of the lease agreement, based on a promise to sell at a symbolic or agreed-upon price.

Musharakah:

• The investor commits to applying for financing under the Musharakah system. The financier may request a cash amount, called the down payment, not less than 5% of the property’s price.
• Property ownership for the financed property should transfer to the financier in advance to enable its subsequent sale through Musharakah to the investor. The Musharakah contract is invalid if the initial purchase contract is void.
• The investor has the right to receive a discount from the total remaining balance upon fulfilling some or all installment payments, according to the discount rate specified in the repayment schedule attached to the contract.
• The property’s price for Musharakah sale to the investor should be determined and known to both parties at the signing of the sale contract. The price or profit cannot be left to unknown or determinable variables in the future.

Participation:

• The financier commits, in the participation contract, to a binding promise for the investor’s full or partial ownership according to their agreement, either in a lump sum or in installments.
• The financier purchases or constructs a property based on the investor’s preference, forming a partnership between them, according to each party’s share in the property’s price or construction costs.
• The financier commits to selling its share to the investor at the agreed-upon price in the participation contract after fulfilling all financial obligations.
• The partners may agree to entrust partnership management to the financier, the investor, or both.

Investor Obligations:

1. Declaration of examining the property subject to this agreement, with a thorough inspection that negates any ignorance, affirming conformity with the specifications outlined in the application submitted to the financier.
2. Timely repayment of financing installments according to the agreed-upon mechanism and schedule in the contract.
3. Promptly notifying the financier in writing in case of any legal claims by third parties.
4. Refraining from any actions on the property or unit, or arranging any real rights without obtaining prior written approval from the financier, unless the financing agreement explicitly allows such actions within specified limits.
5. Using the property in accordance with its designated purpose, as agreed upon in the contract, and refraining from making any modifications that would affect the property guarantee without obtaining written approval.
6. Pledging the property or establishing a mortgage on it, with the repayment of installments to the financier, as a guarantee for fulfilling the financial obligations.

Investor Rights:

1. The investor has the right, upon obtaining written approval from the financier, to transact with the property covered by the agreement, whether through sale, gift, or other transactions, provided that the assignee agrees to assume the investor’s obligations arising from this agreement.
2. The ability to lease the unit covered by the agreement or allow third parties to occupy it after obtaining written approval, with the financier having the right to stipulate the assignment of the right to the installment or compensation in return for its occupation.
3. The financier may require the investor to act as a guarantor for the assignee in fulfilling the obligations of this contract.
4. The financier cannot refuse approval for actions related to the unit, its lease, or third-party occupancy, except for serious reasons that jeopardize its interests and rights.

Financier Obligations:

1. Facilitating the investor’s inspection of the property with a thorough inspection that negates any ignorance.
2. Ensuring legal protection for the investor’s possession of the property covered by the agreement throughout the financing period in light of contractual obligations.
3. Notifying the investor at least twice a year of all information related to the financing agreement.
4. Providing prior notice to the investor of any changes to the payment address to which the investor is committed.
5. Informing the investor of any information related to their knowledge that may affect their property guarantee.
6. Disclosing the actual financing return rate in the case of fixed return rate calculation.
7. Disclosing all details of expenses that will be added to the financing cost. The financier is not allowed to add to the financing cost except for administrative expenses disclosed to the investor.
8. Allowing the investor to occupy and possess the property or unit peacefully with a guarantee of legal non-interference from the financier during the contract period. The financier should not legally interfere with the investor’s use of the property in light of the investor’s commitment to fulfilling all contractual obligations. In the event of any third-party interference with the investor, the financier must be notified in writing.

Financier Rights:

1. The financier has the right to pledge or assign its financial rights arising from the financing agreement, transferable and guaranteed, to one of the real estate finance companies, refinancing companies, or entities engaged in securitizing financial rights. The transferred rights carry all rights and obligations arising from the agreement, with the necessity of notifying the investor of this action.

Early Repayment:

1. If the investor wishes to expedite the payment of all or some installments of the price, they must notify the financier before the early repayment date, with a notice period of no less than one month. In this case, the due installments are reduced according to the early repayment schedule attached to the financing agreement, which specifies the reduced amount to be paid based on the date of early repayment and the remaining years of the outstanding price installments.
2. The financier is obliged to disclose to the investor the new repayment schedule after the early repayment of part of the financing amount. The schedule should outline the remaining installment values, the investor’s financial responsibilities resulting from early repayment, the periodicity and due dates, as well as the reduced amount in case the investor opts for early repayment at any stage of the financing period. The financier should provide a copy of the schedule to the investor.
3. The investor has the right to receive a discount from the total remaining balance if they fulfill all or some of the price installments, in accordance with the discount percentage specified in the repayment schedule attached to the contract. This outlines the implementation details of the discount, taking into consideration the fees associated with early repayment and the agreed-upon conditions in the financing agreement.

Eleventh: Transfer of Rights Arising from the Financing Agreement:

1. The conditions for transferring rights must include at least the following:
   • Acceptance by the seller to transfer their rights in installments of the price, rental value, or consideration for the usufruct, along with the associated guarantees, to the financier under agreed-upon conditions.
   • Acceptance by the investor of the financier’s right to transfer its rights to one of the real estate finance companies, refinancing companies, or authorized entities engaged in the securitization activity licensed by the regulatory authority.
   • The financier must notify the investor of the entity to which the rights have been transferred, and the transfer is effective concerning the investor from the date of notification.
2. The financier is obligated to disclose to those entities the names of investors who are debtors with respect to the transferred or mortgaged rights and the guarantees provided by them, along with their compliance with installments, due dates, and instances of non-compliance.

Twelfth: Execution on the Property and Entities Competent to Resolve Disputes: The conditions related to executing on the property and the entities competent to resolve disputes must include at least the following:

1. The financier is prohibited from commencing execution procedures unless the investor has been notified by a satisfaction notice or by providing sufficient guarantee, depending on the circumstances. The notice should include:
   • Alerting the debtor to fulfill the obligation or provide sufficient guarantee.
   • Specification of the installments to be fulfilled or the accepted guarantee by the financier.
   • Determination of the period within which the investor must fulfill the obligation or provide the guarantees, not less than sixty days from the date of the notice.
2. The right of the financier to take necessary actions towards executing on the mortgaged property in accordance with the procedures stipulated in the Real Estate Financing Law and its amendments, in the event of the investor’s non-compliance with due installments after the legally prescribed periods have elapsed, or if there is evidence of a deficiency affecting the property’s value due to the investor’s act or negligence, which undermines the guarantee provided to the financier for the granted financing. This includes taking action on the property or leasing it without obtaining written consent from the first party in this regard.
3. Specify the mechanism for settling disputes arising from the execution of the financing agreement. This applies in cases where the parties agree to resort to arbitration in this contract, in accordance with the provisions of Law No. 27 of 1994.

Thirteenth: Roles of the Real Estate Financing Broker, Real Estate Appraiser, and Real Estate Agent (whose names are listed in the tables of the Financial Regulatory Authority):

1. Real Estate Financing Broker:
   • A natural or legal person who facilitates between the financier and the investor by providing technical advice to the investor, familiarizing them with the financing risks, and preparing and submitting the file to the financier for a financial consideration borne by the financier. Responsibilities include:
     • Mediating between the financier and the investor in the financing agreement.
     • Presenting the terms of real estate financing to the financing applicant and providing them with a copy.
   • The broker is prohibited from receiving a fee, commission, or any benefit related to their work except from the financier who has authorized them to seek the contract.
2. Real Estate Appraiser:
   • A natural or legal person responsible for property appraisal and determining its value for all financing purposes. Responsibilities include:
     • Determining the market value of the property in the case of financing for purchase.
     • Estimating the cost of construction or renovation in the case of financing for construction or renovation.
     • Determining the base price of the mortgaged property in case of execution on the property.
     • The right to request necessary data and documents for the appraisal process.
     • Notifying the parties of the financing agreement through a registered letter, with acknowledgment of receipt, of the property value in a written report within 30 days from the date of the appraisal request.
   • The fees of the experts are determined based on rules set by the board of the regulatory authority.
   • If one or more parties to the real estate financing agreement reject the results of the appraisal, another appraiser(s) is commissioned for reassessment, with the applicant for reassessment bearing the fees.
3. Real Estate Agent:
   • A natural or legal person who carries out the procedures for selling the property through public auction in case the investor defaults, based on a mandate from the execution judge. Responsibilities include:
     • Initiating the procedures for selling the property through public auction in case the investor fails to pay the amounts due to the financier, upon the financier’s request and an order from the execution judge.
     • Specifying the conditions of the property’s sale through public auction, including the date, time, and location of the sale and the base price of the property (determined by two separate registered appraisers registered in the real estate appraisal experts’ records). Ensuring participation in the auction.
     • Announcing the sale conditions to the investor, property holder, and other creditors with registered rights before the specified auction date, with a notice period of no less than thirty days and not exceeding forty-five days.
     • Posting a notice of the sale in the designated court advertisements board within the jurisdiction where the property is located, along with publication in two widely circulated daily newspapers at the expense of the investor and the financier.
   • Any interested party can request the replacement of the agent based on a request submitted to the execution judge.
   • The agent’s fees are determined by the execution judge’s decision.

The applicant acknowledges receiving the electronic link explaining how to obtain the Guide for the Protection of Participants issued by the Financial Regulatory Authority, a printed copy of the informational leaflet for the Guide prepared by the General Authority for Real Estate Financing, and confirms reviewing the terms and fundamental provisions of the real estate financing provided by the Financial Regulatory Authority.