The Origin of Non- Recourse Mortgage Financing: How
The Origin of Non-Recourse Mortgage Financing: How Ancient Is This Seemingly Modern Financing Technique and Is It Perhaps Sha'ariah and Halachically Compliant? Leonard Grunstein* This article explains the modern non-recourse mortgage nancing structure, traces its origins, and suggests that, conceptually, the non-recourse nancing format bears more than a passing resemblance to three nancing forms in use in medieval times, known as the Iska, Qirad, and Commenda. These forms enabled the nancing of trade and business. They also provided for an interest-like return to the nancier, in many cases, without fall- ing astray of the Biblical prohibition against making interest-bearing loans. It is common practice to nance com- somewhat of a misnomer, however, since it mercial real estate transactions through an does not mean that there is no liability at all. interest-bearing mortgage loan. At its most Rather, the term denotes that there is, gener- basic level, the loan is typically evidenced by ally, no personal liability for repayment of the a note that is secured by a mortgage1 against loan. Instead, the sole recourse is against the the real estate and an assignment of the real estate, encumbered by the mortgage, rents. This structure underlies the nancing which secures repayment of the loan. This of oce, retail, industrial, hotel, multi-family, non-recourse nature of CMBS nancing dis- healthcare and other types of income pro- tinguishes it from other types of mortgage ducing real estate. It is one of the structural nancing, where the borrower is personally components of the nancial product known liable under the note for the debt.
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