Mortgage Lending in the Palestinian Territories: Fundamentals for Judges and Lawyers

In the Palestinian Territories, mortgage lending can be a major component of the financial sector and a driver of economic growth. Mortgage lending as a percentage of Gross National Product (GNP) can be in the range of 10% of GNP today, even in emerging markets, and has been showing steady growth. The use of mortgages as security in financing acquisition and improvement of housing entails unique issues of law and economics and is subject to detailed regulation by the civil law as well as by national banking regulators. This training course is designed as an introduction to residential mortgage lending and the use of mortgage collateral for lawyers and judges in the Palestinian Territories. A mortgage loan is a loan secured by a pledge of real property. Any obligation may be secured by a mortgage of real property, and any natural or legal person may make a mortgage on real property which it owns to secure repayment of a present or future obligation. A loan secured by a mortgage may be used for any legal purpose. The predominant use of loans secured by mortgages in most developed countries today is acquisition or improvement of housing. The mortgage is a legal contract by which real property owned by a debtor or a third party is pledged to secure the debtor's obligation to repay a loan. The mortgage is a public, registered contract, an executive document, not requiring a judgment of a court to become enforceable against the maker, subject to certain legal formalities in its creation, including notary certification, which invests it with strong evidentiary value in proving the existence of the debt. The theory of collateral suggests that by providing an efficient means of recapturing an investment, the costs and risks of lending are reduced. Greater certainty in collection of debts by possession and sale of collateral eliminates or greatly reduces the risk to the creditor of lost interest and principal. Enhancing loan collection procedures also may reduce the creditor's costs of lending. It is widely believed that reduced costs and greater certainty in collection procedures result in lower interest rates and more lending, leading to deeper markets. In the Palestinian Territories, mortgage lending is subject to detailed regulation by the civil law as well as by national banking regulators. The current mortgage law in the West Bank and Gaza focuses on formal requirements for creation of the mortgage and the procedures for enforcing mortgage liens against real property. A glossary of terms common to mortgage lending is included at the end of these materials for convenience. The economics of mortgage lending include the costs to the creditor, the risks faced by residential mortgage creditors, how creditors determine interest rates and other loan terms, and the effect of loan terms on the ability of citizens to borrow. Recent research shows how laws affecting creditors' rights and court enforcement of creditors' rights may affect the amount and terms of mortgage lending in a country. These materials include a review and discussion of the current mortgage law in the West Bank and Gaza, focusing on formal requirements for creation of the mortgage and the procedures for enforcing mortgage liens against real property.