Smooth Murabaha Closing

I recently helped an Islamic client complete a “Murabaha” closing. Islam prohibits payment of interest. This makes it difficult (if not impossible) to buy a property using a mortgage.

Devon Bank has a Murabaha program that works quite well. At closing the Buyer assigns the contract to the bank, the seller deeds the property the bank and the bank immediately transfers the house to my Buyer for the original purchase price plus the bank’s “profit.”

There is no reference to interest payments in the loan documents and all of the bank’s profit (interest) is rolled into the loan agreement. The bank sent a representative to the closing to help us all out and it closed easily.

One potential pitfall: There are two deeds in a Murabaha closing. One from Seller to Bank and a second one from Bank to Buyer. If you are closing in a town that has a transfer tax make sure you get an exempt stamp for the second deed.

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