Fatwa on the Main Program, 21 October 2002
Declining Balance Co-Ownership Home Acquisition Program
Fatwa
We, the Shari’ah Supervisory Board of Guidance Financial Group, LLC (Guidance) have examined the documents of the Declining Balance Co-Ownership Home Acquisition Programs, inclusive of the Co-Ownership Agreement, Security Instrument, Consumer’s Obligation to Pay, and Assignment of Agreements, all of which are required for each program.
We have reviewed these documents and the purposes for which they have been designed, namely:
- to assist Muslims and others residing in the United States of America to acquire their homes in compliance with Shari’ah,
- to enjoy the tax benefits accorded by the federal government to home owners,
- and for the investors to securitize their ownership investment in homes.
The basic concept behind these contracts and documents is that the property is purchased in joint ownership between an affiliate of Guidance (the Co-Owner) and the person who requires finance (the Consumer). The Consumer makes monthly payments which are comprised of Profit Payments and Acquisition Payments. Profit Payments represent the Consumer payments for the enjoyment and use of the whole property, while Acquisition Payments represent the Consumer’s payments for his acquiring the Co-Owner’s interest in the property.
It has been ascertained by the Shari’ah Supervisory Board that the documents comply with the Shari’ah requirement for a valid “Diminishing Musharakah” arrangement, and that both parties benefit and bear the risks of their respective shares in the property throughout the contractual arrangement.
The documents designed for “Replacement” are meant for a situation where a person has already acquired a property and wishes to enter into a Shari’ah compliant arrangement. In this case, he will sell a share of his property to the Co-Owner, and then both parties will have the same arrangement of “Diminishing Musharakah” as detailed above. Since the units of property will be purchased by the consumer under this arrangement at cost, and without increase, there is no element of ’ina in this arrangement.
After reviewing the mechanism as well as the agreements and documents, and after suggesting amendments that have been incorporated, the Shari’ah Supervisory Board is of the view that given the circumstances prevailing in the United States, this arrangement conforms to the rules and principles of Shari’ah; and therefore, Muslims may avail themselves of this opportunity to acquire homes and properties by means of this method.
Agreed this 21st of October 2002
Signed:
Justice Muhammad Taqi Usmani
Dr. Abdul Sattar Abu Ghuddah
Shaykh Nizam Yaquby
Shaykh Yusuf Talal DeLorenzo
Dr. Mohamed Elgari
Dr. Muhammad Imran Usmani
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Fatwa on Disclosures, 21 October 2002
Declining Balance Co-ownership Home Acquisition Program
Fatwa on Disclosures
We, the Shari’ah Supervisory Board of Guidance Financial Group, LLC understand that state and federal government agencies, including the Federal Reserve Board and the Internal Revenue Service, require home finance companies to provide to consumers various disclosures and representations. Such disclosures refer to the terms “loan” and “interest,” require the calculation of an annual percentage rate to allow the comparison of one financier to another, and have not been approved by the government for modification to reflect Islamic transactions in which interest is not present.
Such disclosures do not constitute the Islamic contract to which the Consumer is committing. Therefore, the Shari’ah Supervisory Board does not object to the Company providing such disclosures to the Consumer. The Board further does not find that such disclosures, with their references to “interest” for the reporting of tax and other disclosure purposes only, corrupt or invalidate the Shari’ah documents to which the Consumer is committing.
The Board encourages Guidance Financial Group to work with the various state and federal agencies to modify the documents in such a way as to reflect the interest-free transactions offered by the Company
Agreed this 21st of October 2002
Signed:
Justice Muhammad Taqi Usmani
Dr. Abdul Sattar Abu Ghuddah
Shaykh Nizam Yaquby
Shaykh Yusuf Talal DeLorenzo
Dr. Mohamed Elgari
Dr. Muhammad Imran Usmani
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Fatwa on Title Registration, 21 October 2002
Declining Balance Co-ownership Home Acquisition Program
Fatwa on Title Registration
We, the Shari’ah Supervisory Board of Guidance Financial Group, LLC understand that, when replacing a conventional mortgage loan with a Co-Ownership Agreement, the Consumer may face significant tax disadvantages related to recording the sale of an ownership stake in the property to the Co-Owner. Under Shari’ah, the sale of an ownership stake in the property takes effect upon the offer and acceptance through signing of the Co-Ownership Agreement if it practically and legally transfers all rights and obligations previously held by the consumer on a joint-ownership basis, even though the title is not registered in the name of the Co-Owner. Accordingly the practice of not recording title is accepted by Shari’ah so long as it is permissible under local law and custom.
Agreed this 21st of October 2002
Signed:
Justice Muhammad Taqi Usmani
Dr. Abdul Sattar Abu Ghuddah
Shaykh Nizam Yaquby
Shaykh Yusuf Talal DeLorenzo
Dr. Mohamed Elgari
Dr. Muhammad Imran Usmani
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Fatwa on the Adjustable Program, 25 January 2005
بسم الله الرحمن الرحيم
والحمد لله رب العالمين
والصلاة والسلام على خاتم الأنبياء والمرسلين وعلى آله وصحبه أجمعين
GUIDANCE FINANCIAL GROUP
PRONOUNCEMENT OF THE SHARIAH SUPERVISORY BOARD
ADJUSTABLE PROFIT PAYMENT
DECLINING BALANCE CO-OWNERSHIP PROGRAM
The Shariah Supervisory Board of Guidance Financial Group (“Guidance”) has reviewed the structure and examined the legal documentation of the Adjustable Profit Payment version of the Declining Balance Co-ownership Program (the “Program”).
The payments by the Consumer for the use of the Co-owner’s share in the property are termed in the agreements as “Profit Payments”. The principle of long term Ijarah, as determined by the Shariah standards, is that after determining the rent for an initial period in lump sum, the amount payable for next periods may be tied up with a well-known benchmark with a floor and ceiling. On the basis of this principle, the Profit Payments are determined by a formula that utilizes a Profit Factor. The Profit Factor itself is based on a widely-established market index, such as the yield on U.S. Treasury securities. After being predetermined for an initial period, Profit Payments are adjusted annually to reflect changes in the Profit Factor. Additionally, the Program sets limits to the amount by which the Profit Factor can rise or fall from year to year and sets an overall ceiling above which the Profit Factor may not rise.
In the absence of an Islamic alternative, the use of a conventional market index to determine the Profit Factor does not change the nature of the transaction or affect its compliance with the principles of Shariah. Furthermore, this Program is not subject to the ills of jahalah and gharar. The well-established nature of the index eliminates the potential for disputes and the presence of upper and lower limits on Profit Payments eliminates the parties’ exposure to widely unforeseen loss.
The Shariah Supervisory Board is of the opinion that, given prevailing circumstances, the structure and documents governing the Adjustable Profit Payment version of the Program conform with the principles of Shariah.
Agreed this 15th of Dhul-Hijjah 1425 / 25th of January 2005,
Signed:
Justice (Ret.) Muhammad Taqi Usmani
Dr. Abdul Sattar Abu Ghuddah
Shaykh Nizam Yaquby
Dr. Mohd. Daud Bakar
Shaykh Yusuf Talal DeLorenzo
Dr. Muhammad Imran Usmani
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Fatwa on the Texas Program, 30 October 2006
GUIDANCE FINANCIAL GROUP
PRONOUNCEMENT OF THE SHARIAH SUPERVISORY BOARD
DECLINING BALANCE CO-OWNERSHIP PROGRAM
ADAPTATION TO THE STATE OF TEXAS
The Shariah Supervisory Board of Guidance Financial Group (“Guidance”) has previously approved the Co-Ownership Program developed by Guidance. However certain modifications summarized hereunder have been suggested by Guidance to adapt the Program to the special requirements of Texas law.
Guidance will utilize a wholly-owned special purpose limited liability company to serve as the Co-Owner of the Property with the Consumer. Guidance has adapted the Program to accommodate special provisions of Texas law that require the existence of a loan in order to create a lien on homestead property.
As part of the adaptation of the Program, a promissory note (“the Note”) will be executed by the Co-Owner in favor of Guidance. Principal and interest payments under the Note are made by the Co-Owner to Guidance. Considering that the Co-Owner is a wholly-owned subsidiary of Guidance, the Note is considered a form of self-lending, under which any amount of so-called interest is not riba under Shariah. The Consumer does not sign the Note and has no obligation to pay on it.
The Program has also been adapted to enable the Consumer to obtain certain property tax benefits. At the time of the closing of the transaction, the Co-Owner will be a beneficial owner of the Property with the Consumer and will also hold title of record to the Property with the Consumer. The beneficial ownership of the Co-Owner will be maintained throughout the duration of the Co-Ownership Agreement. However, once the legal requirement for securing the Consumer’s obligations under the Program are satisfied, the Co-Owner will remove itself from holding title of record in order to allow the Consumer to obtain certain tax benefits deriving from the Property. However, the Co-Ownership arrangement will be maintained throughout the duration of the Co-Ownership Agreement through the Co-Owner’s continued beneficial ownership of the Property.
The Shariah Supervisory Board is of the opinion that since (i) the Note introduced in the Program’s structure for Texas is a form of self-lending and (ii) the Co-Owner will maintain its beneficial ownership throughout the duration of the Co-Ownership Agreement, the structure governing the Program for the financing of homes in the state of Texas conform with the principles of Shariah. The Shariah Supervisory Board has reviewed and approved the adaptations to the Program summarized above and the associated legal documentation.
Agreed this 30th October 2006,
Signed:
Justice (Ret.) Muhammad Taqi Usmani
Dr. Abdul Sattar Abu Ghuddah
Shaykh Nizam Yaquby
Dr. Mohd. Daud Bakar
Shaykh Yusuf Talal DeLorenzo
Dr. Muhammad Imran Usmani
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