By the Bais Hora'ah
Q. Last week, you wrote that in some cases, when someone pays off another person’s loan without the borrower’s knowledge, the borrower is not required to repay him.
Nowadays, it is commonplace for lending institutions to sell mortgages or other loans (referred to in the industry as “selling notes”). If Reuven took out a mortgage in a bank, and Shimon bought that mortgage from the bank, is that considered as though he paid off Reuven’s loan without his knowledge, which absolves Reuven from payment?
And are there any other halachic issues that arise with regard to purchasing notes?
A. If someone purchases a loan from a lender in a halachically valid manner, the borrower may not claim that the buyer paid off his loan. Rather, the buyer takes the place of the original lender and may demand payment for the loan (Sm”a 128:2 and Shach ibid. 2).
However, the halachos regarding the sale of loans are complex, and the matter must be handled carefully.
If the original loan was formalized with a shtar (contract), it can only be sold through a process of “kesivah umesirah,” which means that the original lender transfers the actual contract and a written addendum stating that the buyer is acquiring the loan document and the liens associated with it. If this process is not completed, the purchase of the loan is invalid (Shulchan Aruch, Choshen Mishpat 66:1).
If there was no contract formalizing the loan (milveh al peh), then the transfer of the loan must take place with all three parties present (maamad shloshton). At that meeting, the original lender must inform the borrower that he is required to pay the amount due to the buyer (ibid. 126:1).
If the loan was not transferred according to the above halachic processes, some rule that it is considered as though the buyer paid off the loan, and the borrower is not required to reimburse him, as explained in last week's column (Shu”t She’eiris Yosef 58).
This ruling is generally irrelevant to our times, however, for several reasons:
- The consensus among the poskim is that if the original lender was a non-Jew, and according to secular law the sale of the loan is valid, it is binding in halachah as well. Since the loan was from a non-Jew, the borrower became bound by the secular laws governing the non-Jew’s business, and he cannot free himself from his obligations through a halachic claim (Shulchan Aruch, Choshen Mishpat 66:25, according to Shach 128:2 and Nesivos ibid. 1).
- Nowadays, most lenders spell out in the loan documents that they have the right to transfer the debt to another debtor, which would be valid even in halachah (ibid 66:26).
- Even when such a clause is not spelled out clearly in the loan documents, because selling mortgage notes is a common practice, it is governed under the rubric of situmta, which lends halachic legitimacy to standard business practices. Although some poskim maintain that situmta does not apply to the sale of loans, when combined with dina d’malchusa dina (the law of the land is halachically binding), the acquisition through situmta is valid (Nesivos 201:1).
The poskim deliberate whether a Jew may purchase a loan if the borrower could have negotiated for a reduction or settlement with the non-Jewish lender, or is about to declare bankruptcy that would release him from the loan (see Shaar Mishpat 128:2; Shu”t Divrei Chaim, Choshen Mishpat 2:6, Divrei Geonim 66:29 for one side of the debate, and Shu”t Beis Shlomo Choshen Mishpat 131; and Shu”t Maharsham 2:84 & 3:184 for the other).
We must emphasize that anyone who deals in loans must be very careful not to violate the halachos of ribbis. Most loans accumulate interest, and a Jew who buys the loan of a Jewish borrower is not allowed to charge interest accruing from the moment of purchase; he is only allowed to accept payment for the principal and whatever interest accrued before the purchase of the loan from the non-Jewish original lender (see Yoreh Dei’ah 168:20; Shu”t Divrei Chaim, Yoreh Dei’ah 2:56).