I am looking to refinance my house. Presently the easiest option would be to go with a Jewish lender who would flip the loan right away (he says within 2 months). I was wondering if you would have a wording for an agreement that I could use that would work with Rav Moshe Feinstein – that the lender is acquiring ownership equal to the amount he’s lending, & that every month I will be paying him rent (instead of interest) for the amount of ownership he has in the house. I would appreciate if you would have such a agreement to help me out.

Thank you very much!

Looking forward to hearing from you
Mordechai Heinemann

Answer:

The idea of having the loan buy a part of the borrower’s house is known as “kulo pikadon,” meaning that the money is effectively not a loan at all, and the “interest” is paid as rent on the house. It is permitted to pay more than the regular rental, because there is no loan at all.

The problem is what happens if the price of the house plummets: If the creditor has in fact bought a share in the house, his investment has dropped, and he should receive back less than what he gave.

In order to solve this problem, a clause is added into the agreement stating that the borrower can only claim a drop in price if this is testified at by two witnesses, and if the borrower is prepared to make an oath to its veracity. The assumption is that the borrower will not bring two witnesses, and will not be prepared to make an oath, and will therefore remain obligated to pay the entire sum.

A basic structure of the iska arrangement can be found here. You can use the document, and make the necessary adjustments as relevant for your case. If there are further questions, please let us know.

Best wishes.

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