Question
Around December, my sister required funds ($67,000) for a deposit to buy a house. I said I would be willing to loan her the money until such time as she was able to pay me back. The way I got the money was by taking out a mortgage on my own house. It is hard for me to loan the funds with interest accruing, so my parents said they would reimburse me for the interest I had to pay. I was advised that it would be difficult to loan my sister the funds under a heter iska because my sister does not have a business. I ended up advancing her the funds anyhow.
I was told that based on two factors I could take the interest from my parents. The first factor is that it is a loan between family members that is not enforceable in beis din (there was no contract, etc.). The second factor is that my parents are (re)paying the interest, and not my sister. At some point, I’m not sure when, my parents appear to have taken over the debt from my sister in the sense that they began paying me the principle as well as the interest. Despite this, I continued to accept the interest. (In one instance I helped calculate the interest they owed.) I thought that I was allowed to do so based on the first factor, that it was a loan between family members that was not enforceable in beis din.
I was eventually told that even though it’s ribbis derabbanan, it is best to repay my parents the interest that they paid after they took over the loan. I’m unable to calculate the exact amount as I’m not sure when the debt changed hands. Furthermore, when I mentioned to my parents that I would repay them the interest, they got upset and said they would just give it to me again as a gift. I’m now not sure what to do. Do I estimate the amount and give it back to them and perhaps make them upset?
Answer
There are a number of ribbis issues that require clarification and many corrections that need to be made. You correctly understood that even though you took a mortgage on your house only in order to obtain funds for your sister, nevertheless, you were the borrower from the bank and your sister, separately, borrowed the $67,000 from you and not from the bank. Therefore, there is a serious ribbis issue if your sister directly pays you ribbis even if it is to reimburse you for the interest that you pay to the bank for a loan you took from them, even if it was for her use.
This is a very important point. People often err, thinking that since they took a loan from the bank for the use of someone else, the one who needed and used the money can pay the interest charged by the bank. One who makes this mistake violates the Torah’s prohibition of taking and paying interest. Rav Moshe Feinstein stresses this fact in YD 2, 62.
You further correctly understood that making a heter iska with your sister would have enabled your sister to reimburse you for the interest the bank was charging you. However you were advised that your sister does not qualify for a loan with a heter iska because she does not own a business. This needs clarification and it is the first issue that we will consider.
We will clarify two points. The first is why the use of the money that is being borrowed by means of a heter iska is important. The second is whether the borrower needs to actually own a business.
The reason the use of the money is crucial is because the basis of a heter iska is that the one receiving the money is not a borrower but rather an investor of the money on behalf of the one who gave him the money as an iska. The point of the heter iska is to structure the investment in such a way that its consequences will be as close as possible to the consequences of a loan. However, in all respects it is an investment.
Applied to your case, if you had made a heter iska with your sister, your relationship with your sister would have been that you gave your sister money to invest on your behalf and the additional money that you receive above the amount you invested, which in your case is equivalent to the amount of interest you were paying to your bank, comes from your sister’s profits from the investment she made with the funds that you gave her to invest i. e. it is return on your investment. Therefore, if she had a business and had received the money from you in order to use in her business, certainly you could have used a heter iska in order to be reimbursed for the interest that you paid the bank. Owning a business and using the money for that business is certainly sufficient in order to borrow with an iska. However, the question is whether this is necessary.
Since what is important is that the recipient of the money use the money for something which has the potential to produce a profit, it is not really necessary to own a business in order to receive money as an iska, since one does not need to own a business in order to earn money from money. One may certainly lend with a heter iska if the recipient uses the money to buy stocks or to invest in real estate. Moreover, even if the recipient does not intend to use the actual funds that he is receiving in order to make a new investment, but already has investments that he is able to avoid selling because he is receiving these funds, he can also use a heter iska since he has investments that can earn money. The recipient of the funds should write in the iska document that he is granting (partial) ownership of his previous investments to the one who is giving him the funds, since in that manner the one who gave the money can earn a portion of the profits, since he now owns a portion of the principal that yields the profits.
In your situation, where your sister needed the money in order to buy a house, there is no problem using a heter iska because very often houses appreciate. In the past in Israel, when people bought an apartment that they never sold, the poskim discussed (See e. g. Toras Haribbis (16, 16)) whether one can take a mortgage for such an apartment from a Jewish bank using a heter iska. However today, when people often sell their apartments and the apartments very often appreciate in value, there is no problem using a heter iska to take a mortgage from a Jewish owned bank. This is common practice as well.
Since that is exactly how your sister intended to use the money, you could have used a heter iska with your sister and she could have thereby reimbursed you for the interest you were charged by your bank. This would have avoided all your issues. We note that Rav Moshe Feinstein in the previously cited responsum wrote explicitly that one may use a heter iska and that a house can serve as the investment.
The Chazon Ish already wrote (printed in Derech Emuno vol 3, letter 12) that even though there are certain issues with using a heter iska since it runs counter to the “spirit of the law” that one should lend for free, it is better to use one since often otherwise there are more serious problems if one does not use a heter iska.
Your case is a perfect example of this. You were advised not to use a heter iska but to lend the money without a heter iska and rely on the supposed fact that there is no prohibition of ribbis on loans between family members. This is totally false and one can violate five Torah prohibitions even when lending to family members! The Shulchan Aruch (YD 160, 8, according to the Taz) writes, “One may not borrow with interest from his children even though he means to give the interest as a present.” The only reason the SA found it necessary to write this is because the father really originally wanted to give a present and only borrowed for this purpose and the SA wants to teach that even that is prohibited. In your case, you wanted to receive the interest from your sister and had she agreed formally to reimburse you, you would have both violated very serious Torah prohibitions (as punishment for which one does not return at tchiyas hameisim).
The second heter you were given was that you may accept the money from your parents. This is correct but one must be very careful in applying it, and according to many you applied it incorrectly. The SA (YD 160, 13) rules, “A may give money to B and tell him to lend money (without interest) to C.” Even though B ends up with more money than the amount he loaned, it is permitted because the extra money did not come from the borrower, C, and the prohibition of ribbis is only violated if the interest comes from the borrower. Since your sister was the borrower, the money that your parents give you does not constitute ribbis, if your sister does not reimburse them.
However, in a later exchange you wrote, “For one month, my sister paid my parents the interest component (without my knowledge) and my parents passed on that payment to me.” This is prohibited according to many Rishonim, as the SA cited above continues: “It is only permitted if C does not reimburse A.” In your case, when your sister reimbursed your parents for the amount they gave you, this law was violated. The reason this is prohibited is because it looks like your parents were acting as your sister’s agent to pay you interest.
The question is whether you are required to return the money in this case and here the answer is no. Even though according to the SA you and your sister both violated a ribbis prohibition, nevertheless, you are not required to return the money to your parents since the issur is only rabbinic and falls under the classification of acts that “look like” ribbis, which one is not required to return.
We note that one is never forced by beis din to return a ribbis payment which was prohibited only by the Rabbonon (YD 161, 1). Only if the violation was a Torah prohibition, does beis din force the lender to return the money. For ribbis derabonon, in general one (YD 161, 2) is still required to give the money back according to the heavenly judgement (bedinei shomayim), in order to gain forgiveness for having violated the rabbinic prohibition. However when the prohibition is only because it looks like ribbis, one is not even required bedinei shomayim to return the forbidden payment.
Therefore, even though it was not proper for your sister to reimburse your parents for the money they gave you, you do not need to return this money to your parents.
There are more ribbis issues that need to be clarified, which we plan to do in the second half of this article.
We plan to clarify the halachah in case your parents tell you before you take out the mortgage that they will reimburse you. Additionally, we need to answer your question concerning after your parents assumed your sister’s debt and thus paid you both the principal and the interest.
In conclusion: In this part we saw that one may not take interest on inter-family loans and that this is a Biblical violation. Second, one who receives money as an iska needs to use the money for an investment or to already have an investment. Third, buying a house even if the intention is to live in the house, qualifies as an investment. Fourth, a third party may pay money to a lender in order to encourage him to grant an interest-free loan. However, that third party may not be reimbursed by the borrower.
