Question
My wife and I have a million-pound mortgage from Metro Bank where an irreligious Jew recently became the majority shareholder. The local rabbis publicized that one may no longer deal with them. I will suffer a major loss if I need to repay the mortgage immediately because interest rates rose significantly in the interim and also there is a penalty for repaying more than twenty percent in a year. What is the problem and is there a solution to the problem?
Answer
The first point to note is that since a mortgage is a loan and every mortgage requires the borrower to repay principal and add interest on the principal as per a schedule, it is forbidden from the Torah for a Jewish bank to grant a mortgage to a Jewish borrower and also for a Jewish borrower to take out that mortgage since the interest is classified as ribis ketsutso-fixed interest.
Rav Moshe Feinstein (Yoreh Deah 2, 62) makes this point and writes that there are two approaches that can be taken by a Jewish-owned bank to enable it to grant mortgages to Jewish customers. One is using a heter isska. Rav Moshe is very emphatic that the parties must be aware that a heter isska is not a loophole in the law that enables a Jew to lend money with interest, but rather that the funds that are given initially are not a loan but rather they constitute an investment on the part of the one who gives the funds in one of the businesses of the recipient of the funds. Rav Moshe spells out what should be written in the isska document.
His second approach is that rather than becoming an investor in one of the recipient’s businesses, the bank can structure its mortgage as an acquisition by the bank of a percentage of the mortgaged property, based on the value of the property and the size of the mortgage. If one uses this solution, each time that the property owner makes a payment on his mortgage, he is repurchasing a portion of his property from the bank. Since there is no loan there is no problem of ribbis.
According to this, in order for a Jew to take a mortgage from a Jewish-owned bank it is necessary to structure the mortgage as an investment or as an acquisition. Should a Jewish-owned bank grant a mortgage to a Jew and fail to add this structure, both the bank and the borrower are violating the Torah’s prohibition against lending and borrowing money with interest.
Since the mortgages that were granted by this bank in the past did not structure them as investments or acquisitions, these mortgages are nothing but interest-bearing loans (that are secured by property).
There are methods that one can use to restructure a simple loan as an isska. It is not sufficient to merely write and sign an isska document and to cancel the old mortgage (See CM 120, 2, for example). However, it can be done properly, provided that both parties agree and employ a proper method to restructure. However, the bank in question refuses to co-operate, so this solution is not possible.
Another point to be considered is whether there is an issue of interest since the bank is a corporation which is an independent legal entity. Perhaps there is no problem of ribbis when borrowing from a corporation since, perhaps borrowing from a corporation is similar to borrowing from a non-Jew.
However, Rav Moshe Feinstein, in a different responsum (YD 2, 63), writes that even though he maintains that one may lend money with interest to a corporation even if it is completely owned by a Jew since there is limited liability (a ruling which is itself quite controversial as many poskim including Rav S.Z. Auerbach disagree), nevertheless, one may not borrow money with interest from a Jewish-owned corporation.
We note that even though Rav Moshe’s ruling prohibiting borrowing from a Jewish-owned corporation is the consensus opinion, the Rogatchover (Tzofnas Paneach res. 184) maintains that there is no prohibition since it is not a partnership that belongs to individuals but a new entity. The basis for such a concept in halachah is hekdeish-the property that belongs to the Beis Hamikdash, where the Gemara (BM 57B) rules that the prohibition of ribbis does not apply. The Rogatchover claims that he proves that the reason ribbis is permitted by hekdeish is not due to the holiness of hekdeish but because of its public ownership, and he maintains that the ownership of a corporation is similar to the ownership of hekdeish.
However, this is a minority view. His chief opponent is the Minchas Yitzchok (3, 1:4, 17) who disputes the Rogatchover point by point. He bases his argument partially on the law that a fund to support poor people may not charge interest on its loans and he argues that a corporation is not better than a fund for the poor. His position is supported by Rav Moshe (CM 1, 80) who writes in another responsum that a community may not grant interest bearing loans, and he writes that the reason hekdeish is allowed to lend with interest is because of the holiness of the money. This position is supported by the vast majority of the poskim.
Having established that it is prohibited to borrow from a Jewish-owned corporation, we must investigate what constitutes a Jewish-owned corporation.
In general, if a number of partners, some Jews and some non-Jews, pool some of their assets, one may not borrow from the partnership since some of the lenders are Jewish. Thus, our question is when a shareholder is considered an owner of a corporation.
This issue is pertinent not only for ribbis issues but for many other aspects of Jewish law as well. For example, the poskim discuss if a Jew may own shares in a company that works on Shabbos or owns chametz on Pesach. Also, the issue was discussed in the context of whether cheese that was produced by a company that has Jewish shareholders but the directors are non-Jewish is considered cheese that was produced by a non-Jew which may not be eaten according to the Shach (YD 115, 20) and many others who maintain that cheese that was manufactured by a non-Jew may not be eaten even if a mashgiach oversaw the production.
This question was discussed by Rav Moshe Feinstein (EH 1, 7). He rules that a shareholder who doesn’t have a real say in the day to-day operation of the corporation is not an owner from the perspective of Jewish law. His reasoning is that people who buy shares and but do not intend to play any role in the decisions of the company do not intend to acquire a portion of the company. They simply buy shares because that is a way of reaping profits from the activities of the company. The fact that the law views a shareholder as a partial owner is only a technicality that was created in order to enable people to invest and earn profits. Based on this understanding, Rav Moshe permitted a Jew to buy shares in a company even if it manufactures chametz on Pesach or operates on Shabbos or other such issues.
It is very significant that, based on Rav Moshe’s approach, one does not need to be a majority shareholder in order to be considered an owner of the company. If a person owns a significant enough number of shares to have an influence on the company’s operation, he is considered an owner
Rav Eliashev (Kovetz Teshuvos 3, 124) discusses the issue briefly and says that he agrees with Rav Moshe Feinstein but it is unclear from what he wrote whether a person who is a minority stockholder but, for example, sits as a director by virtue of his significant stake in the company, is considered a partial owner.
Rav Shlomo Zalman Auerbach (Minchas Shlomo 2, 100) ruled that even if a company has Jewish shareholders, the cheese that is produced by the company is forbidden as cheese that was produced by a non-Jew, since such shareholders are only owners as far as profits and losses are concerned but not are not partial owners of the cheese that was produced.
We note that the Jew who recently became the majority shareholder of the bank was a major stockholder earlier as well. Therefore, according to Rav Moshe and probably many other poskim, it was forbidden even earlier to take a mortgage from this bank.
As we wrote earlier, one who takes a mortgage from a bank borrows money from the bank. Therefore, every mortgage is one of the loans that is owned by the bank. When the Jew buys a chunk of the outstanding stock, he thereby purchases a percentage of the loans that were owned by the bank as well. Therefore, we have to consider how Jewish law views an interest-bearing loan that was acquired by a Jew from a non-Jew.
This question is discussed by the Ramo (169, 20) who writes that a Jew may not acquire from a gentile an interest-bearing loan where the borrower is Jewish. The commentaries explain that the interest that was already owed to the lender at the time of the sale may be collected by the Jewish purchaser but the purchaser may not collect interest that accrues subsequent to his purchase. The Jews who took mortgages from this bank have to make payments in order to avoid default on their mortgage and each mortgage payment includes forbidden interest which keeps accruing.
In conclusion: If you took a regular mortgage from the bank after any Jew owned a significant number of shares, according to Rav Moshe and many others, you violated the prohibition against borrowing with interest and you would need to pay back the mortgage. If you took your mortgage before there was significant Jewish ownership, be’ezras Hashem we will examine your status once there was significant Jewish ownership and study whether there is any basis for leniency.
