Bulletin: SLS2018007

Dear Associates:

"Sharia" (rules and practices of Islam governing the practice of Muslims) compliant mortgages are designed to conform to the body of Islamic law, which does not allow payment of interest.

An example of this type of program involves the participation of Guidance Residential, LLC (Guidance) in residential transactions. The individual (Consumer) who is acquiring or refinancing on a residence will sign a Co-Ownership Agreement with a single purpose LLC established to facilitate the "Home Acquisition (or refinance) Transaction." The LLC will be a Co-Owner by contract with the Consumer, pursuant to the terms of the Co-Ownership Agreement, but will not be shown as a grantee on the deed to the Consumer. The undivided interest of the LLC will decline as payments are made by the Consumer. The documents will include:

• Co-Ownership Agreement. This agreement is not recorded. This agreement must include substantially the following subordination provision in Paragraph (6): "The rights of the Consumer as specified in this Co-Ownership Agreement are subject and subordinate to the lien interest granted in the Security Instrument." 
• Obligation to Pay (by Consumer to Co-Owner), which agrees to pay a Monthly Payment, including Profit Payments, Acquisition Payments, and Other Payments (as defined in the Definition of Key Terms).
• Security Instrument (Insured Mortgage) executed by the Consumer (both spouses where applicable), securing the Obligation to Pay.
• Assignment Agreement from Co-Owner to Guidance, which includes a mortgage by Co-Owner to MERS solely as nominee for Guidance and an amendment to the Security Instrument.
• Deed from third party solely to Consumer (if a third-party purchase transaction). Note you should not represent what real estate tax exemptions the Consumer will be entitled to.

Company Requirements (on Guidance Residential transactions):

• Require copies of all applicable documents for review.
• Require joinder in Security Instrument by each Consumer (both spouses). 
• Require joinder by Co-Owner in Assignment Agreement.
• Require a Satisfactory Deed from Third Party Seller to Consumer if a purchase transaction. 
• Determine that the transaction is for purchase of the Land from an unrelated third party or is refinance of a valid mortgage on the Land.
• Require that both spouses sign all applicable documents, as required by state law.
• The Co-Ownership Agreement is not recorded.
• Verify that the Co-Ownership Agreement contains a satisfactory subordination provision (such as the above quoted provision), subordinating the rights of the Consumer to the Security Instrument.
• Schedule A, paragraph 4 of the Loan Policy may add, after the mortgage or deed of trust, “the Obligation to Pay assigned to Guidance Residential, LLC by Assignment Agreement dated _______.”
• Schedule B of the Loan Policy must include the following exception: “Terms and conditions of that unrecorded Co-Ownership Agreement between [borrower] and [Co-Owner], as assigned to Guidance Residential, LLC by the Assignment Agreement, subject to the terms of and as provided in the Assignment Agreement.” 
• The Loan Policy will describe the Security Instrument and name Guidance (also referred to as the Financier) (not the Co-Owner) as an Insured.
• The description of the Insured Mortgage should reflect that it secures the Obligation to Pay.

Additional Provisions to Include In the Owner's Policy:

• You should show only the Consumer as an Insured.
• Except to the Terms, Conditions, Rights, and Interests set forth in the Co-Ownership Agreement, Security Instrument, and Assignment Agreement.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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