The Permissibility of Purchasing Foreclosed Homes in Islamic Finance #

Original Question: In a foreclosure, when a bank auction off houses, does these houses not belong to someone else? If so, is it still permissible to purchase a house through an auction?

Yes, it is permissible to purchase houses that have been used as collateral for debt settlement in a foreclosure.

In Islamic banking, the house used as collateral will be auctioned off, and the amount owed will be taken from the sales profit.

Any additional profit will be returned to the homeowner. This ensures fairness to both the lender and the debtor.

Nevertheless, while the foreclosure is a permissible act, it is also the virtue of Islamic finance and the spirit of our shari‘ah to promote loan forbearance.

Imam Muslim reported that our Prophet (peace be upon him) said, “He who likes Allah to deliver him from the calamities of the Day of Resurrection, let him either give respite to a debtor or grant him remission (of loans) in straitened circumstances.”