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What happens if a Jew borrows money on interest from a non-Jew, and then the lender turns around and sells the debt to a Jew? (Such transactions are very common in the mortgage industry.) Is it prohibited to pay interest to the new owner of the loan, since he is Jewish? If so, does the borrower need to pay up the loan immediately? What about any interest that has already accrued before he does so?

(For the purposes of this question, let's assume that we are dealing with individuals, not corporations.)

Isaac Moses
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Dave
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    Very interesting question! I'd be surprised if there aren't teshuvot on this. – Isaac Moses Jul 12 '12 at 15:32
  • In most cases you don't know who bought it, and certainly there is rov that if anyone did buy it they aren't Jewish. – Double AA Jul 12 '12 at 15:42
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    @DoubleAA That's just avoiding the question; what happens if you do know? Or let's say in Israel, where rov banks are Jewish-owned (I suppose)? – Dave Jul 12 '12 at 15:51
  • @Dave You bring up a more interesting question about how the heter iska works if the Israeli bank sells off the debt. – Double AA Jul 12 '12 at 16:26
  • @Dave, it is not common for major lenders to sell loans to individuals. This might be more applicable to cases of smaller loans for private investment where the purchaser of the loan is not religious. – Seth J Jul 12 '12 at 16:31
  • @DoubleAA If there is an iska, it's an investment, not a loan. Whoever takes it over would be subject to the same terms. – Dave Jul 12 '12 at 16:40
  • @SethJ OK, let's say you borrowed $10m from Warren Buffett, and he sold the loan to Charles Schwab. – Dave Jul 12 '12 at 16:42
  • @Dave Something tells me the bank and the buyer don't write the contract saying that they are selling an investment. So haarama's aside, I think there still might be an issue. – Double AA Jul 12 '12 at 16:49
  • @dave, again, unlikely that this would be done outside the corporate structure. – Seth J Jul 12 '12 at 16:56
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    @SethJ - it's at least as likely as an alien converting to Judaism. – Dave Jul 12 '12 at 17:17
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    @DoubleAA It doesn't matter what the bank writes, they can't sell something they don't have. – Dave Jul 12 '12 at 17:18
  • @Dave Tell that to the buyer. – Double AA Jul 12 '12 at 17:22
  • @DoubleAA Btw, I have a bridge to sell you. Don't worry, we'll write up a full contract! – Dave Jul 12 '12 at 17:31
  • @Dave Come on, do you really think your argument would hold up in Israeli court? If the bank goes bankrupt (groan) then you really think you would be exempt from paying, and the buyer would lose out and be unable to collect? – Double AA Jul 12 '12 at 17:34
  • @Dave, that so does not convince me. – Seth J Jul 12 '12 at 18:23
  • @DoubleAA - I'm not at all familiar with the legal aspect of transferring investment responsibilities, but however it's done, the buyer would presumably take the place of the bank, and it wouldn't make a difference what happens to the bank later. – Dave Jul 12 '12 at 18:27
  • @SethJ Convince you that what? That my question is reasonable enough to be asked here? – Dave Jul 12 '12 at 18:28
  • @Dave, I mean it's reasonable; I haven't voted to close it or anything. I just think it's unlikely that this situation will arise as you posed it. You're basically asking if paying interest to someone, who is not the original lender but holds a lien on the loan, is a problem. – Seth J Jul 12 '12 at 18:29
  • @SethJ - no, not a lien on the loan - he actually purchased the loan itself. Like when someone sells a corporate bond; the original owner is then totally out of the picture. – Dave Jul 12 '12 at 18:36
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    @SethJ The Gemara often discusses מוכר שטר חוב and מוכר כתובתה. – Dave Jul 12 '12 at 18:48
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    This could and probably has come up in the underground loan markets, wherein individuals borrow money, often in return for usurious interest, from other individuals. The people who lent the money sometimes then sell the debt obligation to a third party to reduce the uncertainty in their portfolios, to have immediate capital to lend out again, because the third party is better-equipped to collect, or because it's advantageous to the third party to have some control over the borrower. – Isaac Moses Jul 12 '12 at 19:17
  • @Dave, touche.. – Seth J Jul 12 '12 at 19:18
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    It could also come up in a legal context if a Jewish individual goes into the debt collection business as an individual and operates as a debt buyer. – Isaac Moses Jul 12 '12 at 19:20
  • This doesn't affect the essential question, but lenders don't usually keep loans on their book as they carry too much risk. The loans are securitized and the bank merely maintains these pass-through securities. So when a lender sells a "loan", they are selling the maintenance. The "lender" is actually the pool of investors, which based on a rov we may assume are not Jewish. – YDK Jul 12 '12 at 19:28
  • For purposes of the question does it actually matter if the original lender was Jewish or not? – Seth J Jul 12 '12 at 22:22

1 Answers1

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Rabbi Reisman in The Laws of Ribbis Chapter 12:16 note 28

Interest which has accrued prior to the sale may be paid. This is true even if provisions of the sale call for these payments to be made to the Jewish purchaser of the debt. [This is subject of dispute between Taz 168:12 and Shach in Nekudos HaKesef ibid. The opinion quoted here is that of the Taz. This opinion is accepted by the later Poskim. (Gra 168:25, Chavos Daas 168: Chidushim 20, Chochmas Adam 137:11, Divrei Chaim Yoreh Deah 2:56, Avnei Nezer 194:16; see also Bris Yehuda 31:10)]

If the promissory note is written in a manner which does not allow for prepayment of the debt, a Jew may purchase the note and continue to collect interest until the date the note is due (Rema 168:20; in this case the entire interest charge already existed when the non-Jew owned the note).

[In this case the purchaser would be limited to collecting the interest which is included in the original agreement. If the payments were not made on time, no additional interest charges could be added]

Gershon Gold
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    So if the note does allow for prepayment (as is typically the case with mortgages), then it would be forbidden to collect or pay any new interest? – Dave Jul 12 '12 at 21:12
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    There is a mention of more details in Chapter 13, however it was missing those pages. It definitely sounds like it would be forbidden in such a case. – Gershon Gold Jul 12 '12 at 23:49