Mortgage finance has been proven highly efficient as one of the most promising economic activities in the Egyptian market. Since the date of commencement of mortgage finance activities and establishment of the Mortgage Finance Authority (MFA) in 2001, MFA sought to develop and create a highly efficient and properly organized mortgage finance market strictly governed by integrated rules and legislation and effectively participating in the development of the Egyptian economy, protecting the rights of inventors and other market participants, restricting market risks, maintaining market integrity and applying the principles of equity and transparency.

According to Law No. 10/2009, the Egyptian Financial Supervisory Authority (EFSA) was established on July 1st, 2009 to replace the non-banking supervisory authorities, including the MFA.

Given the growing development and the increasingly diversified activities of the mortgage finance market, EFSA seeks to improve its performance and enhance its regulatory capacity and supervisory efficiency in accordance with the highest international standards and practices. EFSA, for this purpose, develops its legislation, rules and internal procedures, thus effectively and efficiently performing its supervisory role. As mortgage finance is a nascent activity in the Egyptian economy, EFSA is constantly keen to spread awareness of mortgage finance culture.

In support of EFSA’s role in raising investment awareness of mortgage finance, we hereby provide this guideline which sheds light on a number of errors that may be made by mortgage finance investors and describes the means for avoiding these errors to maintain investments in this market.

Part One

Common Errors in the Dealing with Mortgage Finance Companies

First Error: Investor may not be accurate in selecting the mortgage finance company (the company)

Resulting Risk: Investor may be subject to fraud by these companies and his funds may then be at risk. EFSA may not be able to interfere if such companies are not licensed by the EFSA to practice mortgage finance.

Correct Action: Investor should be aware of the companies licensed by the EFSA to practice mortgage finance, published here in EFSA website.

Second Error: Investor may not carefully read the tripartite mortgage finance contract (the contract) before signature.

Resulting Risk: Investor may not be aware of all his/her rights and obligations, which would result in conflicts between the investor and the financier.

Correct Action: The contract clauses must be read carefully, for the investor to guarantee full awareness of his/her rights and obligations vis-à-vis the company, and to confirm that the contract is the form contract approved by the EFSA.

Third Error: Investor may not specify the installments and other obligations payable by him/her during the term of finance.

Resulting Risk: Investor may be subject to other various obligations overburdening him/her, and would lead to legal increase of the real estate’s cost.

Correct Action: Investor must confirm that all agreed upon obligations are stated in the contract prior to signature. Moreover, amounts must be recorded in figures and letters.

Fourth Error: Investor may sign documents, other than the tripartite finance contract, without careful review; (powers of attorney, bills in blank….)

Resulting Risk: Investor may be subject to risks of carrying out transactions on his/her account without his/her knowledge, and may further use such non-carefully reviewed documents against the investor.

Correct Action: Investor must read all documents carefully prior to signature, and must not sign any document in blank.

Fifth Error: Investor may fulfill all the company’s requirements and conditions so as to obtain the needed finance, without confirming the validity of these conditions or understanding the purpose for inserting such conditions in the contract; which conditions are called

Resulting Risk: Investor may be subject to overburdening obligations that cannot be fulfilled thereafter, although such obligations are not legally required to be assumed by the investor according to the Mortgage Finance Law. Nevertheless, the investor unnecessarily approved such contractual obligations by signing the contract.

Correct Action: Investor must not approve any condition set by the company without confirming that such condition does not prejudice the investor’s own interest, (including but not limited to the guarantees, the papers required to be signed, the documents needed, the interest rate required…etc), after obtaining the finance. In this respect, investor may confirm the validity of the required obligations though the EFSA.

Sixth Error: The contract may not include the basic data of the investor, such as his/her correspondence address and/or means of communication.

Resulting Risk: The company may have difficulties in contacting the investor, serve him/her notices, or advise him/her of any changes to the finance costs, the address of the financier or the data required to be monthly notified by the company to the investor.

Correct Action: The company must confirm validity of all personal data given by the investor, and to accentuate that investor must inform the company of any changes that may occur to such data.

Seventh Error: The investor’s deposit of fund in the company’s safe, without obtaining valid documents proving receipt.

Resulting Risk: The company may not acknowledge receiving such funds, unless an official receipt, describing the paid amount in figures and letters and signed by the competent official, is submitted.

Correct Action: Investor must not deposit any funds without obtaining an official document from the company, proving deposit.

Eighth Error: The investor may not obtain a copy of the contract.

Resulting Risk: The investor may not be able to follow up his/her rights and obligations according to the terms of the contract, such as the current installment's value and the changes that may occur during the term of finance. The company may also add other terms and conditions after signing the contract.

Correct Action: Investor must insist on obtaining a copy of the contract after being dated and fully signed.

Ninth Error: Investor may not be aware of his/her obligations, in case of accelerated payment.

Resulting Risk: Investor may pay amounts much larger than expected.

Correct Action: Investor must be aware of all obligations and principles on which accelerated payment is made. Such obligations must also be contained in the tripartite finance contract.

Tenth Error: Investor may not be quite sure of the company's name or account to which fund transfer is made.

Resulting Risk: Funds may be mistakenly deposited in a wrong account, which requires the investor to pay again.

Eleventh Error: The investor may not be sure of the companies assigned to collect funds.

Resulting Risk: Some entities may fraudulently claim that are the companies assigned for collection of funds, which results in a loss sustained by the investor. Investor, as a result of fraud, shall be required to pay the installment values once again or be subject legal actions for payment failure.

Correct Action: Investor must contact the company to ascertain the collection company's name and verify the collector's I/D.

Part Two

Common Errors in Dealing with Mortgage Finance Intermediaries

First Error: Investor may accurately select a mortgage intermediary (mortgage broker)

Resulting Risk: The intermediary may not play its role, and the investor may be subject to fraud and deception that result in loss of his/her funds paid as commissions to the intermediary.

Correct Action: Investor must review the EFSA list of intermediaries on the EFSA website, and select one of them. It is to be noted that the mortgage intermediary's services are paid by the financier, not the investor.

Second Error: Investor may fully rely on the intermediary with respect to submission of finance documents to the company.

Resulting Risk: The intermediary may fail or neglect to prepare a full set of the investor's documents, which results in a delay in the procedures for obtaining the mortgage finance value, and the investor may be required to restart the procedures from the beginning.

Correct Action: Investor must follow up and confirm that the intermediary has prepared all required documents on your behalf and that the documents are valid and correct and not subject to any fraud or deceit

Third Error: Investor may pay charges to the mortgage intermediary

Resulting Risk: Unnecessarily additional encumbrances are assumed by the investor

Correct Action: Investor is not required to pay the intermediary's charges which are already settled by the company. In case the intermediary's charges are claimed to be paid by the investor, the investor must file a complaint to the EFSA.

Fourth Error: Investor may assign the intermediary to find a residential unit.

Resulting Risk: Investor may be subject to additional charges.

Correct Action: The mortgage intermediary's charges for preparing the files must be separate from the intermediary's charges for finding a residential unit. The investor pays charges to the intermediary in its capacity as realtor, while the company pays charges to the intermediary in its capacity as mortgage broker.

Part Three

Common Errors in Dealing with Appraisers

First Error: The mortgage finance company may collect overestimated appraiser charges from the investor.

Resulting Risk: Investor shall assume encumbrances more than required.

Correct Action: Investor should either review the EFSA-determined appraiser charges published on the EFSA website, or inquire about these charges at the EFSA premises.

Second Error: The appraiser may directly deal and collect its charges form the investor.

Resulting Risk: Investor shall pay the appraiser charges twice, as the financer systemically collects these charges and add same to the installments owed by the investor even if these charges are directly paid by the investor to the appraiser.

Correct Action: No amounts should be paid without the financer's knowledge. Moreover, the financer and the EFSA must be notified of the appraiser's violation; the direct collection of charges.

Third Error: Although the investor may not be convinced of the appraiser's opinion, he/she may be forced by the company to accept the appraised value.

Resulting Risk: Investor shall assume the value of finance as well as the difference in value arising out of the disapproved appraisal.

Correct Action: Investor shall submit an application to the EFSA to select two appraisers to for reevaluation. Investor shall pay for their charges.