Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
I recently arranged for a refinance mortgage for one of my friends and made sure to coordinate the closing so that I would be in attendance to make sure everything was in order. As they were nearing the end of the stack of pages to be signed, one of the last remaining forms was our “Shtar Heter Iska” which we include in all closing packages. He excitedly reached into his wallet and pulled out a $1 bill that said “mortgage dollar” that I had given him over 8 years ago when they first bought their house and signed a Heter Iska as well. I marveled at how sentimental that was to him and was reminded of how significant this adherence truly is.
In a recent public service announcement, the Agudath Israel’s Conference of Synagogue Rabbonim sent forth a halachic alert warning consumers about a current danger in the marketplace where the prohibition of “Ribbis D’orasa” is taking place. The announcement references a certain lender and their practice of not providing or permitting a “Heter Iska” and advised, “We, therefore, feel compelled … alerting the public to the P’sak of Gedolei HaRabbaonim which states unequivocally that it is forbidden Al-Pi Torah for any Jew to take a mortgage or any other form of loan … without a valid Heter Iska”.
Although I received numerous emails and messages with the actual “Halachic Alert” and executed psak on the Agudath Israels stationary, I could not find the formal announcement on the Agudath Israel website. It didn’t take much effort however to find countless articles, reports and discussions online confirming it to be accurate. A prominent Jewish publication recently published an article where they wrote, that they were asked by one of the Rabbinic signatories “to publicize the P’sak Din”.
For those interested or unaware, I have gathered some of this information from sources such as Rabbi Yisroel Reisman, The Star-K, BusinessHalacha.com amongst others to give a little perspective on the topic and prohibition. The Torah states, “Do not take interest from him… Do not give him your money for interest” (Vayikra 25:35-36); “Do not provide interest to your brother” (Devarim 23:20); “Do not place interest upon him” (Shemot 22:24); and “You shall not place a stumbling block before the blind” (Vayikra 19:14). Our Sages conclude that the lender, the borrower, the guarantors, the witnesses, the agents, and even the scribe (lawyer) violate the transgression when engaging in an interest-bearing loan transaction. This is true even if the borrower is wealthy and willingly agrees to pay the interest.
To avoid this, the Rabbis introduced and instituted the requirement of a Heter Iska. The Heter Iska is essential “a document which converts a monetary loan into a joint business venture – with a silent partner and an active partner”. Conceptually, the active partner accepts the responsibility of a certain percentage (often half of the amount), while the silent partner accepts responsibility for any profits or losses involving the other portion of the money. The active partner would be responsible to deliver profits on the business venture. He would be required to affirm financial accountability by taking an oath. Since an oath is prohibited, he is instead issued a fixed “Knas”, a fine, resulting in the payout formula that mimics interest to the silent partner. Many people compare the maneuvers of a Heter Iska to that of selling one chometz prior to Pesach. There are some who are opposed to the “loophole” of such a document and avoid such situations altogether. Although most Rabbinic authorities trust, rely, and require its use in money lending.
I can confirm that over the years Approved Funding has lost clients, employees, and much business because we require the use of a Heter Iska. In that regard, we have never regretted or wavered requiring its usage. I will conclude with the disclaimer that by no means am I qualified to write about this very delicate and perilous topic. While we certainly spent a lot time, effort and consideration (financial and otherwise) researching the topic, still we yield to the intellect and guidance of leading Rabbonim with whom we have implemented best practices to lend with a halachically valid and permissible “Shtar Heter Iska” which is what we proudly provide to each and every one of our Jewish clients.
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