Bought an apartment and registered it in a friend’s name: is a heter iska required for the mortgage

Shalom,

A person bought an apartment and registered it in his friend’s name. May he take out a mortgage in both their names, with him alone making all the mortgage payments, or is a heter iska required between them?

Shalom u’vracha,

It is permitted, and a heter iska is not strictly required; however, ideally it is still proper to arrange a heter iska.

Unlike a fictitious registration of ownership of an apartment, a fictitious registration of a mortgage in another person’s name is halachically effective, since the bank does not know the “real” borrower; it knows only the person registered as the borrower. Therefore, it is he who has accepted responsibility towards the bank, legally and halachically, for the loan, and he is considered the borrower. Accordingly, when he transfers the funds to his friend, this creates an additional loan with interest, which in itself requires a heter iska.
In our case, however, the situation is different: the “real” borrower is also registered in the bank as a borrower. Thus, even if he pays the entire loan to the bank, he is paying it as a borrower to the lender, and not as repayment of his friend’s share of the loan. Nevertheless, there is another factor to consider: since both received the money from the bank as a loan for a partnership, in principle the friend can compel his partner to divide the partnership and receive his share, or alternatively, to use the funds jointly. When he does not do this, but instead gives all the money to his partner for his personal use in exchange for the partner alone paying the entire loan to the bank, this creates an additional loan.
Here we can apply the leniency mentioned by the Taz in siman 170, se’if katan 3. He discusses a case where one partner took a loan with interest from a non‑Jew for the needs of the partnership. The second partner is forbidden to participate in paying the interest, because the non‑Jew knows only the first partner, and he alone is obligated to the non‑Jew. The fact that he put the money into the partnership turns this into a second loan between the partner who borrowed from the non‑Jew and the other partner, and a heter iska is required between them. The Taz writes that if the original lender was a Jew and the arrangement with him was made with a heter iska, then no new heter iska is needed between the partners, because we assume that the new loan was given on the basis of the original heter iska. The reasoning is that it is clear that if someone undertakes a loan for the needs of a partnership with limited liability, on the understanding that his partner will obligate himself to him in return, he certainly does not intend to profit from the difference in the level of responsibility. Therefore, the second loan is made subject to the conditions of the first. Indeed, if the investment loses money and the partners can prove this to the lender in accordance with the terms of the heter iska, the partner will likewise be unable to collect from his fellow, because all his commitments to his partner were made in line with his obligation to the original lender. The same applies here: although the situation is reversed — both partners took the loan jointly and only afterward one partner allowed the other to use all the money, thereby creating an additional loan — it is clear that this additional loan, in the absence of explicit contrary conditions, was given on the understanding that it is subject to the bank’s heter iska. If they will not be required to pay the bank under the terms of the heter iska, the borrowing partner will likewise not be required to pay the partner who lent him the funds. Thus, the heter iska they signed with the bank also covers this second loan. Nevertheless, it is proper to execute an explicit, separate heter iska.