Dubai's Court of Cassation has ruled that a mortgage taken out against a development project is legally void if the lending bank did not deposit the loan funds directly into the project's escrow account, as required under the UAE's Real Estate Development Escrow Account Law, Law No. 8 of 2007.
Ahmed Labib, a senior associate at BSA Law, said the ruling effectively treats such a mortgage as if it never existed, meaning the bank loses its priority claim over the project's assets even if it acted in good faith when granting the loan.
The case that produced the ruling involved a mortgage originally valued at 246 million dirhams. The court reduced that figure to 93 million dirhams after determining that only that amount had actually been deposited into the project's escrow account. The dispute took roughly two years to work its way up to the Court of Cassation.
Legal experts say the decision could reshape how banks structure financing for Dubai's off-plan developments, pushing lenders to confirm that funds are channelled directly into supervised escrow accounts before a loan is disbursed. In practice, the ruling favours buyers of off-plan units, since it reinforces guarantees that financing is actually spent on construction, improving the odds that projects are completed on schedule.
The judgment underscores the central role the UAE's escrow account system plays in shielding property buyers from the financial risks tied to developers and their lenders.