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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.)

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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
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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
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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
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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
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up vote 6 down vote accepted

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]

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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
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