Translation of the attached article:
The new real estate mortgage law is considered one of the important regulations that has helped facilitate access to real estate financing within a clear legal framework that protects the rights of all parties.
Due to the increasing reliance on mortgages as security for financial obligations, it has become important to understand how this system works and the rights and obligations it creates for all parties. In this article, we will explain the most important matters related to the new real estate mortgage law and the best law firm in Saudi Arabia.
What Is the New Real Estate Mortgage Law in Saudi Arabia?
The new real estate mortgage law is a financial and legal system that allows an individual or entity that owns a property to provide this property as security to obtain a loan or financing from a financing company or bank. The ownership of the property remains in the name of the mortgagor until the debt is fully repaid according to the agreed terms.
This system regulates the relationship between the mortgagor, who is the property owner, and the mortgagee, which is the financing entity, in a clear manner. It grants the mortgagee a real right over the mortgaged property, ensuring the fulfillment of its right in the event of default, without this meaning that ownership of the property transfers to it directly.
The Difference Between Real Estate Mortgage, Real Estate Financing, and Mortgage for Liquidity
In a real estate mortgage, the property is already owned by the mortgagor, while in real estate financing, the property is purchased through financing. The purpose of a real estate mortgage is to obtain liquidity secured by a property, while the purpose of real estate financing is to purchase a new property.
In real estate financing, disposal of the property is restricted according to the mortgage terms. However, disposal of the property in a real estate mortgage is subject to the conditions of the financing entity. Ownership remains with the mortgagor in a real estate mortgage, while in real estate financing ownership often transfers after repayment.
Mortgage for liquidity means obtaining a sum of money secured by a property that is already owned, without the purpose being to purchase a new property. This type is usually used to provide financial liquidity for commercial or personal purposes while the property remains as security until the obligation is repaid.
Why Was the Law Approved and What Are Its Objectives in the Saudi Market?
The new real estate mortgage law was approved to achieve several objectives, the most important of which include:
- Regulating the relationship between the beneficiary and the financier, as the law clearly defines the obligations and rights of both the mortgagor and the financier.
- Recording the credit history, as the law encourages citizens to repay their real estate loans on time, which strengthens their credit history.
- Allowing real estate collateral to be provided to obtain a loan more easily.
- Providing flexible financing options to meet the different needs of beneficiaries.
- Helping increase home ownership rates by facilitating citizens’ access to real estate loans.
Elements of a Valid Real Estate Mortgage and Conditions for Its Creation
The new real estate mortgage law in Saudi Arabia requires a set of conditions to be met in the property, the most prominent of which include:
- The property must be precisely specified and clearly identified.
- The property must be legally saleable.
- The property’s data must be officially documented in the real estate records.
- The property must be free of any substantial disputes that affect ownership.
- It must be possible to register the mortgage over the property according to the real estate title registration system.
- The property must have an approved market value that allows it to be used as security for the required financing.
Conditions of the New Real Estate Mortgage Law in Saudi Arabia
There are some basic requirements that must be met by the applicant to obtain a real estate mortgage in Saudi Arabia. These requirements include:
- The applicant must be Saudi, or must have official approval if they are non-Saudi.
- The applicant must be at least 18 years old at the time of application.
- There must be a fixed monthly income suitable for the value of the requested financing.
- The real estate loan ratio must not exceed the permitted limit according to the financing entity’s policy.
- Employment stability and work with an entity approved by the financing company or bank.
- A good credit history must be available, with no financial defaults.
How Is a Real Estate Mortgage Documented and Registered in Saudi Arabia?
A real estate mortgage in Saudi Arabia is documented through the competent notarization and real estate registration authorities to ensure the protection of all parties’ rights and formally prove the mortgage.
The procedures begin by preparing the mortgage contract, which must include all basic information, such as the parties’ details, the property description, the value of the obligation, and the mortgage terms.
The contract is then documented electronically or through the relevant authorities, after which the mortgage is registered in the real estate register so that it becomes effective and produces legal effects.
Is It Permissible to Dispose of a Mortgaged Property?
The question of whether it is permissible to dispose of a mortgaged property is a common legal question because it directly concerns the rights of the owner and the financing entity.
The general rule under the new real estate mortgage law is that the mortgaged property does not leave the ownership of the mortgagor, but certain legal disposals over it are restricted depending on the mortgage terms and the status of the real estate title registration.
When documenting a real estate mortgage or verifying the validity of property ownership before financing, you may need to understand real estate title registration, so that you know its effect on proving ownership, registering rights, and protecting the mortgage parties lawfully.
Rights of the Mortgagor, Mortgagee, and Third Parties Under the Real Estate Mortgage Law
The real estate mortgage law grants each party a set of rights and obligations. The mortgagor retains the right to use and own the mortgaged property, but is obligated not to dispose of it in a way that harms the mortgagee’s rights.
The mortgagee has the right to take legal procedures to recover its right from the property in the event of non-payment, and also enjoys priority over certain creditors according to the order and registration of the mortgage.
As for third parties, mortgage registration aims to protect real estate transactions and prevent harm to persons who may deal with the property without knowing that there is a mortgaged right over it.
What Happens in the Event of Default, Decrease in Property Value, or Destruction of the Property?
The new real estate mortgage law regulates cases of default in paying the real estate mortgage. Default does not mean immediate loss of the property; rather, the process goes through several stages aimed at giving the debtor an opportunity to settle their financial situation before reaching enforcement procedures. These stages include:
Notice and Payment Warning Stage:
When payment is delayed, the financing entity usually does the following:
- Sends official notices to the borrower.
- Grants the borrower a period to settle overdue installments.
- Attempts to reschedule obligations in some cases.
Enforcement Stage Against the Mortgaged Property:
If the default continues, the mortgagee has the right under the law to:
- Request enforcement against the mortgaged property.
- Sell the property to ensure recovery of the debt.
- Begin legal procedures through the competent authorities.
- Sell the property at public auction.
If an Enforcement Decision Is Issued:
If an enforcement decision is issued, the following takes place:
- The property is sold at public auction according to the legal procedures.
- The sale proceeds are used to repay the outstanding debt.
- Any surplus is returned to the mortgagor if an amount remains after the debt is repaid.
When dealing with a mortgaged or financed property, you may also need to understand the conditions of an electronic lease contract, so that you know the effect of leasing on the rights of the owner and the mortgagee and ensure that the lease relationship is legally documented.
Early Repayment and Enforcement Against the Mortgaged Property
In many cases, the debtor has the right to make early repayment of the obligation secured by the mortgage, according to the terms agreed with the financing or creditor entity. Early repayment may be subject to certain rules or fees depending on the type of financing and the contract.
In the event of payment breach, the mortgagee has the right to begin enforcement procedures against the mortgaged property in accordance with the applicable laws, after fulfilling the legal requirements.
When Does a Real Estate Mortgage End and How Is the Mortgage Released?
A real estate mortgage mainly ends when the debt or secured obligation is fully repaid, as the reason for which the mortgage was created no longer exists. It may also end in other cases, such as destruction of the property, waiver of the mortgage, or the issuance of a court judgment to that effect, depending on the nature of the case.
The mortgage is released by taking the legal procedures to cancel the mortgage entry from the real estate register after fulfilling the obligation. This often requires the approval of the mortgagee or official proof that the debt has ended.
Main Problems of the New Real Estate Mortgage Law and How to Avoid Them
There are some problems that borrowers may face under the new real estate mortgage law, the most prominent of which include:
High Monthly Installments:
One of the most common problems is the inability to pay installments on time due to their high value or economic changes such as increased interest rates or inflation. This may sometimes lead to delayed payment and additional fines being imposed on the borrower.
Delay in Legal Procedures:
Some clients may delay issuing the required licenses or registering the property, which affects the real estate mortgage process. Any real estate mortgage must be officially registered with the Ministry of Justice to ensure the rights of both parties. However, delays in documents or errors may cause major problems.
Mortgage Contract Defects in Terms and Conditions:
Some contracts contain unclear clauses or penalty terms that impose additional obligations on the borrower. These defects may include high late-payment fees or financial requirements that do not match the client’s ability to repay, increasing the financial burden.
Lack of Transparency in Fees and Interest:
One of the problems clients face is not knowing the details of fees or additional interest accurately before signing the contract. Under Saudi regulations, financial institutions must disclose all interest and fees to avoid future disputes.
Best Law Firm in Saudi Arabia
Nawaf bin Awad Al-Harbi Law Firm is considered one of the best and most prominent law firms in Saudi Arabia. It has a group of the best real estate lawyers and legal consultants who provide the best high-quality services to both individuals and companies.
The firm has extensive experience in the field of real estate mortgages and provides integrated services to clients dealing with various real estate cases. The firm aims to protect clients’ rights and provide the necessary legal advice to ensure that real estate mortgage transactions are carried out fairly and legally.
Contact now with the best law firm for real estate cases to understand the new real estate mortgage law in Saudi Arabia, ensure your rights when dealing with real estate financing, and prepare all legal procedures to protect your interests according to the law.
Conclusion
The new real estate mortgage law is an important legal framework for regulating real estate financing and protecting the rights of all parties. Due to the complexity of procedures related to mortgage, mortgage release, and disposal of mortgaged property, seeking the assistance of a specialized lawyer has become an important and necessary step to avoid any future disputes or legal risks, which you will find at Nawaf bin Awad Al-Harbi Law Firm.
When dealing with a real estate mortgage or signing a financing contract secured by a property, you may need to seek the assistance of a real estate lawyer so that they can review the contract clauses and ensure that your rights are protected before committing to any financial or legal terms.
Frequently Asked Questions
Is It Permissible to Dispose of a Mortgaged Property?
Yes, it is permissible in some cases, especially if the mortgaged property is registered under the real estate title registration system. The mortgage remains valid until it is released or the debt is repaid.
What Happens in the Event of Default in Real Estate Mortgage Payment?
The financing entity begins legal procedures that may lead to enforcement against the property, and the property may be sold at public auction to repay the debt.
Is Real Estate Title Registration Mandatory?
Real estate title registration helps formally document the mortgage and ownership, protect rights, and reduce legal disputes between the parties.
