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Mortgage Timings

  • When the Mortgage Contract Becomes Binding:

    • 1. At the Same Time as Debt Contract:

      • Condition: A seller may agree to a sale with a mortgage stipulation.

      • Example: "I sold you my car for 100,000 riyals, deferred to a year on the condition that you mortgage your house to me."

      • Article 4 of the Installment Sale Law: Allows the seller to require a mortgage or guarantee from the buyer until all installments are paid.

    • 2. After the Debt Contract:

      • Allowable as it documents the debt contract.

    • 3. Before the Debt Contract:

      • NOT Permissible: Cannot establish a mortgage without an existing debt as it documents a non-proven right.

      • A mortgage is dependent on a valid pre-existing contract.

Islamic Perspective on Mortgages

  • Permissibility According to the Quran:

    • Quranic reference: "If you are on a journey and a scribe cannot be found, then a security can be taken..."

    • Emphasizes documentation of debt with a mortgage if necessary (e.g., during travel).

    • The act of mortgaging involves exchanging pledges and controlling the mortgaged property.

Legal Aspects of Mortgages in Saudi Arabia

  • Importance of Written Contracts:

    • The word of the mortgagee (creditor) is favored in proving the debt over the debtor's word.

    • Hadith Reference: Prophet Muhammad mortgaged his armor for foodstuff, indicating the acceptance of mortgages in Islamic tradition.

  • Registration Requirement:

    • Saudi law mandates registration of real estate mortgages.

    • The Registered Real Estate Mortgage Law states that the mortgagee acquires a right on the property which has priority in repayment over other creditors.

Preferred Creditors Rights

  • Definition: Creditors (individuals, companies, or state entities) whose debts have priority over unsecured debts.

  • Priority Order:

    1. Judicial expenses

    2. Rights of the mortgagee in the mortgaged property

    3. Individual with property in the debtor's possession

    4. Lease contract amounts due

    5. Contributions and penalties to GOSI

    6. State debt

Characteristics of Formal Mortgages

  • Definition of Lien: A right allowing one to retain possession of goods until claims against the owner are satisfied.

  • Essential Characteristics:

    • Must be an official right issued by a public official (e.g., notary public).

    • Requires registration per legal requirements, particularly for immovable assets like land or buildings.

Specific Laws Governing Mortgages

  • Civil Aviation Law: Establishes registered liens on civil aircraft as secured rights for debts.

  • Vessel and Floating Units Registration Fees Law: Concerns registration of liens on ships.

  • Public Warehousing Law: Defines lien documents related to stored goods.

Accessory and Indivisible Rights of Mortgages

  • Nature of Mortgages:

    • Accessory right depends on the existence of a guaranteed debt.

    • If the debt ceases to exist, so does the mortgage.

    • Each part of the mortgaged property can secure the entire debt, allowing agreements to release part of the mortgage upon partial debt payments.

Additional Mortgage Rights and Tracing

  • Preferences for the Mortgagee:

    • Mortgagee has a right to trace the mortgaged item regardless of who possesses it, ensuring recovery upon maturity of the debt.

    • Protection of mortgages grants creditors a preferred rank in recovering debts.

Original vs. Accessory Rights

  • Own Versus Mortgaged Property:

    • Original rights include ownership and usufruct, while accessory rights pertain to liens and mortgages.

Elements of Possessory Mortgage

  • Legal Framework:

    • Governed by the Movable Property Security Law and the Law of Commercial Pledge.

  • Security Interest: A right over collateral to ensure the performance of an obligation.

  • Pledgor and Pledgee Definitions:

    • Pledger: Person providing the mortgage, who should be the owner of the property at contract signing.

    • Pledgee: Party receiving the pledge intended to secure the debt.

Conditions for Secured Debt

  • Specific Conditions:

    1. Specified debt must be clearly defined or guaranteed.

    2. A pledge secures both current and future obligations.

    3. Must specify maximum debt amount in the contract.

Examples of Pledged Properties

  • List of Collateral Types:

    • Includes receivables, bank credits, commercial instruments, vehicles, equipment, inventory, animals, crops, and fixtures.

Maintenance and Expenses Under Pledge

  • Related Expenses Covered:

    • Maintenance, investment, revenue collection, and enforcement expenses must be acknowledged as part of the secured amount.

Conclusion: Contracts of Guarantees

  • Legal Queries:

    • Issues surrounding the investment of pledged property, joint ownership, maintenance costs, and property separation are significant considerations for contractual agreements in commercial pledges.