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Saudi Finance and Mortgage Law; a short brief

The new Finance and Mortgage Law has five argumentations; The Real Estate Finance Regulations, the Real Estate Registered Mortgage Regulations, The Law on Supervision of Finance Companies, The Financing Lease Regulations, and The Execution Regulations also known as the Enforcement Law[1]. The new laws have created a legal and regulation framework for real estate funding with the objective of providing equality in citizen protection and assure investor rights.


The law on Registered Real Estate Mortgage

This law forms the major focus and concern in this study. The law has provides a new model for real estate security and for the first time availed mortgages that are second ranked. While it is theoretically possible to secure a mortgage (arahn) in Saudi Arabia, the fact that notaries refused to register real estate pledges made it practically unforeseeable. Some local banks have developed different methods through which they accept title deeds and land as unperfected security, methods which sometimes involve subsidiaries entities. However, these methods have been insufficient in supporting the development of a real estate financing market that is comparable to other jurisdictions. The new law on mortgage for the first time allows for the establishment of home mortgages and the creations provisions on the protection and the rights of both parties as well as lays out clear procedures regarding matters in home mortgages.

The new mortgage law stipulates that home mortgages should be registered and the process involves; full description of the security assets so as to avoid fraud instances or confusions, the capability of having mortgages classified as second ranking, ability to transfer a mortgage from the mortgagee to a third party, a mortgagee right to dispute, object and even have a court intervention on any issues that may result to the reduction in value of the collateral, in case the value of the collateral falls below the loan value, financiers have the right to ask for additional security to cover up the deficit, and in an event of disposal of the a real estate, lenders are to have priority above other creditors in having the debt settled depending on their ranks.


Real Estate Finance Regulation

This law provides the necessary framework that should be used in licensing banks to enter the Saudi real estate market. The law stipulates that banks can hold real estate, but for the purpose of financing which is a major aspect of Islamic financing for facilitating liquidity which translates to secondary market promotion through securitization and mortgage financing. The government has a role of publicizing the real estate market and granting financiers notary resisters and court access. The law requires that borrowers should have a credit check to be conducted through one f the various licensed credit bureaus. Lastly, the law establishes new methods for supporting the government financially.


The Finance Companies Control Regulation

The law creates a Shari’a oriented framework for companies seeking to enter the real estate financing market including other assets for example alternative funding methods like micro finance and lease finance. The regulation has a provision for the creation of an appellate committee for resolving finance disputes and violations and a new committee both to be in charge of hearing disputes that lie under the new law, but not disputes concerning ownership of real estate. The law gives the committee authority to hear and determine cases that underlie the new law, to hear concerned party’s complaints on Saudi Arabian Monetary Agency (SAMA) resolutions, and all the power required to investigate and resolve all cases for example, the power to summon witnesses and impose penalties. Exemptions to the jurisdiction through this law apply to hearing disputes on ownership rights among them disputes on securities that arise for financial initiatives or ownership and the right to use.


The Finance Lease Regulation

This regulation provides rules related to finance leasing as an alternative method for debt. The law provides legal authority for SAMA to authorize and oversee banks activity in the real estate industry as to be limited to financing, which is an exemption to current law[2]. In addition, the new law provides for companies financing real estate to create joint stock company/companies for mortgage refinancing based on the needs of the market in. The Public Investment Fund and other licensed financiers can be stakeholders in this joint venture(s) and publicly list a fraction of their shares and authorize insurance corporative companies to the real estate financing related risks as stipulated under the Cooperative Insurance Control Law. The law further empowers SAMA to issue procedures and standards to be observed in financing real estate.


The execution regulation

The execution law makes provisions for judges to hear execution cases and actions on insolvency. The regulation makes provisions for the judge to make a decision that allows for quick repayment irrespective of the value. Is so doing, judges are required to apply Shari’a Procedural Law. Judge’s pronouncement is to be final regarding judgments on execution disputes and insolvency matters subject to the right of appeal. In case of an appeal, the appeal decision is to be final.

[1] 1) The Mortgage Law, No.
49, dated 13/08/1433H 2) The Finance Lease Regulations, No. 48, dated 13/08/1433H. 3) The Finance Companies Law, No. 51, dated 13/08/1433H 4) The Real Estate Finance Law, No. 50, dated 13/08/1433H. 5) The Execution Law No. 53, dated 13/08/1433H.

[2] Article 10(4) in Regulations in Banking Control; banks can’t own real estate other than their premises.

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