Article 38 of the Saudi Registered Real Estate Mortgage Law
المادة 38 من نظام الرهن العقاري المسجل
On early repayment of the debt or part of it, a part of the debt is deducted under the early repayment standards in the Finance Companies Control Law; if the court sells the property before the term ends, it pays the due installments to the creditor and deposits the rest in its bank account.
Official text (Arabic)
This article has not been amended since the law was issued.
1 - إذا سدد الدين أو بعضه قبل أجله باتفاق المتعاقدين، أو بحكم العقد، أو النظام، أو القضاء؛ فيحط جزء من الدين طبقًا لمعايير السداد المبكر المنصوص عليها في نظام مراقبة شركات التمويل.
2 - إذا تعثر المدين في السداد وباعت المحكمة العقار المرهون قبل حلول الأجل كله، أمرت بسداد الأقساط الحالَّة للدائن، وأودعت باقي المبلغ في حساب بنكي للمحكمة. وللمدين طلب الإفراج عن المبلغ إذا قام بالسداد المبكر لباقي مديونيته، أو قدم كفالة مصرفية لسداد باقي الدين.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 38 explained in plain English
This article deals with two cases concerning paying the debt before its term:
First case: early repayment (paragraph 1)
If the debt, or part of it, is paid before its term, whether by agreement of the contracting parties, by the terms of the contract, by law, or by judicial ruling, a part of the debt is deducted. The article does not specify the amount of this part but refers to the early repayment standards set out in the Finance Companies Control Law.
Second case: the debtor defaults and the property is sold before the whole term arrives (paragraph 2)
- If the debtor defaults on payment and the court sells the mortgaged property before the whole term has arrived, the court orders the installments that have fallen due to be paid to the creditor.
- And it deposits the rest of the amount in a bank account of the court.
- The debtor may request release of the amount if the debtor repays the rest of the debt early, or provides a bank guarantee for repayment of the rest of the debt.
The creditor thus receives the installments that have fallen due, and the rest of the amount is kept in the court's account until one of the two stated grounds for release is met.
This article follows Article 37, which makes the mortgage follow the debt and be released when the whole of it is extinguished, and is connected to Article 39, which provides for the extinction of the registered mortgage through compulsory sale and payment of the price to the mortgagees or its deposit in a bank account of the court. Because the amount of the deduction follows the standards of another law, the debtor would do well to consult a lawyer specializing in banking and finance or real estate cases.
Practical example
Yousef bought a house in Khobar with financing secured by a registered mortgage, and decided to repay the rest of the debt before its term, so a part of the debt is deducted from him under the early repayment standards in the Finance Companies Control Law. Had Yousef defaulted and the court sold the house before the whole term arrived, it would have ordered the installments that had fallen due to be paid to the financier and deposited the rest in a bank account of the court, and he could request its release if he repaid the rest of his debt early or provided a bank guarantee.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 38 of the Saudi Registered Real Estate Mortgage Law
Is part of the debt deducted on early repayment of real estate financing?
Article 38 provides that a part of the debt is deducted when it, or part of it, is paid before its term, under the early repayment standards in the Finance Companies Control Law.
What happens to the price of the property if the court sells it before the term ends?
The court orders the installments that have fallen due to be paid to the creditor, and deposits the rest of the amount in a bank account of the court.
How does the debtor get back the amount deposited with the court?
The debtor may request release of the amount if the debtor repays the rest of the debt early, or provides a bank guarantee for repayment of the rest of the debt.
More articles on Ending and Releasing the Mortgage
- Article 37
The mortgage follows the debt, so it is released when the whole secured debt is extinguished and returns if the debt returns, without prejudice to rights acquired in good faith by others in between.
1 - الرهن تابع للدين، فينفكّ الرهن بانقضاء جميع الدين الموثق به. 2 - إذا كان الدين قد انقضى ثم عاد لأي سبب موجب لبقائه، رجع الرهن كما كان برجوع الدين، دون مساس
- Article 39
A registered mortgage is extinguished by a compulsory sale of the mortgaged property under the law and payment of the price to the mortgagee creditors according to their ranks, or its deposit in a bank account of the court.
ينقضي الرهن المسجل ببيع العـقار المرهون بيعًا جبريًا وفقًا للنظام، ودفع ثمنه إلى الدائنين المرتهنين وفقًا لمرتبة كل منهم، أو إيداعه في حساب بنكي للمحكمة.
- Article 40
A registered mortgage is extinguished by merger of rights, when the right of mortgage and the right of ownership come together in one person, and returns if the cause of the merger ceases retroactively.
ينقضي الرهن المسجل باتحاد الذمة، باجتماع حق الرهن مع حق الملكية في يد شخص واحد، سواءً أكان بانتقال ملكية العقار المرهون إلى المرتهن، أم بانتقال حق المرهون إلى ا
- Article 41
A registered mortgage is extinguished when the mortgagee waives it by a documented waiver, and the mortgagee may waive the mortgage right while the debt remains.
ينقضي الرهن المسجل إذا تنازل المرتهن عنه تنازلاً موثقًا، وله أن يتنازل عن حق الرهن مع بقاء الدين.
- Article 42
A registered mortgage is extinguished by the destruction of its subject, subject to the provisions on destruction of the mortgage set out in the law.
ينقضي الرهن المسجل بهلاك محلّه، وتراعى أحكام هلاك الرهن المنصوص عليها في هذا النظام.
- Article 43
The mortgagor and the possessor may request release of the mortgage after the period for hearing a claim on the debt secured by the mortgage, set out in other laws, has elapsed.
للراهن والحائز طلب فك الرهن بعد انقضاء مدة سماع دعوى الدين الموثق به الرهن المنصوص عليها في الأنظمة الأخرى.
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.