Chapter III
This chapter will review the background of Real Property Law in the Kingdom of Saudi Arabia. In order to lay the foundation for comparisons in subsequent chapters, the elements of the Saudi judicial system and real property law will be reviewed. The background information pertaining to Saudi Arabia will feature the judicial court system, the property rights and real property ownership. A review of the current mortgage law in Saudi Arabia will be analyzed as well as possible reform to include the application of anti-deficiency laws.
Introduction
Saudi Arabia is governed by a monarchy. Its current legal system under the Basic Law of Governance, was established in 1992 by Royal Decree. Within the judicial system of the Kingdom of Saudi Arabia, there are two structures: The Shari’ah and the Board of Grievances. The Shari’ah consists of three levels of court: The Supreme Court, the Court of Appeals and the Court of First Instance. Each level of court has its own jurisdiction over particular cases as set forth by the law. The Board of Grievances is the administrative judicial committee and it is independent of the Shari’ah Court. The Board of Grievances consists of the High Court, the Court of Appeals and the Administrative Courts. These courts each have specific committees that report to King. The legislative process in the Kingdom of Saudi Arabia also involves the King. The Council of Ministers is a legislative branch that acts as an advisory board to the King. The Council may introduce and pass new laws but the King has final approval. The Shura council is another legislative body existing in the monarchy. The Shura is a consultative body that can propose laws but cannot actually pass laws. The laws that the Shura proposes must go to the King for approval. With the understanding of the judicial and legislative processes in Saudi Arabia, a better grasp can be taken of the nature of property rights and real estate ownership in the Kingdom.
In 2012, new laws pertaining to mortgages were passed in Saudi Arabia by Royal decree. The new laws established a real estate market in the Kingdom. The laws organized the lending process, loan purchase, sale transactions, mortgage registration and foreclosure. These new laws were intended to encourage securitization and boost the real estate market in Saudi Arabia. The majority of home owners had acquired their homes without financing prior to the passage of the new laws. The Real Estate Finance Law establishes a regulatory framework for financing of real estate. Prior to the passage of the mortgage laws in Saudi Arabia, there was no foreclosure law or right to foreclosure. The recorder of deeds was a notary public and this person had the authority to refuse the recording of deeds due to their own subjective doubt about a lender’s ability to pay. The new laws eliminated the notary public, created a central authority for deed recording and made it easier for validating mortgages. This enhanced regulation drew in more commercial finance lenders and allowed for more borrowing which allows for ease of recording as well as a process for foreclosure.
The passage of the new mortgage laws led to the creation of new agencies and agency authority with respect to real estate. It had been expected that the economy would undergo a boost as a result of the new laws which enabled, not only citizens, but foreigners as well, to purchase real property in the Kingdom. Although the housing market did surge, it was not sustainable because there existed a housing shortage as well as unaffordable housing issues.
However, with the requirement of a significant down payment to obtain a mortgage, the middle class was not able to afford housing, and the development of housing was not being accomplished fast enough to meet the needs of the new buyers. To address this problem, the government provided licenses for large developers throughout the entire country and reduced the financing down payment requirement. Mortgage down payment in KSA was reduced to 15% of the value of the home. The prior thirty percent requirement significantly hampered the demand for mortgages.
Even so, Saudi Arabia recently entered an economic downturn. The economy is also currently unstable and there is a very large unemployment rate. Additionally, nearly fifty thousand foreign workers of the country’s largest construction companies have been terminated. The GDP plunged from 733.336 billion in 2014 to 646.002 billion in 2015 with merely a 0.9% growth in 2016 and the 2016 unemployment rate reached 5.7%.
Saudi Arabia should enact anti-deficiency laws to protect both borrowers and creditors. These rules would alleviate those who are struggling in the down economy with their new mortgage and inability to pay, and will also provide a boost to the economy. The unemployment potential of those interested in borrowing to purchase real property is concerning. If individual borrowers establish a mortgage and lose their employment, they would be unable to make payments. Anti-deficiency laws would alleviate these concerns and boost the economy. Anti-Deficiency laws are created for situations like Saudi Arabia is currently facing. The economy is becoming stagnant and property values are declining. Encouraging home sales will boost the economy.
Background
Saudi Arabia came into existence in 1740 when Muhammad bin Saud and Muhammad bin Abdulwahab made an agreement to create a state where Islam ruled. The country was governed by the Arabs but had been controlled by the Ottoman Empire until 1932 when Abdul-Aziz became the first King of Saudi Arabia. This history is reflected in the uniqueness of the Saudi Arabian governmental system. Currently, King Salman bin Abdulaziz Al Saud is the head of the State and prime minister. Through the use of Royal Decrees, the king has the power to overrule any governmental decision. The country consists of thirteen provinces and each is divided into governorates. Each governorate is divided into municipalities. The provinces are governed by the Law of Provinces which was created in 1992 by Royal Decree of the King. A governor along with a deputy administers the law in each province. They are appointed by the King and typically are members of the Royal family.
The Saudi Legal System
The governing document, known as the Basic Law of Governance, was drafted in 1992 and issued by Royal Decree. The legal system is an aspect of the country’s Basic Law of Governance, which also includes the executive and legislative branches of government. Article 7 of the Basic Law of Governance establishes the source of law and states that “Government in the Kingdom of Saudi Arabia derives its authority from the Book of God and the Sunna of the Prophet which are the ultimate sources of reference for this Law and the other laws of the State” Article 44 of the Basic Law of Governance actually creates the judiciary branch and states:
the executive authority; the regulatory authority. These authorities cooperate
with each other in the performance of their duties, in accordance with
this and other laws. The King shall be the point of reference for all
these authorities.
In Saudi Arabia, there is no separation of powers between the branches and within the judicial branch there are two systems: The Shari’ah system and the Board of Grievances. The Board of Grievances is the administrative branch of the judiciary. The Basic System of Governance obligates the court to employ the law of the Islamic Shari’ah in all cases. The cases must also be in harmony with the Qur’an and the Sunnah. King Abdullah overhauled the Saudi Arabian judicial system by decree in 2007, yet he retained the dual court system for the country.
Under the new Law of the Judiciary, there were many changes to the legal system. Article 1 states that “judges are independent, and in the administration of justice, they shall be subject to no authority other than the provisions of Sharia and laws in force. No one may interfere with the judiciary”. Although the decisions made by the courts are independent, the King has authority to intervene using a Royal Decree. The new Judiciary is currently in transition.
The Court system currently consists of three levels: The Supreme Court, the Court of Appeals and the Court of First Instance. Each level of court has its own particular jurisdiction over cases. The Court of Appeals will exercise jurisdiction over Civil, Commercial, Criminal, Labor and Personal Status Courts. Court of First Instance will exist in areas, regions and centers and have jurisdiction over General, Commercial, Criminal, Labor and Personal Status courts. A Board of Grievances also exists as an administration aspect of the court system that is affiliated with the King of Saudi Arabia. The board also includes committees that operate by decree of the King. The board will include High Administrative Courts, Administrate Courts of Appeal and Administrative Courts. These courts will address cases pertaining to employee rights, administrative decisions, contracts, compensations, disciplinary actions and foreign rules.
A Supreme Judicial Council oversees the ordinary courts. The Council appoints, promotes, disciplines, assigns, trains, transfers judges. The Council also regulated the personal affairs of the judges, establishes and supervises courts, names chiefs of the courts, and conducts many other procedural duties relating to the courts and its judges. The Supreme Court or High Court is the highest judicial authority in Saudi Arabia. The court sits in Riyadh and receives its authority from the Law of the Judiciary, Article 11. Article 11 provides the following:
The court has the ability to review decisions and judgments that
were previously issued or reinforced by the Court of Appeals pertaining
has the authority to review decisions and judgments of the Court
of Appeals if a party objects to the judgment issued by the Court
of Appeals because it is not consistent with Shari’ah law or the King’s
law, it was issued by a court without proper authority, it was issued by
an incompetent panel or if the case has alleged faulty facts or description.
The Court of Appeals sits in each province of Saudi Arabia. It has jurisdiction over cases involving labor law, commercial law, criminal law, family law or civil law. The Court’s authority is derived from Article 11 of the Law of Justice which provides that the Court of appeals can review judgments issued by Courts of first instance. Judgments handed down by the Court of Appeals are issued after a review of the appealing party’s petition. All judgments issued by the court are in adherence to Shari’ah law and the law of procedure. Each province has a Court of Appeal which has the authority to overturn lower court decisions. There are courts of appeal for labor, commercial, criminal, personal and civil circuits.
The Courts of First Instance or First Degree Courts are located throughout Saudi Arabia in different regions and provinces. The Court of First Instance consists of General Courts, Criminal Courts, Family Courts, Commercial Courts and Labor Courts. Each of these courts were created separately by the Law of Procedures of the Shari’ah Courts and the Law of Criminal Procedure. Articles 19 through 23 of the Law of Judiciary set forth the duties of the Courts of First Instance.
Article 19: General courts in provinces shall consist of specialized panels
that include panels for execution and for ex parte and similar cases which
are outside the jurisdiction of other courts and notaries public, and
decide on traffic accident cases and violations provided for in the
Traffic Law and its Implementing Regulations. Each panel therein
shall consist of a single judge or three judges as determined by the
Supreme Judicial Council
Article 20: A penal court shall be composed of specialized panels as
follows: (a) Panels for Qisas (lestalionis retribution) and Quranic
prescribed punishment cases. (b) Panels for ta zir, (discretionary
punishment) cases. (c) Panels for juvenile cases. Each panel shall
be composed of three judges except for cases determined by the
Supreme Judicial Council which shall be reviewed by one judge.
Article 21: A family court shall be composed of one or more panels
and each panel shall consist of one or more judges as determined
panels as needed.
Article 22: A commercial court and a labor court shall be composed
of specialized panels and each shall consist of one or more judges
as determined by the Supreme Judicial Council.
Article 23: A general court in a county or district shall be composed
of one or more panels. Each panel shall consist of one or more judges
as determined by the Supreme Judicial Council. Specialized penal,
commercial, labor and family panels must be established, whenever
necessary, in the general courts of counties and districts where no
specialized courts are established. Said panels shall have the powers
of specialized courts. The Supreme Judicial Council shall determine
the cases to be reviewed by the general courts of one judge.
The Commercial Courts system addresses real estate law and foreclosures in Saudi Arabia, but these courts are not scheduled to open until 2017. The courts will be created in three cities, Riyadh, Jeddah and Damman, and have eleven commercial circuits throughout the country. This is a substantial change from the previous existing commercial courts that operated under the Board of Grievances and the Ministry of Commerce. This change will also reflect an improvement in the enforcement of commercial laws, as under the Board of Grievance commercial court rulings were not always enforceable and committees tended to be impartial.
The Board of Grievances is an administrative judicial committee that is independent from the three levels of the court system. The Board of Grievances controls the administrative courts. Shari’ah law is applied to all instances before the board. The Administrative courts have a hierarchy that is similar to the Shari’ah court system. The board consists of the High Administrative Court, the Administrative Court of Appeals and the Administrative Courts. Each of these courts report directly to the King of Saudi Arabia. The courts consist of committee members including a president minister, vice presidents, judges, administrators and various specialists. The cases presented to these courts relate to the administration of the Saudi government including disputes of government, issues relating to administrative decisions and actions as well as foreign judgment reviews among others. The procedures regulating the board are set for in Article 1 of the Procedural Law of the Grievances Board. Generally, the administrative courts hear disputes between public parties while the ordinary courts hear disputes between private parties.
Property Rights in Saudi Arabia
Property rights under Saudi law is distinguished by citizenship. The rights vary according to whether an individual is a citizen of a country in the Gulf Cooperation Council (“GCC”), a citizen of a country not in the GCC and a foreigner. GCC citizens include nationals from Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab Emirates. Citizens of the GCC are authorized to acquire up to three parcels of land unless otherwise approved by the government. The land cannot exceed more than 3,000 square miles but may be acquired either by sale or inheritance. A GCC citizen can only purchase property for use as a residence. The owner cannot transfer the property for a period of four years and only with the consent of the government. GCC citizens who own corporations also have the right to purchase property for the purpose of engaging in a business activity. The business must be registered under Saudi law to partake in the business activity, the property must be assigned only for the conduct of such business and the property must be suitable for the particular business activity. GCC citizens are not authorized to purchase property in Mecca or Medina.
Non GCC citizens and foreigners also have property rights in Saudi Arabia, however, several requirements must first be met per the Saudi Arabia General Investment Authority (SAGIA). The SAGIA reports to the president of the Economic Supreme Council Authority and addreses all foreign investments in Saudi Arabia. An individual or corporation licensed to do business in Saudi Arabia may purchase real property to conduct such business. Ownership of property for a residence is also permitted. The SAGIA will issue a license for purchase of property so long as the property is not valued over thirty million SR, and the sale is to occur within five years. Non GCC citizens and foreigners who have established legal residency in Saudi Arabia also have the right to own property for use as a residence but this must be approved by the Ministry of Interior and such property cannot be located in Mecca or Medina.
Real Estate Ownership in Saudi Arabia
According to the law of Saudi Arabia, the purchase or sale of property and the granting of a mortgage is completed on an agreement that must be executed by a notary public. The deed is recorded on the property of the agreement describing the land and identifying the new and previous owners. This information is not available to the public. The process of recording under the Notary Public regulations is long, as such a decree by the King established a new system for registration in 2002.
The Real Estate Registration Law sets forth the registration procedure for real property in Saudi Arabia. Each region has its own registry which will record the property owner, the rights of the property owner and the existence of a mortgage or other interest in the property.
Market Liquidity of Real Estate in Riyadh and Jeddah
According to recent research, the market for real estate for residential purposes in Saudi Arabia has slowed in 2016. This has been due to affordability, the availability of financing and the increase in demand for rental property. The Housing Ministry has introduced affordable housing projects to meet this current challenge. In Riyadh, liquidity currently rests near the low end of the market, and this is expected to continue. As in other urban areas across Saudi Arabia, rental property is in high demand. In Jeddah, just as in Riyadh, rental property demand is high. A particular issue in Jeddah is the shortage of land available for development. This is causing the shifting of demand for property north of Jeddah near Abhor. In the northern areas, development is expected to rise in the near future.
Under the current conditions in Saudi Arabia, the trend has been towards rentals rather than real estate purchases. In a February 2016 publication entitled “Top trends for Saudi real estate market in 2016 “, it is noted that the real estate market will continue to slow as the GDP decreases along with liquidity and government spending. An increase in home ownership may increase the GDP. The government hopes to address these issues by implementing a new tax called the White Tax Land that has the potential to increase development as well as the value of land. The government also hopes to spend more on new development projects and address the issue of affordable housing for the middle class in Saudi Arabia.
Mortgages in Saudi Arabia
Mortgage Procedure
The Saudi government enacted a new series of mortgage laws in 2012. The new laws regulate mortgages, mortgage transactions and mortgage interest. The new laws have provided individuals with access to home financing that had not been previously available due to the lack of affordable housing throughout Saudi Arabia. Prior to the enactment of the real estate laws in 2012, Saudi Arabia had not established laws on the subject.
Prior to the new laws, lending was discretionary. Less discretionary lending practices would pave the way for further development of the real estate-oriented lending industry in Saudi Arabia. Prior to the enactment of the new real estate laws, it was only theoretically possible to record mortgage interests on real property in Saudi Arabia. In practice, notary publics often refused to record such interests in favor of banking institutions. Some notary publics, who generally came from Shari’s-based educational backgrounds, often considered banking transactions as not Shari’ah-compliant and, therefore, refused to record mortgage interests in favor of the banks. The new system made dramatic changes to this.
Another issue that was affecting the mortgage industry in Saudi Arabia prior to 2012 was that notary public records of real property and mortgage interests were not publicly available. Although a public real estate registry system was introduced, only a small percentage of real estate plots had been included so far. Until completion of the Pan-Saudi demarcation process, the public registry system will coexist with the current general legal framework where real estate rights are recorded with notary publics only. The enforcement of debt secured by immovable assets is regulated by the general enforcement framework as applicable to unsecured debt except that the secured creditors enjoy priority in recovering their claims over other, non secured creditors.
Bank lending activities in Saudi Arabia are necessary through Shari’ah-compliant. As such, conventional, interest-bearing loans are prohibited, and lending activities are necessarily asset-backed. This means that Shari’ah-compliant techniques such as Ijara (lease), Murabaha (back-to-back sale) and Istisna'a (contracting) are commonly used as platforms to channel lending activities. While some Shari’ah-based techniques offer inherent security (such as Ijara, which entails retention of ownership of the asset by the lender), other techniques (such as Murabaha) usually do not. Hence, the need to have a modern and efficient legal system providing lending institutions with appropriate security tools. The most common way to structure a purchase of a house financed with a mortgage loan is through a long-term loan. Periodic payments are made and calculated according to a formula. The mortgagee pays a fixed monthly installment over a period of years. During this period, the principle of the loan would be paid down through remuneration.
The system for mortgages prior to 2012 under the Shari’ah-based legal outline in Saudi Arabia was marked by considerable inadequacies. While it was possible to record mortgage interests with a notary public, the fact was that notary publics frequently decline to record such interests in favor of banking institutions. Some notary publics, who are from Shari’ah-based educational backgrounds, often consider banking transactions as not Shari’ah-compliant and, therefore, decline to record corresponding mortgage interests. This led banks to create alternative practices, such as demanding their customers to transfer ownership of real property on a fiduciary basis to identified nominees as a method to afford security for bank lending activities; ownership becomes a security tool replacing the otherwise more straightforward mortgage mechanism.
However, under the new and current, Shari’ah-based legal system, security (mortgage) interests may be approved as an assurance for all kinds of obligations, current or future, as well as provisional or possible obligations, if the maximum amount of the secured debt is determined in advance. The enforcement of refusal to comply will handled by the courts of administration.
Mortgage Law in Saudi Arabia
In 2012, Saudi Arabia’s legislature created mortgage law after years of deliberation. The new laws were passed by a Decree of the King and set out rules and regulations for the establishment of mortgages in the country. The law took years to pass due to the Shari’ah law and issues of religion. Just three decades earlier, the Supreme Council of Judiciary of Saudi Arabia had declared that mortgage law opposed the Islamic religion. The Supreme Council was also in resistance to Shari’ah law. Just a year prior to the passage of the new mortgage law, King Abdulla approved increased government spending for housing units and housing loans to raise benefits and reduce unemployment. As the country faced many economic concerns, the government found it necessary to establish a new system for mortgages.
Under the old system, the government faced financing problems relating to funding. The Real Estate Development Fund was responsible for funding and could not maintain the flow of necessary funds and could not provide mortgages to all citizens desiring to create one. Financing was limited and the process of acquiring a mortgage took a long period as demand was not significant. The maximum amount an applicant could obtain under a loan was $79,900, although they were interest free ten year loans, access by citizens was limited due to the high interest rates and the demand for a large down payment. The average sale price for a residential unit was more than triple the down payment. The target audience of home buyers would be increased by the new law changes, thus increasing demand by nearly 60%.
The new laws were set to have an impact on consmers and lenders. Consumers would likely adjust spending patterns while banks would adjust their lending patterns. Lending to low to middle income residents will increase, the period of loan repayment would be increased to thirty years which would decrease loan payment amounts and increase affordability for residents, the adjustment to the loan downpayment will regulate the market, and foreclosure framework will be established to impact both buyers and lenders with a reduction in risk for both parties.
With the creation of the new mortgage law, banks and financers can provide financing and a loan to value ration of up to 70 percent, which provides greater access to citizens. Mortgage and liquidity issues were also addressed in the new laws. A Public Investment Fund was created to allow providers of mortgages access to discounts facilities.
The new Mortgage laws are composed of five separate laws, each addressing an issue of mortgages. The Enforcement Law gives judges the authority to enforce disputes regarding mortgages. The Real Estate Law gives the authority of licensing and finance in the real estate market. Under this law, banks are given the authority to own real estate to provide financing, and given the authority to conduct credit checks on borrowers. The Registered Real Estate Mortgage Law sets forth the registration requirements for mortgages. This law not only provides information in a registry to prevent fraud, it creates the possibly of individuals to have second mortgages, to transfer mortgages, to bring matters to court concerning the property, among other things related to security interests. The Finance Lease Law sets the rules and regulations for financing of real property. And, the Finance Companies Control Law ensures compliance by finance companies involved in the issuance of real estate mortgages.
The Saudi Arabian Monetary Agency (“SAMA”) is the regulatory agency for the real estate finance market. SAMA is the country’s central bank. The agency has authority to allow banks to own real estate, to create joint stock companies for mortgage financing, and license insurance companies in the real estate market.
The Real Estate Finance Law which gives SAMA its authority is established to promote the secondary real estate market, allow for the communication of market information and to allow liquidity support from the government. SAMA also sets forth rules and regulations regarding the real estate market. Another significant aspect of the Real Estate Finance Law is the authority it provides to allow for refinancing through mortgage companies and securities. The Real Estate Finance Law also provided for the creation of the Real Estate Refinancing Corporation which allows for mortgage refinancing. Additionally, under this new law, borrowers are required to have a credit record under the Saudi Credit Bureau.
Although mortgage finance companies had existed prior to the establishment of the new mortgage laws in Saudi Arabia, the new Finance Companies Control Law allows for SAMA to give licenses for the creation of new such companies. There is also a Committee for the Resolution of Financing Violations and Disputes in Saudi Arabia. This committee was created along with the new mortgage laws by Decree. The committee has the authority to conduct investigations, hear complaints and resolve cases. The committee does not resolve issues pertaining to ownership rights or securities.
Another of the new laws created by the Decree in 2007 was the Enforcement Law. Under this law, a panel of judges are given authority to order the enforcement of judgments and hear disputes regarding such. The judges apply the Shari’ah Law and will submit final decisions.
Each of these laws provide a legal structure for mortgages in Saudi Arabia. Registration, regulation and foreclosure are provided with rules and procedures under the laws. This is a more enhanced and efficient method for documentation of titles which will ultimately result in the development of a real estate market. Additionally, instead of facing a limited legal remedy for foreclosures, lenders will have a legal procedure to follow. However, the law does not set forth the right to foreclosure. Shari’ah law allows judges to issue orders for foreclosure but the judgment does not create precedent which could lead to a variety of verdicts being issued for foreclosure. Non-judicial foreclosure procedures would also remedy this issue.
With the creation of the new real estate market, it had been expected that the economy would undergo a boost because of the new laws which enabled, not only citizens, but foreigners as well, to purchase real property in the Kingdom. Although the housing market did surge, it was not sustainable because there existed a housing shortage as well as unaffordable housing issues. Additionally, because of the significant down payment required, the middle class was not able to afford housing, and the development of housing was not being accomplished fast enough to meet the needs of the new buyers. The government, however has since provided licenses for large developers throughout the entire country and the financing down payment requirement has been reduced.
These laws could also promote the buying of real estate. Currently, citizens are turning to rentals instead of mortgages due to the risk involved in owning real estate and the newness of the real estate market. The anti-deficiency statutes could result in providing borrowers more confidence in their investment and lenders more confident in lending with default procedures in place.
Reasons to Enact Anti-deficiency laws in Saudi Arabia
Anti-deficiency laws similar to those currently existing in the State of California should be adopted by Saudi Arabia. Saudi Arabia’s economy is currently unstable with a very large unemployment rate. The unemployment potentiality of those interested in borrowing to purchase real property is of high concern. If individual borrowers establish a mortgage and lose their employment, they would be unable to make payments. Anti-deficiency laws would alleviate these concerns. Anti-Deficiency laws are created for situations like Saudi Arabia is currently facing. The economy is becoming stagnant and property values are declining.
Another current problem that is occurring in Saudi Arabia at this time, besides the decreased price in oil is the termination of employment of nearly fifty thousand foreign workers of the country’s largest construction companies. Bank lending rules have been alleviated in order to stimulate growth. The government is allowing for an increase in 15% of deposits. Lenders may now loan borrowers up to 85% of the value of the real estate. This is being done to help an economy that has been hindered by lower oil prices. These new rules certainly do address the economic challenges but they have failed to address the inevitable issue of foreclosure for some borrowers, which is more common during a down economy. In order to prevent a significant depression, it would be best for the Saudi government to adopt anti-deficiency laws for the protection of both the creditor and the debtor.
Benefits of Anti-deficiency laws in Saudi Arabia
Anti-deficiency laws such as those enacted by the State of California, rules 580d, 726a and 580b, have the capability to prevent Saudi Arabia from soaring into a depression similar to the one that experienced by the United States in the 1930’s. Although the laws did not prevent the depression or the later market crisis in the United States in 2008, it is likely the laws had some impact on recovery. The anti-deficiency rules would prevent creditors from selling foreclosed property for less than the market value of the property. With an unstable economy, this may be a method sought by banks against defaulting borrowers of real estate loans. Anti-deficiency statutes would cushion the real estate market at this point in time in Saudi Arabia. This is clearly needed with the failing economy still so depended on the petroleum market. The Anti-deficiency rules would mitigate any effect that would result from a strict foreclosure that could possibly be sought by a home loan lender.
Anti-deficiency rules would also limit the remedies for the creditor to either one action or the rules would place a cap on deficiency judgments to fair market value. Judgments may also be limited to only include the purchase money interest and in instances of non-judicial foreclosure, deficiency judgments would be forbidden. The assets of the borrowers would be exempt from judgment.
Anti-deficiency laws would balance foreclosures in Saudi Arabia by concentrating on the tradeoff between the borrower gaining his statutory redemption rights and the creditor retaining a deficiency judgment. If a lender wants to seek a deficiency judgment, a judicial foreclosure must be instituted and provide the location of the sale. Additionally, a borrower would be provided a certain protection because if a creditor would like to expedite a foreclosure sale, the creditor will not be eligible for a deficiency judgment.
As can be currently seen in Saudi Arabia, residential real estate markets will go through periods of growth and stagnation. Facing a current cold market, prices are falling, liquidity is poor, and volume is low. The real estate market is inflated and sales are declining. Similarly, there are low levels of liquidity in Riyadh and other regions of Saudi Arabia.
Anti-deficiency rules are intended to offer a cushion for real estate markets in times of recession and guard homeowners from repressive debt. These rules mitigate the effect of strict foreclosure. The anti-deficiency rules can limit the remedies to one action or foreclosure, or cap deficiency judgements to a fair market value or limit judgement to purchase money interest or forbid deficiency judgements in non-judicial foreclosures. If a lender performs a non-judicial foreclosure on the borrower’s property, all other assets of the borrowers are exempt from a claim by the lender. If the borrower has a purchase money loan that was used to buy the property and the borrower lives in it, all other assets of the borrowers are exempt from a claim by the lender. Assets are at risk, however, if the lender institutes a judicial foreclosure if the loan was a line of credit or remodel loan and not a purchase money loan. These exemptions cannot be avoided due to the one action provision. In most circumstances, a foreclosure will lead to a deficiency balance due the creditor after the sale of property.
