Mortgaging the property to the bank does not mean that it cannot be sold, but completing the deal requires dealing with the existing mortgage in accordance with the regulatory procedures, and coordinating with the financing entity regarding the remaining debt and the mechanism for releasing the mortgage or completing the transfer of ownership. The importance of these steps is highlighted when the owner wants to sell his house before finishing paying off the mortgage installments.
Is it possible to sell a mortgaged property before the full loan is paid off? What procedures should be followed? And how can the deal be completed if the buyer will pay for the property, while part of its value is still owed to the bank?
Does the system allow the sale of mortgaged property?
Article 11 of the Registered Mortgage System clarifies that the disposal of a property registered in accordance with the Real Estate Registration System is permissible in principle, while the mortgagor may not dispose of the mortgaged property that is not registered in accordance with that system, unless there is an agreement to the contrary documented in the deed and the register.
However, the permissibility of disposal does not mean that the transfer of ownership is done automatically without regard to the rights of the financing entity. The mortgage guarantees the creditor his right to collect the debt from the property in accordance with the provisions of the system, and the mortgagee’s rights may remain in place until the debt and mortgage are dealt with in the legal manner.
The Saudi Ministry of Justice confirms that the real estate transaction documentation service allows for the transfer of ownership of mortgaged properties with the consent of the mortgagee, which makes coordination with the bank or finance company an essential step before the final agreement to complete the sale.
How to sell your mortgaged property? 4 essential steps
- Request a statement of the remaining debt from the bank.
The first step is to contact the bank or finance company to obtain a statement that shows the remaining balance, the amount of early repayment if the sale will result in closing the financing, and any other amounts or obligations that are included in the settlement. It is not enough to rely on the total of the remaining installments, because the amount of early repayment may differ from their total according to the financing regulations and the terms of the contract. It is better to request a written statement of the amounts required, and to make sure of the validity period of the debt statement, so that the amount that will be allocated to repay the financing from the proceeds of the sale can be determined.
- Agree with the buyer on the mechanism for completing the transaction
After determining the debt, the sale price, payment method, and mortgage handling mechanism should be agreed upon. If the buyer will pay for the property, the outstanding debt to the financing entity may be settled as part of the transaction procedures. Then, the necessary procedures for releasing the mortgage and transferring ownership should be completed in accordance with what is agreed upon by the mortgagee and the relevant authorities.
If the buyer is going to rely on new real estate financing, coordination should take place between the seller, the buyer and the relevant financing entities to determine the possibility of completing the transaction and its conditions before setting a final date for the transfer.
The important thing is not to assume that transferring money to the bank or reaching an agreement with the buyer is sufficient on its own to transfer ownership, but rather to ensure that the approved mortgage and documentation procedures are completed.
- Coordinate with the financing entity regarding the release of the mortgage.
The rules governing real estate financing state that the release of the mortgage is linked to the payment of the outstanding amount or the early repayment amount, as the case may be, in accordance with the provisions contained in the contract and the relevant regulations.
Under the provisions regulating real estate financing, the financier is obligated to release the mortgage on the financed asset within a period not exceeding 15 working days from the date of payment of the last installment or the last payment, or from the date of early total payment, unless the delay is due to a reason attributable to the beneficiary or to the relevant competent government authorities.
However, this period pertains to the release of the mortgage after payment is made according to the specified conditions, and does not mean that every sale transaction takes a total of 15 working days, as the transaction may require coordination or other procedures before it is completed.
- The transfer of ownership was completed through the approved channels.
After agreeing on the mortgage process and fulfilling the requirements, the next step is to document the transaction and transfer ownership through the real estate service approved by the Ministry of Justice, taking into account the required approvals, documents, and relevant data.
The Ministry of Justice explains that the transaction documentation service allows for the creation and completion of a transaction between the seller and the buyer electronically, and also supports the transfer of ownership of mortgaged real estate with the approval of the mortgagee.
What if the selling price is less than the remaining debt?
This highlights one of the most important points a property owner should consider before listing a property for sale: if the outstanding debt required to close the financing exceeds the sale price, the proceeds alone will not be sufficient to settle the obligation. In this case, the owner should contact the financing institution to explore available options for covering the difference and whether other arrangements are possible.
For example, if the owner and buyer agree to sell the property for 900,000 riyals, while the settlement amount required by the bank is 950,000 riyals, then the proceeds from the sale are less than the debt by 50,000 riyals, before accounting for any other costs that may apply to the transaction.
This example is for illustrative purposes only and does not represent a standardized pricing or condition across banks. The financing entity determines the appropriate procedures based on the contract, the existing balance, and applicable controls.
Is it possible to sell the property without fully repaying the financing?
There is no single answer that applies to all contracts and transactions. It depends on the property's registration status, mortgage conditions, mortgage approval, and how the deal is arranged.
Furthermore, the transfer of ownership of a mortgaged property does not necessarily mean the mortgage is extinguished, as the law stipulates rights for the mortgagee regarding the property according to its specific provisions. Therefore, it should not be assumed that the buyer will receive a mortgage-free property simply by signing the sales contract or paying the price.
The practical option is to obtain the approval of the financing entity and find out the procedure that the transaction will adopt: Does it require full repayment and release of the mortgage before transferring ownership, or can other arrangements be implemented that are acceptable to the relevant authorities in accordance with the regulations and contract terms?
Selling the mortgaged property to the bank is possible in principle, but it requires verifying the status of the registered property, coordinating with the financing entity, and processing the mortgage according to the regulatory procedures. Determining the amount of debt, the settlement mechanism, and obtaining the required approvals remain the most important steps before committing to completing the deal.
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