How are Surplus Proceeds From the Sale of a Collaterised Assets Treated?

Question:

How to Treat Surplus From Sale of a Collaterised asset

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 The Answer:

 Any surplus proceeds in excess of an outstanding debt realised from the sale of a collaterised asset must be returned to the debtor. They are an Amanah (trust) in one’s possession.

The Fiqh (jurisprudence of the answer):

Rahn (collateral) is a contract in which a creditor mitigates risk of default by taking a collateral in the form of a pledge against an asset. In the event of default, the outstanding claim is taken from the sale of the collateralised asset. The creditor is only entitled to the amount contracted. He does not have any entitlement to the surplus from the sale.

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam,
Shariah Advisor
Amanah Finance Consultancy

 

DISCLAIMER:

The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.

Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.

The Shari’ah ruling given herein is based specifically on the scenario in question.  The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage.  This answer may not be used as evidence in any court of law without prior written consent from the author.  Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.


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