Mortgage Establishment and Removal — Requirements, Process, and Litigation

A mortgage is a limited real right established on immovable property to secure the payment of a debt. Regulated in Articles 881 to 897 of the Turkish Civil Code (TCC), the mortgage grants the creditor the right to collect their claim with priority from the sale proceeds of the property. An indispensable security instrument of the banking and finance sector, the mortgage is also widely used in debt relationships between individuals and companies. The process of establishing, modifying, and removing a mortgage constitutes one of the most technical and most important subjects of real property law.

Definition and Legal Nature of the Mortgage

Pursuant to Article 881 of the TCC, a mortgage is a type of immovable property pledge established on immovable property as security for an existing, future, or potential claim. The mortgage does not grant the creditor direct dominion over the property; it only gives the right to request the conversion of the property into money if the debtor fails to pay the debt. In this respect, the mortgage falls within the category of limited real rights, among pledge rights.

The most important characteristic of the mortgage is its accessory (dependent) nature. The mortgage is dependent on the claim it secures and cannot exist independently without the claim. When the claim is extinguished, payment is made, or the claim becomes time-barred, the mortgage also terminates. This principle of dependency results in the mortgage being unable to be transferred independently from the claim and unable to be pledged separately from the claim.

Another important characteristic of the mortgage is the principle of specificity (certainty). It must be clearly determined on which property, for which claim, and in what amount the mortgage is established. This principle becomes important at the stage of registration in the land registry and aims to protect the rights of third parties.

Mortgage Types: Capital Mortgage and Maximum Amount Mortgage

There are two basic types of mortgage in Turkish law: the capital (principal amount) mortgage and the maximum amount (limit, maximal) mortgage. The difference between these two mortgage types arises in terms of the scope of the secured claim and produces important consequences in practice.

The capital mortgage, pursuant to Article 875 of the TCC, is a type of mortgage established to secure a specific claim. In a capital mortgage, the mortgage amount shows the principal amount of the claim. However, this does not mean that the mortgage is limited only to the principal. Pursuant to Article 875 of the TCC, within the scope of the capital mortgage, in addition to the principal, contractual interest, enforcement costs, default interest, and late payment interest are also secured. These additional items are within the mortgage security even if they are not separately shown in the land registry record.

The maximum amount (maximal) mortgage, pursuant to Article 851/2 of the TCC, is a type of mortgage established to secure claims that may arise in the future or whose amount is not yet determined. In the maximum amount mortgage, the amount shown in the land registry record represents the maximum limit of the mortgage. The total amount the creditor can collect (including principal, interest, and costs) cannot exceed this upper limit. Maximum amount mortgages are generally preferred in bank credits, current account relationships, and continuous debt relationships.

The most important difference between the two mortgage types is in terms of the scope of the mortgage. In a capital mortgage, the amount in the land registry record shows only the principal, and interest and costs are added on top of this amount. In a maximum amount mortgage, the amount in the land registry record represents the maximum amount that the creditor can claim, including principal, interest, and all costs. This distinction is of great importance particularly in terms of the amount the creditor can collect when the property is sold through compulsory enforcement.

Mortgage Establishment Procedure

For a mortgage to be validly established, certain conditions must be met and the procedure must be followed completely. Mortgage establishment is an official transaction and is carried out at the land registry office. Pursuant to Article 26 of the Land Registry Law, mortgage establishment is carried out in the presence of the land registry director.

The documents required for mortgage establishment are as follows: the identity document of the property owner, the title deed or title information of the property, the identity information of the mortgage creditor, the mortgage deed table showing the mortgage amount, and if available, the credit agreement or document showing the debt relationship. If the mortgage is to be established on behalf of a legal entity, the resolution of the authorized body and specimen signatures are also required.

The stages of mortgage establishment can be listed as follows: first, the parties (property owner and creditor) apply to the land registry office. The land registry director determines that the application is in order. Identity verification of the parties is performed and the mortgage deed table is prepared. In the deed table, the type of mortgage (capital or maximum amount), mortgage amount, interest rate, maturity, and other conditions are specified. After the parties sign the deed table, the mortgage is registered in the land registry and the transaction is completed.

The official form requirement is sought in the establishment of the mortgage. Pursuant to Article 856 of the TCC, the validity of the immovable property pledge contract depends on its being made in official form. This official form is the transaction carried out in the presence of the land registry director. Mortgage promise contracts drawn up at the notary do not, by themselves, establish the mortgage; the mortgage must be registered in the land registry.

It is also possible to establish a mortgage on another person's property. Pursuant to Article 881/2 of the TCC, a mortgage may also be established on property owned by a third party as security for a debt. In this case, the third party, although not the debtor, presents their property as collateral in the capacity of a mortgage provider. The provision of a mortgage by a third party creates a legal relationship similar to suretyship.

Priority of Mortgages and Vacant Rank Application

Multiple mortgages may be established on the same property. In this case, the mortgages are ranked as first rank, second rank, third rank, and so on, according to the order of their registration. Pursuant to Article 870 of the TCC, the priority of immovable property pledges is determined by the date of registration. A mortgage registered at an earlier date has priority over a mortgage registered at a later date.

The fixed rank system is the mortgage ranking system adopted in Turkish law. Under this system, if the higher-ranked mortgage is deleted, the lower-ranked mortgage does not automatically move up to the higher rank. The vacated rank may be used by the property owner for the establishment of a new mortgage. This situation is called the vacant rank application and is regulated in Article 871 of the TCC.

An important consequence of the fixed rank system is that the property owner can determine the rank of the mortgage. Pursuant to Article 871/2 of the TCC, the property owner may have a mortgage established at a lower rank by leaving a rank vacant at a higher position. In this case, the vacated rank is reserved by the property owner for future use. In practice, this method is preferred to preserve the property owner's ability to establish a mortgage at a higher rank in case of credit needs.

Mortgage Release (Removal)

Mortgage release is the process of deleting the mortgage from the land registry. When the debt is paid or the claim is extinguished, the creditor's obligation to release the mortgage arises. Pursuant to Article 883 of the TCC, when the claim is extinguished, the property owner may request the deletion of the mortgage from the land registry record. The creditor cannot prevent the deletion of the mortgage; otherwise, the property owner may request deletion through litigation.

For the mortgage release to be carried out, the creditor must issue a release letter (mortgage removal letter). In bank mortgages, after the full payment of the credit debt, the bank issues a release letter addressed to the land registry office. This letter states that the claim has been fully collected and that there is no obstacle to the removal of the mortgage. Upon submission of the release letter to the land registry office, the mortgage is deleted from the land registry record.

In practice, banks' delay or obstruction of mortgage release is a frequently encountered problem. Pursuant to the Law on Amendments to Various Laws Regarding the Housing Finance System No. 5582, in mortgages within the scope of housing finance, the creditor institution is obliged to initiate the mortgage release procedures within thirty days after the full payment of the debt. In case of non-compliance with this period, the property owner may file a compensation action against the bank.

The status of the mortgage in case of partial payment is also important. In a capital mortgage, if a portion of the debt is paid, partial release of the mortgage may be requested. However, in a maximum amount mortgage, partial release of the mortgage is generally not possible unless the entire claim is paid, because the maximum amount mortgage also secures claims that may arise in the future.

Mortgage Cancellation Action

A mortgage cancellation action is filed when the mortgage has been unlawfully established in the land registry or when the deletion of the mortgage has not been carried out despite the extinction of the claim on which the mortgage is based. Articles 883 and 1025 of the TCC constitute the legal bases for the mortgage cancellation action.

The main situations requiring the filing of a mortgage cancellation action are as follows: the creditor's failure to remove the mortgage despite the full payment of the debt, the invalidity of the mortgage due to defects of will (error, fraud, duress), the forgery or irregular preparation of the mortgage deed table, the establishment of the mortgage by an unauthorized person, and the continuation of the mortgage for a time-barred claim.

The creditor's failure to remove the mortgage despite the payment of the debt is the most frequently encountered reason for mortgage cancellation actions in practice. Particularly in bank credits, if the bank fails to issue a release letter or issues it late after the full payment of the credit debt, the property owner may file a mortgage cancellation action. When the court determines that the debt has been paid, it orders the deletion of the mortgage from the land registry record.

A mortgage cancellation action due to defects of will is filed when the mortgage has been established as a result of error, fraud, or intimidation. Pursuant to Articles 30-39 of the TCO, the cancellation of the mortgage deed table and the deletion of the mortgage may be requested due to defects of will. In actions filed due to error and fraud, a one-year forfeiture period applies pursuant to Article 39 of the TCO.

The competent court for a mortgage cancellation action is the civil court of first instance. The authorized court is the court of the place where the property is located, pursuant to Article 12 of the Code of Civil Procedure (exclusive jurisdiction). The action is filed against the creditor who is the beneficiary of the mortgage. If the creditor is a legal entity (such as a bank, financial institution), the action is filed against the legal entity.

Enforcement Through Foreclosure of the Mortgage

If the debtor fails to pay the debt, the mortgage creditor may initiate enforcement proceedings through the foreclosure of the mortgage. Articles 148-153 of the Enforcement and Bankruptcy Law regulate the procedure for enforcement through the foreclosure of the mortgage. This enforcement may be carried out with or without a judgment.

Enforcement with a judgment is initiated when the creditor has a court judgment or a document equivalent to a judgment (such as a notarially drawn mortgage deed table). Pursuant to Article 150/ı of the Enforcement and Bankruptcy Law, if the mortgage deed table contains an unconditional acknowledgment of debt, the creditor may also resort to enforcement without a judgment.

In enforcement through the foreclosure of the mortgage, a payment order is sent to the debtor and the property owner (if the debtor and the property owner are different persons). If the debtor does not object to the payment order or if the objection is removed, the sale of the property is requested. The property is sold through public auction by the enforcement office, and the mortgage creditor's claim is paid with priority from the sale proceeds.

An important point in enforcement proceedings is that general attachment proceedings cannot be resorted to before enforcement through the foreclosure of the mortgage. Pursuant to Article 45 of the Enforcement and Bankruptcy Law, a creditor whose claim is secured by an immovable property pledge must first conduct enforcement through the foreclosure of the pledge. This rule is an important limitation preventing the mortgage creditor from attaching the debtor's other assets.

Statutory (Legal) Mortgage Rights

In certain cases, a mortgage arises by operation of law, outside the will of the parties. Pursuant to Article 893 of the TCC, certain creditors are granted statutory mortgage rights. Statutory mortgage rights are rights that arise without the need for registration and become enforceable against third parties through registration.

The holders of statutory mortgage rights listed in Article 893 of the TCC are as follows: the seller, for claims arising from the sale; heirs or other partners, for claims arising from partition due to joint ownership; and artisans and contractors, for claims arising from works performed on an immovable property. These statutory mortgage rights must be registered in the land registry within three months from the arising of the claim. No court order is required for registration; a direct application to the land registry office is sufficient.

The contractor's mortgage is the most frequently encountered type of statutory mortgage in practice. A contractor or subcontractor who undertakes a construction job may establish a statutory mortgage on the property pursuant to Article 893/3 of the TCC if the work price is not paid. This right must be exercised within three months of the completion of the construction. If the deadline is missed, the statutory mortgage right lapses.

Transfer of Mortgage and Assignment of Mortgage Claim

The mortgage, due to its accessory nature, cannot be transferred independently from the claim. Pursuant to Article 891 of the TCC, the mortgage may only be transferred together with the claim it secures. In the event of the assignment of the claim, the mortgage automatically passes to the new creditor. This transfer occurs without any registration being required; however, updating the land registry record is preferred in practice.

In banking practice, the transfer of mortgage claims within the scope of securitization of housing loan receivables is common. When a bank assigns a housing loan claim to another bank or financial institution, the mortgage automatically passes to the new creditor. In this case, the debtor's separate consent is not required; however, notification of the assignment to the debtor is mandatory.

Sale of Mortgaged Property

A mortgage does not prevent the sale of the property. The property owner may sell the property together with the mortgage encumbrance. In this case, the buyer acquires the property with the mortgage encumbrance. However, the existence of the mortgage directly affects the sale value of the property, and buyers generally request the removal of the mortgage.

Two methods are applied in the sale of mortgaged property. In the first method, the mortgage debt is first settled from the sale price, and the remaining amount is paid to the seller. In this method, the mortgage release is carried out simultaneously with the sale transaction. In the second method, the buyer purchases the property together with the mortgage encumbrance and assumes the mortgage debt. In this case, the provisions on the assumption of debt apply pursuant to Article 888 of the TCC, and the consent of the creditor (bank) is required.

In practice, banks generally request the settlement of the credit debt at the time of sale when a mortgaged property is sold. If the sale price falls below the mortgage debt, the sale becomes difficult. In such cases, it is possible for the parties to negotiate with the bank and request debt restructuring or updating of the mortgage amount.

Frequently Encountered Disputes Regarding Mortgages

Various disputes arise in mortgage practice. The foremost among these are the failure to remove the mortgage despite the payment of the debt, the determination of an excessively high mortgage amount, attempts to expand the scope of the mortgage, and recourse problems in third-party mortgages.

In the event of failure to remove the mortgage despite the payment of the debt, the property owner should first send a formal notice to the creditor requesting the release of the mortgage. If the formal notice proves fruitless, a mortgage cancellation and deletion action may be filed at the civil court of first instance. To prevent the sale of the property from being blocked during the action, an interim injunction decision regarding the deletion of the mortgage may be requested from the court.

The determination of an excessively high mortgage amount is also a frequently encountered problem in practice. Particularly in maximum amount mortgages, creditors' determination of very high security amounts restricts the property owner's power of disposition over the property. In this case, the property owner may file a mortgage reduction action to request that the mortgage amount be brought in line with the actual debt amount.

In conclusion, the process of mortgage establishment and removal is a legal transaction that must be carefully managed by both property owners and creditors. The correct determination of the mortgage type, the complete fulfillment of the establishment procedure, the timely release upon payment of the debt, and the pursuit of the correct legal remedies in case of disputes are of great importance.

This article has been prepared for general informational purposes and does not constitute legal advice. Professional legal support from an expert lawyer must be obtained in specific disputes.