THE LEGAL NATURE, TYPES AND CREATION OF A MORTGAGE IN TURKEY

WHAT ARE THE TYPES OF MORTGAGE IN TURKEY?

Under the Turkish Civil Code (TCC), the types of mortgage are grouped under two main headings according to the legal features taken as the basis when a pledge over immovable property is created: the principal (karz / definite debt) mortgage and the collateral (limit / upper limit) mortgage.

a) The Principal (Definite Debt) Mortgage in Turkey

A principal mortgage is the type of mortgage taken only for a debt that has already arisen, is in existence and is definite in amount (TCC Art. 875).

• Dependence on the debt and scope of the security: Because the karz mortgage is created for an existing and specific debt, it does not secure the other claims of the mortgage creditor (a bank, for example). Even if the mortgage is still registered in the land registry records, the mortgage loses its purpose the moment the secured debt is paid, and under Turkish law the creditor can no longer collect another claim on the strength of that mortgage.
• Items covered by the security (TCC Art. 875): In addition to the principal claim (the principal amount) written in the official mortgage deed, a principal mortgage also secures, outside the registered principal amount, the costs of enforcement and default interest, together with three years’ interest that has fallen due by the date on which bankruptcy is declared or realisation of the pledge is requested, plus interest running from the last due date. Contractual interest is therefore covered not without limit but within the three-year limit laid down in the Code.
• Currency: A principal mortgage may be created in Turkish lira or, where the statutory conditions are met, in a foreign currency.
• The enforcement law advantage: The greatest advantage of the principal mortgage is that, because there is an acknowledgement of debt in the land registry deed, the creditor may, if the debt is not paid, send an enforcement order directly to the debtor under the Enforcement and Bankruptcy Law (EBL Art. 149).
• Where it is used: In practice, in consumer loans (housing finance loans, business premises loans, general purpose loans, vehicle loans and the like) a principal mortgage is taken as security for the credit extended to the consumer, because the amount lent is a definite cash debt.
• The third-party mortgage distinction: Under TCC Art. 881 the immovable property subject to the mortgage does not have to be owned by the debtor, so the security for the loan may also be given over real estate belonging to a third party. Where the debtor and the owner of the property are different people, banks mostly prefer to create a collateral (upper limit) mortgage under Turkish law.

b) The Collateral (Upper Limit) Mortgage in Turkey

A collateral mortgage (an upper limit mortgage) is the type of mortgage created to secure claims that have already arisen, that will arise in the future or that are likely to arise (TCC Art. 851/1 and Art. 881).

• Maximum liability limit: In a collateral mortgage the upper limit of the claim secured by the mortgage is fixed. The principal, contractual interest, default interest and all enforcement costs are covered only so long as they stay within the mortgage limit stated in the official deed. Under Turkish law, even if his claim exceeds the limit, the secured creditor cannot claim priority out of the sale proceeds of the mortgaged property for the excess.
• Creating a mortgage with a margin: Because the amount of the future debt cannot be known with certainty when the mortgage is set up, the maximum amount for which the property will be liable must be shown in the mortgage application and in the official deed. For this reason credit institutions create an upper limit mortgage with a margin over the appraisal value, taking interest rates and increases in value into account.
• Current accounts and non-cash loans: Because non-cash loans (letters of guarantee, letters of credit and the like) involve risks that are merely likely to arise, and because under the Turkish Commercial Code (Art. 97) the status of creditor and debtor in loans run as a current account is not settled until the account is closed, taking an upper limit mortgage in these transactions is a legal requirement in Turkey.
• Flexibility and continuity: The greatest advantage of the collateral mortgage is that the creditor can build comprehensive security for all claims that have arisen and that will arise (provided this is expressly stated in the deed). An upper limit mortgage registered in the land registry stays in force until it is struck off (released) by those entitled to do so.
• Enforcement procedure: In a collateral mortgage the amount of the claim is not liquid (certain), so when the debt is not paid the creditor cannot send an enforcement order straight to the debtor; before that he must serve a notice closing the account under EBL Art. 150/ı and start foreclosure proceedings for the realisation of the mortgage.

WHAT IS A MORTGAGE RANK IN TURKEY?

Under the Turkish Civil Code (TCC Art. 870 et seq.), a pledge over immovable property is created under Turkish law on the basis of a system of fixed ranks. The mortgage rank is the legal ranking system that decides, where more than one mortgage is created over the same property, the order and priority in which the mortgage creditors collect their claims out of the realisation (sale) proceeds. In this system, when a mortgage in one rank is struck off (so that the rank falls vacant), the mortgages in the following ranks cannot move up into the vacated rank of their own accord. The exception to this rule is the right to benefit from a vacant rank.

• The principle of order and priority: The security given by a mortgage is limited to the rank stated in the land registry entry. Where there is more than one mortgage over the same property, the first-rank mortgage creditor is entitled to collect his claim in full out of the sale proceeds before the creditors in the second and following ranks. Under Turkish law, secured creditors in the following ranks may take a share of the remaining sale proceeds only once the debt in the earlier rank and its ancillary claims have been paid in full.
• The agreement on the right to benefit from a vacant rank: If, when a real estate mortgage is created in the second or a later rank, a “right to benefit from a vacant rank” (TCC Art. 871/3) is annotated in the land registry in favour of the mortgage creditor, then when the mortgage ahead of it is struck off (because it has been paid, released and so on), the mortgage in the following rank moves up automatically into the vacated rank ahead of it.
• Where no such right has been granted: If no right to benefit from a vacant rank has been granted to the creditor when the mortgage is created, the vacated rank stays empty. The owner of the property then has the power to have a new mortgage registered in that vacated rank without the later mortgagees having any right to object.
• Its importance in practice and in banking: Credit institutions and banks that take a mortgage in the second or a later rank must always have the “right to benefit from a vacant rank” added to the official mortgage deed and to the land registry entry in order to bring their credit risk down to zero. Otherwise, when a very large 1st-rank mortgage ahead of them is closed, the 2nd-rank creditor cannot move up into the 1st rank of his own accord and will face a serious risk of losing his security interest.

CAN A MORTGAGED HOUSE BE SOLD IN TURKEY?

The transfer (sale) of a mortgaged property in Turkey is legally completely possible. Since a mortgage is a limited right in rem that acts as a security attached to the property, it does not constitute an obstacle to the transfer of ownership under Turkish Real Estate Law. Therefore, conducting the necessary due diligence during the home buying process in Turkey is of critical importance.

1. Is the Mortgagee’s (the Bank’s) Consent Required for the Sale in Turkey?

When a mortgaged house is sold or transferred to someone else, there is no obligation to obtain the permission or the consent of the mortgagee (the bank, for example). Under Turkish law the owner of the property may sell the property encumbered by the mortgage to a third party whenever he wishes.

There is no provision requiring the transfer on its own to be notified to the mortgagee; however, where the new owner assumes the debt, notifying the mortgage creditor (the bank or its branch) of the position is the statutory duty of the Land Registry Office (TCC Art. 890). The one-year declaration period given to the creditor also starts to run from the date that notice is served.

2. The Legal Risks of Buying a Mortgaged House in Turkey for the New Owner

Even though the answer to the question “Can a mortgaged house be sold?” is yes in law, the position carries serious legal and financial risks for the buyer (the new owner):

• The mortgage follows the property (its character as a right in rem): A mortgage attaches to the property itself, not to the debtor. However many times the property changes hands, the burden of the mortgage stays on it.
• Non-payment of the debt and the risk of forced sale: If the principal debtor, the former owner, fails to pay his debt or falls into default, the mortgage creditor may start enforcement proceedings for the realisation of the mortgage under the Enforcement and Bankruptcy Law.
• The new owner’s liability: Because the new owner bought the property together with the mortgage on it (accepting the mortgage), under Turkish law he must put up with the property being sold even though he is not the debtor.
• No right to object: The new owner cannot object to the enforcement proceedings or to the forced sale of the property on the ground that “The debt is not mine, it is the former owner’s debt”. If the debt is not paid, the new owner runs the risk of losing his home at a foreclosure auction.

3. The Option of Assuming (Transferring) the Debt in Turkey

Under Turkish law, if they wish, the parties may take the route of assuming (transferring) the debt during the sale. Where the new owner also assumes the debt when buying the property and the Land Registry Office notifies the creditor of this, the former debtor is released from his debt unless the mortgage creditor (the bank) states in writing, within 1 year of service of that notice, that he reserves his right to claim against the former debtor (TCC Art. 888/2 and Art. 890).

CAN A MORTGAGE BE ESTABLISHED IN A FOREIGN CURRENCY IN TURKEY?

Under the Turkish Civil Code (TCC Art. 851/1), the rule in Turkish law is that the amount of the pledge must be shown in Turkish lira (TL); the second paragraph of the same article, however, allows a mortgage to be created in a foreign currency in order to secure foreign currency loans extended by credit institutions (TCC Art. 851/2).

1. What Are the Conditions for Creating a Foreign Currency Mortgage in Turkey?

A mortgage in a foreign currency may be created in order to secure loans extended in a foreign currency, or indexed to a foreign currency, by credit institutions operating at home or abroad.

In a foreign currency mortgage, the amount represented by each rank is registered in the land registry in the valid currency of the claim that is pledged. Under Turkish law, however, creating a mortgage using more than one currency within the same rank is prohibited.

2. Can a Mortgage in a Foreign Currency Be Registered in a Vacated Rank in Turkey?

Provided the mortgage creditor in the lower rank has no right to benefit from a vacant rank, where a rank belonging to a mortgage created in a foreign currency is struck off and falls vacant, a new pledge may be created in that vacated rank in Turkish lira (TL) at its equivalent on the date of registration or in another foreign currency (TCC Art. 851/3). In that case it is legally possible under Turkish law to have a fresh mortgage registered in favour of another creditor in the vacated rank up to the amount that fell vacant.

3. The Cross-Collateral Restriction on TL and Foreign Currency Loans in Turkey

In banking practice and in banking law there are extremely important rules on matching TL and foreign currency loans with the currency of the mortgage:

• A foreign currency mortgage cannot secure a TL loan: Where a mortgage in a foreign currency has been taken as security for the loan granted to the borrower, that mortgage cannot constitute security for any Turkish lira loan extended afterwards. In other words, creating a pledge over immovable property (a mortgage) in a foreign currency as security for loans extended in Turkish lira is absolutely impossible under Turkish law.
• A TL mortgage can secure a foreign currency loan: Mortgages created in Turkish lira (TL), by contrast, can also constitute security for the foreign currency loans the borrower takes out. This gives the creditor broad protection.

WHAT DOES MORTGAGING A HOUSE MEAN IN TURKEY?

Mortgaging a house is the transaction by which a dwelling owned by a person is pledged in the land registry in favour of a creditor as collateral for a debt that has arisen or that will arise. Although it is usually identified with bank loans in practice, mortgaging a house is not confined to financial institutions in Turkey.

Establishing a mortgage over immovable property is equally lawful in order to secure debts owed to 3rd parties other than banks (family members, friends, commercial partners or third parties, whether natural or legal persons) or in order to secure debts that have arisen and that will arise in commercial relationships such as dealerships, distributorships and agencies.

1- Establishing a Mortgage in Favour of Banks and Financial Institutions in Turkey

Establishing a mortgage in favour of banks and financial institutions is the most basic security mechanism that lending institutions use to reduce their credit risk to zero or to a minimum. In practice the mortgage process is run in two different legal and practical frameworks according to the type of financing: housing loans (individual loans) and commercial loans.

a) Creating a Mortgage for a Housing Loan in Turkey (Individual Loans)

When a housing loan is taken out, banks create a mortgage over the dwelling being bought, or over a dwelling belonging to the borrower or to a third party, as security for the financing granted.

• Legal nature: Mortgages taken as security for housing loans are assessed under the Consumer Protection Law No. 6502 and the provisions of the Turkish Civil Code. Because the amount of the debt lent and its terms are settled from the outset, the mortgage is usually created as a principal (karz) mortgage.
• Valuation of the property: After the loan application, the true market value of the real estate is determined by property valuation experts (appraisers) licensed by the Capital Markets Board (CMB). Lenders take that appraisal value as the basis and set the loan amount within the limits laid down by Turkish legislation.
• The mortgage registration process: Before a mortgage can be established, the title document (title deed) and the official records of the property are examined. If there is no attachment or restriction on the property that would put the loan at risk, an official deed is drawn up before the Land Registry Office and registration of the mortgage is completed.
• The risk of losing the home on default: If the consumer fails to pay the loan instalments on time or the debt falls into default, the bank may start foreclosure proceedings for the realisation of the mortgage under the Enforcement and Bankruptcy Law. At the end of that process there is a risk that the home will be sold through enforcement and that the debt will be collected out of the sale proceeds.

b) Creating a Mortgage for a Commercial Loan in Turkey (Business Financing)

A real estate mortgage over a factory, a commercial building, land or business assets as security for the commercial loans that companies take out for growth, capital increases or investment is an extremely common method.

• Legal nature: Because commercial loans are mostly extended as a current account, a revolving loan or a non-cash loan (a letter of guarantee and the like), creating a collateral (upper limit / limit) mortgage in these transactions is a legal requirement under the Turkish Commercial Code (Art. 97) and TCC Art. 851.
• Financial advantages: For a business, offering a pledge over immovable property makes it possible to obtain far lower interest rates, longer maturity structures and higher credit limits than unsecured loans. In Turkey this directly supports the company’s cash flow and expansion plans.
• Mortgage with a margin: Lenders create an upper limit mortgage with a margin (a limit) over the appraisal value, taking commercial risks, interest burdens and future changes in the value of the property into account.
• Risks for the business and financial discipline: If the commercial debt cannot be paid or the company’s financial structure deteriorates, the sale of the factory or commercial property given as collateral by the bank through foreclosure may bring the company’s trading activities to a halt and make its financial position irreparably worse. Under Turkish law, keeping to payment plans with strict financial discipline is therefore vital in commercial loan mortgages.

2- Establishing a Mortgage in Favour of 3rd Parties Other Than Banks in Turkey

Creating a mortgage over a house in favour of individuals or companies other than banks, and bringing the process to an end, takes place in the following legal stages:

• Conclusion of the agreement: Before the mortgage is created, a basic debt relationship is set up between the parties. In this agreement, drawn up within the framework of the law of obligations, the amount of the claim, the repayment terms, the maturity, any contractual and default interest rates and the type of mortgage (a principal or an upper limit mortgage) are expressly agreed.
• Creation of the mortgage: Under the Turkish Civil Code (TCC Art. 856), a mortgage must be created in official form. The parties sign the mortgage agreement by means of an official deed drawn up before the Land Registry Office. Once the transaction is registered in the land registry, a limited right in rem arises in favour of the creditor, the 3rd party, and that creditor acquires a right of priority based on the mortgage.
• Performance of the debt and the payment process: The debtor starts to make his payments in accordance with the terms of the agreement and the maturity agreed between the parties. Throughout repayment of the debt, the mortgage gives the creditor full legal security backed by the threat of asking for a sale.
• Removal of the mortgage (mortgage release): When the debt is paid in full, because of the accessory (debt-dependent) character of the mortgage, the 3rd party creditor removes the mortgage by applying to the Land Registry Office. That striking-off transaction formally ends the burden of the pledge on the dwelling.

3- Establishing a Mortgage as Commercial Security in Turkey

In line with the needs of commercial life, a mortgage is widely used not only to secure cash or non-cash loans taken from banks, but also to secure the supply of commercial goods and services between companies, distributorship relationships and dealership agreements. For insurance agencies and company dealers in various sectors in particular, establishing a mortgage as security for the obligations undertaken towards the main company and for the financial risks that may arise is standard practice in the sector.

Insurance companies, because of the authority to issue policies that they grant their agencies and the collection risks that go with it, and main distributors and manufacturers, in order to secure the price of goods delivered to their dealers on credit, both require a mortgage to be given by the dealer or agency in favour of the company, and not in favour of the dealer or agency.

In commercial relationships of this kind the amount of the debt is not fixed, since there is continuous trade, movement of goods or collection of premiums; the mortgage created must therefore be set up as a collateral (upper limit) mortgage under the Turkish Civil Code (TCC Art. 851). Within the maximum limit fixed, all debts of the agency or dealer that may arise in the future are secured.

The point most often confused in commercial security mortgages of this kind, and the one where legal and financial mistakes are made in practice, is the mortgage fee and the tax exemption:

• The difference from banks and the absence of an exemption: Mortgages created for commercial or housing loans extended by banks and financial institutions may be exempt from certain fees and taxes under the relevant laws (for example the special incentives under the Fees Law and the Real Estate Tax Law). However, collateral mortgages given in business-to-business commercial relationships such as insurance agencies, fuel dealerships and food, automotive or white goods distributorships are not exempt from the fee in Turkey.
• The statutory charges payable: When these mortgages are registered at land registry offices, the proportional land registry fee calculated on the mortgage amount (the limit) under the Fees Law No. 492 (Tariff No. 4), together with stamp duty and the revolving fund service charge, is collected in full.
• Contract terms: Which party (the main company, or the dealer or agency) is to bear the high land registry fees and registration costs arising on creation must be settled beyond doubt in the main agency or dealership agreement between the parties.

HOW IS A MORTGAGE ESTABLISHED IN TURKEY?

The legal procedure carried out for real estate given as security in housing or commercial loans and in debt relationships is called establishing a mortgage. A mortgage is a right in rem registered before the Land Registry Office by drawing up an official deed, under the provisions of the Turkish Civil Code (TCC) and the land registry legislation.

According to current legal and operational practice in Turkey, the process of establishing a mortgage runs in 7 main steps:

Step 1: Checking the Land Registry Record in Turkey

It is a legal requirement in Turkey that the property on which the mortgage is to be created is registered in the land registry. Before moving on to registration and to the borrowing process, the creditor institution or bank makes a detailed search of the legal position of the property through the Land Registry and Cadastre Information System (TAKBİS).

• Verifying ownership and registration: The owner of the property, its share position (a shared or an individual title deed) and its type in the land registry (land, dwelling, business premises and so on) are matched against the official records through the system.
• Examination of encumbrances (restrictions): The record of the property is checked for restrictions that would prevent the mortgage being created, prevent its sale through enforcement or reduce the value of the security:
  • Legal obstacles: An annotation of inalienability, interim injunctions or an annotation of family residence (TCC Art. 194).
  • Financial restrictions: Enforcement attachments, public attachments or tax debts.
  • Mortgages in earlier ranks: The existence and current amounts of other mortgages created earlier over the property (a vacant rank, rank 1 and so on).
• Valuation and the risk decision: If the examination shows no risky restriction on the property, the process moves on to the loan application.

Step 2: The Loan or Debt Application in Turkey

Under Turkish law the debtor or third party who is to give the mortgage contacts the creditor bank and starts the lending and mortgage process. This step is formalised by documentation and the conclusion of an agreement.

• Delivery of the documents to the lender: A copy of the title deed, identity documents and income documents for the property are submitted to the credit institution. With these documents the bank opens an official application record in the name of the debtor or the mortgage debtor.
• Signature of the General Credit Agreement (GCA): Once the application has been received, a General Credit Agreement is signed between the debtor, any guarantors and the bank. The agreement contains clauses on the credit limit, the interest rates, the default terms and the scope of the mortgage.
• Consent of the 3rd party giving the mortgage: If the property to be mortgaged belongs not to the debtor but to a 3rd party, that person also signs the relevant agreements and undertakings at the lender as mortgage debtor in Turkey.
• Fixing the terms of the mortgage: The lender clarifies on a contractual basis the security ratio on which the loan will be extended and the rank and amount of the mortgage, and prepares the ground for registering a mortgage at the land registry.

Step 3: The Property Valuation (Appraisal) Process in Turkey

The property valuation expert (appraiser) licensed by the Capital Markets Board (CMB) and appointed by the bank carries out site and official record examinations in order to determine the security value and the legal position of the property.

• Site and on-the-spot inspection: The appraiser visits the property in person and establishes on site its location, its current use, the quality of the building and its compliance with the approved architectural project.
• Official record and zoning analysis: The archives of the relevant municipality and Land Registry Office are examined and the zoning status, building permit, occupancy permit and approved architectural project of the real estate are checked. Whether there is any extension contrary to the project or any unlicensed construction is established.
• Determination of the market and security value: Comparable sales and market conditions are analysed and the current market value of the real estate and the mortgage value in line with banking legislation in Turkey are calculated.
• Reporting and approval: The official appraisal report prepared is submitted to the lender. Taking the mortgage value stated in the report as the basis, the bank makes its final decision on the credit limit and the security ratio.

Step 4: Approval of the Loan and Mortgage Terms in Turkey

Once the appraisal report reaches the lender, the process in Turkey focuses entirely on operational approval and the preparation of the land registry instruction:

• Approval of the risk and credit committee: The security coverage ratio is calculated on the basis of the mortgage value in the valuation report. The lender’s risk unit formally approves the final credit limit to be used and the amount of the collateral.
• Preparation of the official deed and registration documents: The credit institution’s legal and operations unit prepares the draft land registry official deed and the loan approval documents, setting out the rank, order and amount of the mortgage to be registered and the rights of the parties under Turkish law.
• Data entry into the land registry application system (Web-Tapu): In line with the approved terms, the credit institution or its authorised staff create the official mortgage application request through the Web-Tapu system of the General Directorate of Land Registry and Cadastre and upload the necessary documents to the system.

Step 5: Spousal Consent (TCC Art. 194)

Where the property to be mortgaged has the character of a family residence, the consent process for the non-owner spouse is carried out under Turkish legislation before registration in the land registry, in order to secure the legal validity of the transaction:

• Establishing the family residence character: The bank or creditor institution compares the residence record and the address of the property and checks whether the real estate falls within the scope of the family residence.
• Obtaining written consent: A written declaration expressly approving the provisions of TCC Art. 194 and the terms of the mortgage (the mortgage amount, the debtor’s details and the mortgage rank) is obtained from the non-owner spouse.
• Signature and identity verification: The consent document is drawn up and signed either before bank officers at the branch or before a notary public (in the required form).
• Preventing a legal defect (the risk of annulment): The consent obtained is added to the application file and to the land registry application documents. This significantly reduces the risk that the mortgage to be registered will later be annulled at the request of the non-owner spouse on grounds of legal invalidity (absolute nullity or invalidity).

Step 6: Application to the Land Registry Office and the Appointment Process

Once the loan agreement and the consent processes are complete, an electronic application through the Web-Tapu system is made in Turkey in order to start the official registration transaction:

• Application through the system and uploading of documents: The lender or its authorised representative logs in to the Web-Tapu portal and creates the request to establish the mortgage. The official mortgage deed or request form, the loan agreement, the authority documents, the spouse’s consent and the identity documents of the parties are scanned and uploaded to the system.
• Preliminary examination by the land registry officer: The land registry officer at the relevant Land Registry Office carries out a preliminary examination for compliance with the legislation of the uploaded documents, the parties’ powers and the current TAKBİS record of the property.
• Notification of the fee and the revolving fund charge: Once the application is approved, the system calculates the mortgage fee (checking any exemptions that apply) and the revolving fund service charge. Payment details and e-collection serial numbers are sent to the parties by SMS.
• Appointment message and invitation to sign: Once the fee and the service charge have been paid, the Land Registry Office sends the parties (the debtor, the mortgagor and the bank’s representative) an information message giving the date and time of the appointment for signature of the official deed.

Step 7: Creating the Mortgage by Registration in Turkey

Once all the preparations, the document checks and the appointment process are complete, the legal registration stage begins. This is the step at which the mortgage is formally created over the property under Turkish law as a right in rem:

• Payment of the fee and the costs: The mortgage fee (apart from any exemptions that apply) and the revolving fund service charge are paid through banking channels or the portals of the Revenue Administration, using the e-collection numbers sent by the Land Registry Office.
• Signature of the official deed (the contract): On the date and at the time of the appointment the parties (or their authorised representatives or attorneys) attend the Land Registry Office. The official mortgage deed that has been prepared is read out before the land registry director or the authorised officer and signed by the parties (the debtor, the mortgagor and the representative of the bank or creditor).
• Registration in the land registry: Once the signatures are complete, the land registry officer registers the transaction in the land registry. Under Turkish Civil Code Art. 856, the mortgage right formally arises at the moment of registration in the land registry.
• The e-Mortgage (electronic mortgage) alternative: Under the integration between banks and financial institutions and the General Directorate of Land Registry and Cadastre, the transaction may also be carried out as an e-Mortgage. With this method the parties do not attend the Land Registry Office in person, and registering a mortgage is completed entirely in digital form with a secure electronic signature (e-signature), and registration follows.

IS IT POSSIBLE TO PLACE A MORTGAGE ON A SHARED TITLE DEED IN TURKEY?

Placing a property mortgage on a shared title deed is legally possible in Turkey. For the mortgage to be valid, however, the type of ownership over the property (co-ownership in shares or joint ownership) is decisive. Under the provisions of the Turkish Civil Code (TCC), the statutory procedures to be followed differ according to the ownership regime.

Creating a mortgage over shared real estate in Turkey works as follows for the 2 different types of ownership:

1. Establishing a Mortgage on a Shared Title Deed in Co-ownership in Shares (TCC Art. 688 and Art. 857)

In co-ownership in shares (a joint title deed), each co-owner’s share in the property is fixed as a proportion (1/2 or 1/4, for example).

• The consent of the other co-owners is not required: Under Turkish Civil Code Art. 857, in co-ownership in shares each co-owner may mortgage his own share independently. No permission, approval or consent of the other co-owners is needed under Turkish law.
• Legal effect: The mortgage created covers not the whole of the property but only the share of the debtor or co-owner concerned. If the debt is not paid, the creditor may ask only for that share to be sold through enforcement.

2. Establishing a Mortgage in Joint Ownership (TCC Art. 701 and Art. 702)

Joint ownership (ownership in participation) usually arises after an inheritance passes (the community of heirs) or in a community of family property. In this type of ownership the shares are not separated as proportions; under Turkish law all of the co-owners hold rights over the whole of the property.

• The unanimous decision of all owners is required: Under TCC Art. 702, in a property subject to joint ownership a single co-owner cannot place a mortgage on his own share alone.
• Condition of legal validity: For a mortgage to be created, a unanimous decision of all the heirs or co-owners and their signature (consent) at the Land Registry Office is compulsory.

3. Converting Joint Ownership into Co-ownership in Shares in Turkey (Transfer and Division)

A co-owner of a jointly owned property who cannot obtain the consent of the other co-owners and wishes to mortgage his own share must first convert the joint ownership into co-ownership in shares under Turkish law.

• Ways of converting: The property is converted into co-ownership in shares either by registration with the consent of all, or by an action or request for the “Conversion of Joint Ownership into Co-ownership in Shares” brought before the Civil Court of Peace.
• The mortgage transaction: Once ownership has become co-ownership in shares, under Turkish law the co-owner may create a mortgage over his own share without anyone’s permission.

In conclusion, correctly identifying the type of ownership in the land registry before a mortgage is placed on a shared title deed is of great importance in Turkey. In co-ownership in shares the transaction can be carried out directly, while in joint ownership passing by inheritance the consent of all the owners must be obtained or the conversion into co-ownership in shares must be completed beforehand.

HOW MUCH IS THE LAND REGISTRY MORTGAGE FEE IN TURKEY?

The land registry fee, stamp duty and revolving fund charges payable when a property mortgage is created in Turkey vary according to the amount of the mortgage secured and to the type of loan behind the mortgage and the nature of the creditor institution.

• Land Registry Mortgage Fee (Fees Law No. 492)

Unless a statutory exemption applies, a fee is collected at the land registry office in Turkey when the mortgage is created.

1. Proportional fee rate: The land registry mortgage fee is charged at 4.55 per mille (0.455%) of the mortgage amount created.
2. Calculation: The fee is calculated not on the value of the property but on the mortgage limit or principal amount shown in the official deed.

• Stamp Duty (Stamp Duty Law No. 488)

This is the tax charged when the mortgage agreement and the mortgage debt instrument are drawn up.

1. Proportional stamp duty rate: Stamp duty is applied at 9.48 per mille (0.948%) of the mortgage amount.
2. Tax base: It is assessed on the maximum amount (the upper limit) or the principal amount stated in the text of the mortgage.

• Land Registry Revolving Fund Service Charge in Turkey

A fixed service charge (the revolving fund charge) is collected, set according to the region in which the Land Registry Office and cadastre unit carrying out the mortgage transaction are located. It is updated annually by the General Directorate of Land Registry and Cadastre (TKGM) in line with the revaluation rate and varies according to regional coefficients.

• Mortgage Fee and Stamp Duty Exemptions (Law No. 492 Art. 123 – Law No. 488, Table (2), item IV/23)

Fee and tax exemptions are granted by law for certain types of loan and for institutions working in the public interest. In transactions relating to the provision, security and repayment of loans, no land registry fee is charged under Article 123 of Fees Law No. 492 and no stamp duty is charged under item IV/23 of Table (2) annexed to Stamp Duty Law No. 488. The main transactions falling within this scope are as follows:

1. Financing and bank loans: Mortgages given as security for loans extended by banks, financing companies, foreign credit institutions and international financial institutions.
2. Tradesmen’s and agricultural loans: Mortgages relating to loans provided by Tradesmen’s and Craftsmen’s Credit and Guarantee Cooperatives and by agricultural credit institutions.
3. Financial leasing: Mortgages created as security in leasing transactions.
4. Exempt institutions: Associations working in the public interest and foundations granted tax exemption by the President. For these institutions the basis of the exemption is not Art. 123 but Article 59(b) of Fees Law No. 492.

WHAT PREVENTS A MORTGAGE FROM BEING ESTABLISHED IN TURKEY?

Where a loan or debt relationship is to be set up by establishing a real estate mortgage in Turkey, both the risk assessment criteria of the lending institutions (banks and financial institutions) and the legal position in the land registry are decisive. The factors that prevent a mortgage being created or a loan being approved fall under two main headings: financial obstacles and obstacles arising from rights in rem or from the law.

1- Financial Obstacles Arising from the Borrower in Turkey

In mortgage loan applications in Turkey the creditor institution first analyses the borrower’s repayment capacity and financial history. The obstacles that stand out here are the following:

• A low credit score and a poor payment history: Past irregular payments, debts that have gone into enforcement or arrears recorded by Findeks and the Credit Bureau (KKB) create a trust risk in the eyes of lenders. A low credit score leads either to the outright rejection of the mortgage request or to high interest or security conditions being imposed.
• Insufficient or undocumented income: For the loan instalments to be paid regularly, the net income that can be formally documented must match the borrowing ratio. Having no regular job or no documented income of a sufficient amount is one of the biggest obstacles to approval of a mortgage loan.
• A high existing debt-to-income ratio: If the monthly total of the applicant’s other ongoing loan and credit card debts reaches a high ratio compared with his documented income, the new property mortgage application may be rejected even though collateral is offered.

2- Legal Obstacles Arising from the Property (the Land Registry Record) in Turkey

The legal and physical position of the real estate to be mortgaged is of vital importance for the validity of the loan and of the security. Restrictions in the land registry may prevent a mortgage being created or reduce the value of the security:

• Annotations and declarations in the land registry that restrict rights: Annotations and declarations in the land registry in Turkey such as court attachments, public attachments, interim injunctions, a usufruct right or an annotation of family residence (where the spouse’s consent is missing) on the property may legally prevent a mortgage being created, or lead banks to refuse it as security.
• Appraisal problems and a fall in the value of the asset: Where the valuation carried out by CMB-licensed appraisers finds that the market value of the real estate is insufficient, identifies zoning or permit problems (unlicensed construction, departure from the project and so on) or shows that the security value does not cover the loan amount requested, the mortgage application is rejected or the loan amount offered is reduced.
• The ownership structure (joint ownership): Where the property is subject to joint ownership (ownership in participation) and the joint consent or signature of all the co-owners (the heirs) cannot be obtained, a single co-owner cannot create a mortgage under Turkish law.

HOW IS A MORTGAGE REMOVED IN TURKEY?

Where the debt over a piece of real estate is paid or the reason for the mortgage comes to an end, the transaction that deletes the restriction from the land registry is called release of the mortgage (removal). Under the Turkish Civil Code (TCC Art. 883/1), once the claim has ended the owner of the mortgaged property may ask the creditor to have the mortgage struck off.

1- Removal of the Mortgage by Consent in Turkey (the Standard Procedure)

Where the debt has been performed in full, the process under Turkish law runs as follows before the land registry offices and the creditor institution:

• Closing the debt and the release letter: The debtor pays the creditor institution (the bank or an individual) the whole of the debt, interest and ancillary claims and obtains a release letter (a statement that nothing is owed) confirming that the debt is closed.
• Preparing the mortgage release letter: Banks and institutional creditors send the mortgage release letter electronically (e-release) to the relevant Land Registry Office through the Web-Tapu system. For claims held by individuals, the creditor must attend the land registry in person and make a declaration of striking-off.
• The striking-off transaction at the land registry: The land registry officer examines the release letter and deletes the mortgage annotation from the land registry. By paying the striking-off fee and the revolving fund charge, the debtor clears his property of the encumbrance entirely.

2- What Legal Remedies Are Available in Turkey if the Creditor Does Not Remove the Mortgage?

Where, although the debt has been paid, the creditor does not issue the release letter, cannot be reached, or a dispute arises over the mortgage amount, the owner of the title deed may turn to the legal remedies:

• Mortgage release lawsuit under TCC Art. 883: The owner of the property proves that the debt has been paid and brings an action for release (striking-off) of the mortgage before the Civil Court of First Instance. If the court finds that the debt is closed, it orders the mortgage to be deleted from the land registry record.
• Discharge of the mortgage through the Enforcement Office (EBL Art. 153): If the creditor is absent and his residence is unknown, or if he refuses to take the money and release the mortgage, the debtor of a debt that has fallen due applies to the enforcement office and deposits the amount of the debt, as Turkish law provides. The enforcement office serves notice on the creditor to attend the office within fifteen days, take the money and release the mortgage; if the creditor does not attend within that period or refuses without a reasonable ground, the mortgage is struck off by a decision of the enforcement court.
• Statutory striking-off of a mortgage created for a fixed term (TCC Art. 883/2): Once the pledge has been registered in the land registry, no limitation period runs for the claim (TCC Art. 864), so the mortgage cannot be removed on the ground of limitation alone. Where the mortgage has been created for a fixed term, however, if no annotation under EBL Art. 150/c is placed on the property within thirty days of the end of that term, the mortgage is struck off by the Land Registry Office at the owner’s request.

HOW IS AN OLD MORTGAGE ON A PROPERTY REMOVED IN TURKEY?

Before starting the process of removing an old mortgage recorded in the register of a property (release of the mortgage), the source and legal reason behind that mortgage (an individual loan, construction financing or a private debt relationship) must be correctly identified. The methods and the legal processes to be followed under property law in Turkey differ according to the nature of the mortgage.

1. Removal of the Mortgage Because of the Homeowner’s Loan Debt in Turkey (Individual Housing Loans)

In housing loans, which are widely used for property purchases today, banks create a mortgage over the real estate in order to secure their claims.

• Payment of the debt and the release letter: When the debtor has paid the home loan debt in full (principal, interest and all ancillary claims), he obtains from the bank a confirmation or release letter stating that the debt has been closed.
• The electronic release letter (e-release): Once the debt is reduced to zero, the bank sends the instruction for release of the mortgage electronically to the relevant Land Registry Office through the Web-Tapu portal and the restriction on the title deed is removed.
• Where the bank does not send the release letter: If the bank does not send the release letter even though the debt has been closed, talks are held between the parties. If no agreement is reached and the bank unjustifiably delays the transaction, the homeowner may bring a mortgage release lawsuit before the Civil Court of First Instance or the Consumer Court in Turkey. The claimant is required to prove with payment receipts and statements that the claim has been extinguished.

2. Removal of the Mortgage Because of the Contractor’s Debt in Turkey (Construction Financing and Contractor Mortgages)

In large-scale projects, contractors may take out loans from banks to cover construction costs and have a mortgage created over land or over independent units that are not yet complete.

• The contractor pays the debt: If the contractor pays the loan debt, the mortgage over the independent unit concerned is removed by the bank.
• The contractor does not pay and the buyer suffers: If the contractor cannot pay his debt, buyers who have taken delivery of their home or acquired its title deed face the risk of the bank’s mortgage. This is the most common issue encountered in homes purchased from a developer in Turkey.
• The bank’s duty as a prudent merchant and the principle of good faith: The law places a special and heightened duty of care on banks in the Turkish legal system. A bank that knows, or ought to know, that the independent units being built will be sold to third parties may be regarded as not having acted prudently and not having acted in good faith where it places mortgages without regard to the buyers’ rights.
• Release of the mortgage through the courts: Where the bank has acted contrary to the rule of good faith, homeowners may take legal advice and bring an action for release and invalidity of the mortgage. If the conditions are met, the mortgage is struck off by a court order.

3. Removal of a Mortgage Placed for a Private Debt (Third-Party Debt) in Turkey

A mortgage may also be created over a property as security for a private debt relationship between individuals or commercial undertakings.

• Striking-off by consent (release letter / transfer): When the debtor, or the person who pays the debt, closes it in full, the mortgage is removed by the declaration of striking-off or release letter that the individual or institutional creditor gives to the land registry office.
• Settlement: As a result of a restructuring of the debt or a written protocol agreed between the parties, the land registry record is cleared with the creditor’s consent.
• Legal proceedings and the mortgage release lawsuit: Where the debt has been paid but the creditor does not remove the mortgage, or where the mortgage was unlawful or invalid from the outset, the debtor or the owner of the property may apply to the court for annulment and striking-off of the mortgage.

HOW IS A MORTGAGE RELEASE LAWSUIT FILED IN TURKEY?

Because a mortgage is a right in rem created by registration in the land registry, it can also come to an end only by being struck off the land registry. Where the creditor will not agree to striking-off even though the debt has been paid or the mortgage is defective (unlawful), a mortgage release (removal) lawsuit is brought before the Turkish courts.

• The Legal Nature of the Mortgage Release Lawsuit in Turkey

A request for removal of the mortgage is in essence an action for correction of the land registry record:

1. Declaration and request for striking-off: The claimant (the owner of the property) argues that the registered mortgage right no longer has any legal basis, or that the registration was defective from the outset, and asks the court to declare the mortgage void.
2. Compelling registration and the combined practice: In the standard procedure a declaration of striking-off is awaited from the creditor after the declaratory judgment; if the creditor does not sign, an action to compel striking-off has to be brought. In practice, however, the Turkish courts speed the process up by deciding both on the invalidity of the mortgage and on striking-off the entry of their own motion in a single action.

• The Competent and Authorised Court in a Mortgage Release Lawsuit in Turkey

The rules on jurisdiction and venue in an action for release of the mortgage are a matter of public order and are taken into account by the court of its own motion:

1. Competent court (the Civil Court of First Instance): Because the action concerns directly the asset value of the property and a right in rem, the generally competent court is the Civil Court of First Instance. (Where the relationship between the parties is a consumer transaction or a commercial matter, the Consumer Court or the Commercial Court of First Instance may be competent instead, depending on the circumstances.)
2. Court with venue (exclusive venue – Code of Civil Procedure (CCP) Art. 12): In actions concerning rights in rem over immovable property the rule of exclusive venue applies. The action must therefore be brought not before the court of the parties’ place of residence but before the court of the place where the mortgaged property is located.

CAN FOREIGNERS GET A LOAN IN TURKEY?

It is legally possible for foreign nationals to take out housing, personal or commercial loans in Turkey. Turkish legislation does not prevent foreigners from using credit, but banks apply stricter documentation and security conditions to foreign national customers as a matter of risk management. Therefore, obtaining guidance from an English-speaking legal counsel in Turkey is essential to effectively navigate these complex requirements and safeguard financial and legal interests throughout the process.

• What Are the Basic Conditions for Granting Loans to Foreigners in Turkey?

Lenders’ assessment criteria generally rest on the following legal and financial requirements:

1. Reciprocity and legal status: The principle of reciprocity must exist between the foreigner’s country and Turkey as regards the acquisition of real estate, and the applicant must hold a valid passport or residence permit. In this case, detailed research specifically in the field of foreigners’ law needs to be conducted.
2. Proof of income and transferability of income: The foreign individual’s income both in his own country and, where applicable, in Turkey must be confirmed by official documents. Income documents from abroad must carry an Apostille or be certified by the relevant Turkish consulate.
3. The obligation to give security (a mortgage): In loans granted to foreigners, because of the risk premium, credit institutions generally require a first-rank mortgage to be created over the property being financed or over another property owned in Turkey.

• Step-by-Step Loan Application and Approval Process for Foreigners in Turkey

The stages that foreigners applying for a loan from financial institutions in Turkey should follow are these:

1. Researching lenders and settling the loan terms: Lenders’ lending policies for foreign nationals differ. Interest rates, security ratios (LTV – the ratio of the loan amount to the value of the property) and the documents required should be examined bank by bank.
2. Obtaining a tax number and opening a bank account: Obtaining a valid potential tax number and opening a current deposit account with a Turkish bank are compulsory for every kind of financial transaction in Turkey.
3. Preparing income documents and international credit reports: In order to demonstrate the applicant’s financial capacity, an employment contract, salary documentation and payslips proving regular income from a foreign employer, tax returns, bank statements, proof of foreign income, and, if necessary, international credit score reports obtained from credit bureaus (e.g., Experian, Equifax, etc.) in their home country must be submitted.
4. Valuation of the property (the appraisal process): An appraisal report is prepared by independent valuation experts licensed by the CMB in order to determine the value of the property to be financed. Lenders set the credit limit on the basis of that data.
5. Loan approval, creation of the mortgage and drawdown: When the lender’s credit assessment is positive, the loan agreement is signed. Once the mortgage registration has been completed at the land registry office, the loan amount is transferred to the borrower or to the seller.

THE IMPORTANCE OF LEGAL ASSISTANCE IN MORTGAGE TRANSACTIONS IN TURKEY

Establishing a mortgage and releasing it (mortgage release) in Turkey are highly technical legal processes governed by the Code of Obligations as well as by the Turkish Civil Code and the Land Registry Law. Procedural mistakes made when the mortgage is created, or when it is removed after the debt is paid, can lead to serious loss of rights and waste of time. Working with a lawyer specialising in real estate law in Turkey therefore makes the process safe.

• The Role of a Lawyer in Establishing a Mortgage in Turkey

When a mortgage is placed over real estate in connection with a loan or a private debt relationship, the lawyer handles these critical processes:

1. Reviewing and drafting the agreements: Legal counsel makes sure that the onerous terms, penalty clauses and withdrawal clauses in the loan and mortgage agreements do not create an imbalance against the debtor or the creditor.
2. Title search and the risk of defective registration: The restrictions already on the property (earlier attachments, other mortgages or irregular registrations) are identified and the legal validity of the mortgage is secured under Turkish real estate law.
3. Representation and application before the Land Registry Office: The application documents required to establish the mortgage (the loan agreement, the certified title deed, the parties’ identity documents and the documents of representation) are prepared in full and the official transactions are carried out before the relevant Land Registry Office.
4. Revolving fund and fee calculations: Legal counsel checks that the fees and costs calculated on the value of the property and on the loan amount when the mortgage is created comply with Turkish tax legislation.

• Legal Support in the Mortgage Release (Removal) Process in Turkey

Where the mortgage does not fall away by itself when the debt is closed, or the creditor will not agree to striking-off, the attorney’s intervention becomes essential under Turkish law:

1. Managing the legal process: Where the bank or the creditor does not send the e-release letter to the land registry, serving a formal warning notice through a notary public and following the matter up.
2. Representation before the court: Bringing a mortgage release lawsuit before the Civil Court of First Instance or the Consumer Court on behalf of owners whose mortgage has not been removed although their debt is closed, and proving with payment documents that the claim has ended.
3. Negotiating with the other side and preventing loss of rights: Providing representation to protect the client’s rights in the administrative and legal disputes that may arise with the creditor, the bank or the seller.

In summary, the establishment and release of a mortgage in Turkey are highly sensitive processes involving substantial financial amounts and rights in rem. Both identifying risks at the contractual stage and seamlessly managing technical details in the land registry necessitate mastery of applicable legislation at every step. A single procedural or registration error made during establishment or release can lead to protracted litigation, restrictions on the right of disposal over the property, and irreparable financial losses. Additionally, in credit usages originating from mortgage establishment, the fact that cross-border funds transfers may be subject to MASAK (Financial Crimes Investigation Board) scrutiny must not be overlooked. Accordingly, acting with legal counseling and representation in Turkey is the safest path to prevent any loss of rights for both the creditor and the debtor.