Secured Mortgage

Mortgage secured

Guaranteed loans in Turkey: Justification of the mortgage on property The use of property as borrowing protection has always been an attractive alternative in Turkey's trading practices for those who wish to finance their business or purchase property, as property has always been regarded as the most secure form of protection by national and foreign financial and banking authorities. According to Ottoman legislation, a mortgage on a piece of land can be established as collateral for any type of indebtedness, whether actually, in the near term or conditional, or whether the amount of the indebtedness is final or undetermined, or whether the indebtedness is a pecuniary indebtedness or a non-monetary commitment such as the execution or non-performance of an act.

A mortgage can be charged on a piece of immovable property, a separate section (e.g. a building or apartment) or an autonomous and lasting right in rem relative to the immovable object (e.g. a usufructuary right or a heritable building right). In addition, a mortgage can be concluded on the share of the co-owners of a piece of flat. It is not necessarily the responsibility of the borrower to own the immovable as third party security may be provided to ensure the debtor's liabilities.

This means that the landowner can pawn his ownership in favor of the creditor for the debts of others. If the mortgage is provided by an affiliated entity to cover the debts of its mother entity, however, the limitations of the TCC on downstream guarantee and limitations on pecuniary support apply.

Most of the regulations relating to the mortgage, such as its size, nature, origin, improvement and precedence, are governed by Turkey's Code of civil law No. 4721 ("TCL"). The TCL also contains a significant limitation regarding the establishment of a mortgage on matrimonial wills. According to the corresponding TCL regulation, the husband or wife who possesses the matrimonial home may not take out a mortgage on this ownership without the explicit agreement of the other husband or wife.

Mortgages on properties secure the following borrowed capital components: Furthermore, the costs borne by the creditor, as well as insurances, are secured by the mortgage to the extend necessary to protect the pledged immovable assets. Mortgages taken out on properties also represent a burden on operating and office equipment.

The hardware can be entered in the land registry registers of the land registry office independently, which is a juridical assumption that the entered objects are considered an accessory to the pledged ownership and therefore fall within the mortgage's jurisdiction. To the contrary, the onus of proof is on the mortgage debtor or on a third person who is entitled to such goods.

In addition, subsequent building will become a mortgage object if there is further building on the already encumbered area. TCL provides for two kinds of mortgages according to whether the level of indebtedness is final or indefinite: Mortgage ((i) main mortgage and (ii) limited mortgage. The main mortgage guarantees the amount of the credit to be granted to the debtor and confirms that the debtor accepts the credit absolutely and unconditionally.

Although only the nominal amount is stated in the mortgage record, in this case the creditor is authorised to charge interest and costs in excess of the nominal amount under the mortgage. On the other side, a limi mortgage is usually established to cover indefinite, doubtful and potentially outstanding debt.

Limits specify the amount that could be recovered by the creditor from the revenue of the execution of the pledged real estate. Even if the overall amount of the revenue exceeds the amount of the mortgage, the creditor may recover the revenue up to the amount indicated, even if the sum of the borrowed amount, interest and expenditure exceeds the amount of the mortgage.

There are two requirements under Ottoman legislation to have a valid and executable mortgage. In the first phase, an offical mortgage contract is concluded with the local property office. It is at this point that the contract conditions concluded by the mortgage contractors are entered in the standardised mortgage certificate contract document.

Then the mortgage bond is autographed by the contracting partners or their agents before the official of the local registry, whose signatures and seals are also attached to the area. After the mortgage certificate has been issued, a copy of the certificate is handed over to the lender. As a second stage, the mortgage is annulled by the administrator of the register under the lien part of the entries in the mortgage register of the immovable object, whereby the mortgage is considered mature and becomes assertible and legal towards third persons, as well as towards prospective owner of the immovable object and other lenders.

In order to maximize the commercial benefit of the real estate, the landlord has the right to grant several mortgage loans on the same real estate. If this is the case, the amount of the levy of execution of the pledged assets shall be disbursed to the holders in the order of their priorities. Ranking is based on the TCL rules of the so called fixed grade system.

Using the system of constant grade, the landlord can split the value of the real estate into fractions, each of which is symbolized by a grade. Within this scope, the number of grades and the amount to be secured to a certain extent are defined by the proprietor and must be entered in the cadastre.

One of the most important features of the solid grade system is that when a mortgage secured credit allocated to a certain grade is disbursed and the grade becomes free, consecutive loans allocated to a lower grade do not rise to the next higher grade automatic.

This system entitles the owners of the real estate to establish a new mortgage instead of the deregistered mortgage. In addition, the landlord may invest several mortgage loans to the same extent, provided that the total amount to be secured by the mortgage loan does not breach the money barrier set for the respective level of assignment of the mortgage loan.

Each party may decide on the ranking of the mortgage to be placed in the same proportion among the mortgage types. Otherwise, all mortgage loans within a trade are considered to be of equal ranking. There will be no ranking between such mortgage loans and the revenue from the excluded assets will be allocated proportionately to equally ranking lenders if the sales revenue is insufficient to fully cover the sums secured by equally ranking mortgage loans.

Owners may give a lender the right, in consultation with the interested party, to ascend to an empty state. The right may be conferred at the moment the mortgage is established and improved by a clause to be included in the mortgage contract or by a special arrangement to be made later.

If the latter is the case, the contract is governed by the same conditions of creativity and performance as the mortgage. In general, the amount of the mortgage must be in the form of lira at the date of enrolment, regardless of whether or not the claim in question is due in a different language.

Pursuant to the exemption, a mortgage made out in currencies may be established to cover an exposures in currencies of a Swiss or non-Swiss bank, provided that the exposure and the mortgage are made out in the same non-Swiss currencies. For this purpose, a mortgage in forex may be established to cover any type of foreign-exchange loan, as well as all types of lending in the form of hard and soft notes, such as guarantees, letters of credit, import/export facilities, etc.

However, the Act does not allow the establishment of several mortgage loans with different amounts in different currencies to a certain extent. This means that once an FX mortgage has been allocated to a certain level, successive FX mortgage loans allocated to the same level must have the same description in terms of cross border currencies as the previously entered mortgage.

Mortgage claims are protected against limitation, i.e. such a claim can be asserted and executed as long as the mortgage stays recorded. As soon as the mortgage is repaid or otherwise redeemed, the mortgage is released to perfection by deleting the mortgage entries in the cadastre.

Exmatriculation should be applied for by the holder, otherwise the proprietor has the right to bring an action against the holder for compulsory exmatriculation. Certain charges, as well as firm and proportionate charges, apply to the enrolment of a mortgage. Except for the above charges, certain other charges apply when changes are made to the mortgage record.

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