Mortgage Types and Their Implications

In legal doctrine, the concept of mortgage is defined as a limited real right that aims to secure a personal debt, is not dependent on a valuable document, and allows the creditor to obtain their debt from the value of an immovable property. This definition is based on a decision by the General Assembly of the Supreme Court of Appeals in 2017/12-356 E., 2019/711 K., dated June 18, 2019. According to Article 881 of the Turkish Civil Code: "Any existing or potential debt, whether certain or contingent, can be secured by a mortgage." As clearly understood from the text of the article, it is possible to establish a mortgage for any debt, whether it has a specific or unspecified amount, or whether it has already occurred or will occur in the future. Furthermore, as stated in Article 881/2, the property to be mortgaged does not need to be owned by the debtor; a mortgage can also be established on a property registered in the name of a third party.

There are two types of mortgages based on the intensity of the relationship between the debt and the mortgage. The first one is a definite debt (principal or capital) mortgage, and the other is an upper limit (ceiling) mortgage. "A mortgage established to secure an existing debt is called a principal mortgage. A mortgage established for future and potential debts is called an upper limit mortgage." (Decision of the 23rd Civil Chamber of the Supreme Court of Appeals 2014/5836 E., 2014/5652 K., dated September 16, 2014)

Upper Limit Mortgage is a type of mortgage where the highest amount that can be demanded for all debt items, whether unborn or already born but with unspecified amounts, is determined and recorded in the land registry. This recorded amount serves as an upper limit for all debt items such as principal, interest, and collection expenses. Upper limit mortgages are established for future and potential debts arising from current account relationships, general credit agreements, promissory notes, and member business contracts.

"Because the upper limit mortgage is established as security for a debt that will arise or is likely to arise in the future, the maximum amount for which the property will serve as security for this uncertain debt is determined with a limit in the mortgage deed table to prevent the problems that this uncertainty might cause in the future. Hence, the main debt that will arise in the future, along with the added interest, execution and follow-up expenses, and other agreed-upon ancillary items as stipulated in Article 875 of the Turkish Civil Code, cannot exceed the total debt amount secured by the mortgage, which is determined by the parties' consent at the time of establishing the mortgage. This characteristic distinguishes the upper limit mortgage from the principal mortgage. In a principal mortgage, not only the main debt specified in the mortgage deed table but also the interest and other ancillary items as per Article 875 of the Turkish Civil Code are included in the scope of the security." (Decision of the 23rd Civil Chamber of the Supreme Court of Appeals 2014/5836 E., 2014/5652 K., dated September 16, 2014)

The principle of specificity, one of the fundamental principles of immovable property mortgages, is embodied in Article 851/1 of the Turkish Civil Code as follows: "In case the amount of the debt is not specified, the upper limit of the property to be secured is determined by the parties in a way that will cover all of the creditor's demands."

In a decision by the General Assembly of the Supreme Court of Appeals regarding this matter: "It is necessary to address the principle of specificity, which is one of the prevailing principles in mortgage law, in explaining the upper limit mortgage. The right of mortgage is generally considered an incidental right. For this reason, for the mortgage right to be validly established, the debt it secures must be specific, definite. Additionally, whether the reason for the secured debt needs to be stated in the mortgage agreement depends on whether the debt is existing or prospective. For existing debts, it is sufficient to specify the amount of the debt in the mortgage agreement to identify the debt. In contrast, for prospective debts, the cause of the debt must be clearly stated in the mortgage agreements made to secure these debts. For mortgages established for future debts where the amount will be determined later, in accordance with the principle of specificity, the maximum amount for which the property will serve as security must be registered in the land registry to demonstrate the specificity of the debt." (Decision of the General Assembly of the Supreme Court of Appeals 2017/13-606 E., 2017/352 K.)

Since the mortgage in this type of case involves unborn or unspecified debts, the enforcement proceedings to convert the mortgage into cash are carried out through a non-judicial procedure. Therefore, the debtor should be granted the right to object to the unspecified debt. According to Article 149/b of the Execution and Bankruptcy Law: "For matured debts other than those specified in Article 149, the enforcement officer sends a payment order to the debtor and, if applicable, to the third party owner of the property, in accordance with the provisions of Article 60, as follows."

Principal mortgage is a type of mortgage established when the debt has matured and its amount is specified. In a principal mortgage, ancillary debts are also utilized as collateral, even if they exceed the principal amount stated in the title deed. The scope of this collateral is limited and defined by Article 875 of the Turkish Civil Code, including the principal amount, collection expenses, default interest, three years' accrued interest up to the date of the bankruptcy filing or the date when the mortgage is requested to be converted into cash, and interest accruing from the last maturity date. Items such as commission, penalty clauses, or tax expenses cannot be added to expand the collateral. Additionally, mandatory expenses incurred for the protection of the mortgaged property and paid insurance premiums are also included in the collateral according to Article 876.

If the mortgage deed unequivocally acknowledges a debt obligation, the creditor can initiate enforcement proceedings through a judicial procedure for the conversion of the mortgage into cash. According to Article 149 of the Execution and Bankruptcy Law: "If the enforcement officer understands that the presented mortgage deed unequivocally acknowledges a debt obligation and the debt has matured, the officer sends separate enforcement orders to the debtor and to any third party to whom the property is mortgaged or whose ownership the property has been transferred. In this enforcement order, it is stated that the debt must be paid within thirty days. If the debt is not paid within this period and no decision to defer enforcement is issued by the enforcement court, it is notified that the creditor can request the sale of the property." This matter was also addressed in the decision of the 12th Civil Chamber of the Supreme Court of Appeals, 2011/8033 E., 2011/24731 K., dated November 28, 2011.

Conclusion

Mortgage is a specific real right that ensures the security of a debt. The distinction between principal mortgage and upper limit mortgage is made based on the intensity of the relationship between the mortgage and the debt. There are significant differences between these two types of mortgages in terms of the scope of the secured debt and the enforcement proceedings that will be carried out as a result.

Sinem Çiftci

REFERENCES:

• Decision of the General Assembly of the Supreme Court of Appeals 2017/12-356 E., 2019/711 K., dated June 18, 2019
• Decision of the General Assembly of the Supreme Court of Appeals 2017/13-606 E., 2017/352 K.
• Decision of the 23rd Civil Chamber of the Supreme Court of Appeals 2014/5836 E., 2014/5652 K., dated September 16, 2014
• Decision of the 12th Civil Chamber of the Supreme Court of Appeals 2011/8033 E., 2011/24731 K., dated November 28, 2011
• Turkish Civil Code
• Execution and Bankruptcy LawFormun Üstü