In Turkish law, when it comes to enforcement proceedings based on mortgage notes, there is a necessity for meticulous examination of the conditions of maturity and whether the mortgage note possesses the characteristics of a judgment. A recent decision by the 12th Civil Chamber of the Turkish Court of Appeal [1] has set a significant precedent in resolving disputes among parties regarding the collection of secured claims. This ruling particularly emphasizes that mortgage notes lacking unconditional monetary obligations cannot be the subject of enforcement proceedings, underscoring the necessity for establishing maturity conditions in such enforcement actions. Thus, if creditors do not adhere to legal procedures when initiating enforcement actions based on mortgage notes, this creates an effective defense mechanism for debtors. The decision also clearly indicates that, according to Turkish law, enforcement proceedings initiated through the monetization of a mortgage must pay attention not only to the mortgage contract itself but also to the nature of the contracts between the parties.

Background

The creditor, also an energy company, initiated enforcement proceedings against the debtor company at the Ankara Enforcement Office based on a mortgage established in its favor on a property registered with the General Directorate of Mining and Petroleum Affairs (MAPEG). The creditor had established the mortgage as collateral to secure its claim and intended to use this collateral for collection in case of non-payment of the debt.​

The dispute began when the debtor company applied to the court for the annulment of the enforcement order, claiming that the mortgage note upon which the enforcement proceedings were based did not involve any matured debt. In the lawsuit, the debtor argued that the enforcement proceedings were unjustified because the mortgage note relied upon by the creditor did not contain any matured debt. According to the debtor, the mortgage was established solely for collateral purposes, and thus, no condition for maturity had arisen that would allow enforcement action. The debtor also claimed that the notice sent by the creditor prior to the enforcement was invalid, stating that a response was provided to this notice and that the claim had not matured; hence, the conditions for enforcement proceedings had not been met, leading the debtor to seek the annulment of the enforcement order from the Ankara Enforcement Court.

In its defense before the court, the creditor argued that the mortgage note included an unconditional monetary obligation and claimed that the debt was matured, asserting that the enforcement action was lawful. Furthermore, the creditor contended that the debtor had failed to pay the debt despite the notice, thereby establishing the right to initiate enforcement proceedings.

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​When assessing the debtor's objection, the Ankara Enforcement Court (“Local Court”) first examined the nature of the mortgage note that served as the basis for the enforcement proceedings and the conditions for maturity. Although the court considered the creditor’s assertion that the mortgage note contained an unconditional monetary obligation, it determined that the maturity conditions had not been adequately fulfilled. The court also evaluated the role of mining activities in the enforcement process and the position of the regulatory body, MAPEG, within this process.

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As a result of its examination, the court found that the Mining Mortgage Agreement, dated May 29, 2020, did not include any matured debt owed by the debtor. The court also noted that no documents proving the fulfillment of the maturity conditions had been submitted by the creditor, concluding that the debtor had not defaulted and that the enforcement order was not lawful.

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Additionally, the court scrutinized the creditor's claims regarding the notice, assessing its content and the actions taken by the creditor in response to the notice. Ultimately, the court concluded that while the creditor had sent the notice, it was not lawful, and the debtor had responded appropriately; thus, the debt had not matured.

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Consequently, the local court ruled to annul the enforcement order, determining that the debtor had not defaulted and that the enforcement proceedings were not lawful.

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In response to this decision by the local court, the creditor filed an appeal with the 19th Civil Chamber of the Ankara Regional Court of Appeals (“Regional Court”). The creditor contended that the mortgage note contained an unconditional acknowledgment of monetary debt and argued that the enforcement proceedings were lawful. However, the Regional Court also deemed the local court’s decision lawful and rejected the appeal on its merits [2].

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Dissatisfied with this decision, the creditors appealed to the Turkish Court of Appeal (Appeal Court”), and the case was referred to the 12th Civil Chamber of the Appeal Court.

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Decision

Upon reviewing the case, the Appeal Court focused primarily on the nature of the mortgage note that formed the basis of the dispute, specifically evaluating whether the mortgage note used for the enforcement proceedings was a judgment and thus could serve as a basis for enforcement. The Appeal Court found that the mortgage note did not contain an unconditional monetary obligation and, therefore, could not be used as the basis for enforcement proceedings, concluding that the debtor’s complaint was justified.

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The Appeal Court established that the mortgage was established solely for collateral purposes, and as such, the conditions for maturity had not been met. Additionally, the High Court noted that the documents presented by the debtor were insufficient to demonstrate that the mortgage was based on a matured debt. The ruling also emphasized that the actions related to mining activities were subject to oversight by the regulatory body MAPEG, ensuring the legality of these processes.

The Appeal Court also addressed the content of the notice that served as the basis for the enforcement proceedings. It determined that the creditor had sent the notice but that the notice was not lawful; hence, the initiation of enforcement proceedings was not justified following the debtor's appropriate response. The Appeal Court concluded that the debtor had not defaulted despite the existence of the mortgage, providing substantial grounds for the enforcement's illegitimacy.

Ultimately, the Appeal Court upheld the decision of the Regional Court of Justice, concluding that the enforcement action initiated against the debtor should be annulled.

Takeaways

The Appeal Court's ruling emphasizes the necessity for a thorough examination of the conditions of maturity in enforcement actions based on mortgage notes, illustrating that determining whether mortgage notes qualify as judgments and whether the conditions of maturity exist must be evaluated according to the specific circumstances of each case.

One of the most significant aspects of the ruling is the clear insistence that the presence of maturity conditions must be carefully scrutinized. An enforcement action initiated by a creditor prior to the debt maturing is legally invalid. In this context, the Appeal Court has emphasized that enforcement actions should be annulled in cases where the mortgage note alone does not fulfill the maturity conditions. This holds substantial importance for protecting debtors' rights against enforcement actions initiated by creditors before the debt has matured.

The ruling also highlights the necessity for a detailed examination of whether a mortgage note is adequate for a judgment-based enforcement action. For mortgage notes to serve as a basis for enforcement proceedings, they must contain an unconditional acknowledgment of a debt, clearly and unequivocally defined. The ruling underscores the legal invalidity of enforcement actions based on non-judgment mortgage notes, demonstrating that not every mortgage note can be the subject of enforcement and that this must be evaluated according to the case's specific circumstances.

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Furthermore, the Appeal Court’s ruling serves as a significant precedent for protecting debtors' rights. The decision provides debtors with a defense mechanism against attempts by creditors to collect non-matured debts through enforcement actions. This is of great importance for maintaining the balance between creditors and debtors.

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From the perspective of enforcement law practice, the ruling serves as a guiding principle for creditors. Creditors should meticulously assess whether a debt is matured and whether a mortgage note possesses the characteristics of a judgment before initiating enforcement actions. Otherwise, they risk allowing debtors to utilize their right to complain, potentially leading to annulment of the enforcement proceedings. This could translate into undesirable efforts, time, and financial losses in the collection of debts. Therefore, the ruling clarifies the responsibilities of creditors and the legal conditions they must consider in the enforcement process.

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With these considerations, the decision of the Appeal Court constitutes an important precedent in Turkish enforcement law, protecting the rights of debtors while delineating the essential elements that creditors must be mindful of in their enforcement proceedings. The ruling underscores the necessity of examining the conditions of maturity and the judgment nature of mortgage notes in enforcement actions. Thus, this decision establishes a fundamental legal principle governing both enforcement processes and the relationships between creditors and debtors, particularly serving as a guiding reference for foreign banks and credit institutions engaging in debt collection in Turkey.

If you have any questions about the issues addressed in this article, please do not hesitate to contact us:
 
Gokhan Bozkurt
Email: gbozkurt@bozkurt-bozkurt.com
Phone: +1 212 209 7158
 
Mustafa Bozkurt
Email: mbozkurt@bozkurt-bozkurt.com
Phone: +90 212 214 7040
 
 
[ENDNOTES]

[1] 07/04/2023, 2023/1913 – 2023/4541

[2] 12/28/2022, 2022/2290 – 2022/2548