Mortgage in Turkey

Deposit Guaranteed…

Mortgage Provides Security in Turkey

Text: Mr. S.T. Kroon-Özyurt

Anyone who buys real estate in Turkey or enters into another business transaction cannot avoid it. Sooner or later, money must be paid and a deposit will have to be made. But how does the buyer know whether they will ever see that money again? For those who want to prevent their investment from disappearing into thin air, there is a good solution. In Turkey, taking out a mortgage can provide an excellent guarantee.

When purchasing real estate or entering into another business transaction in Turkey, a deposit usually has to be paid. Anyone who wants to secure this investment would be wise to choose a bank guarantee or take out a mortgage (collateral). Taking out a mortgage in Turkey is relatively simple and easier than obtaining a bank guarantee. Banks do not always provide bank guarantees to their customers. For example, this may be refused if the customer is not considered creditworthy or if there is uncertainty about their financial situation.

For this reason, it is often easier for the seller or another business partner to provide a mortgage (collateral) as security for the deposit. This mortgage is a procedure not only used by banks. Private individuals can also secure their investment with this purchase procedure and oblige the other party to fulfill their obligations. The money is provided as a loan under agreed conditions and, in return for the (down) payment, the other party provides collateral in the form of a mortgage.

According to Turkish legislation, the person who makes the deposit becomes the mortgagee, who receives real estate as collateral from the mortgagor (up to the amount of the deposit paid). A mortgage procedure costs approximately 1.1 percent of the mortgage amount. In addition, there are a few hundred euros in so-called stamp tax, administration costs, and translation costs (for foreigners) at the land registry.

Public Sale

The mortgage applicant must submit written statements together with the other party to the land registry where the relevant real estate is registered. These statements must specify the contents of the mortgage. The land registry officer records these declarations in an official document. This mortgage document (ipotek senedi) is registered by the officer, and both parties receive a copy.

This document can be regarded as an agreement. For proper protection, the agreement should include the following: the content of the mortgage, the reason, the principal amount, agreed terms, possible interest, the type and ranking of the mortgage, etc. It is strongly recommended that the mortgage procedure be carried out by or with the assistance of a specialist. It is not mandatory to hire a Turkish lawyer, but it is certainly advisable.

If the agreement is not respected and the other party fails to fulfill their obligations on time, the relevant real estate may be sold publicly through the enforcement department of the court. From the proceeds of this sale, the paid money will be reimbursed.

However, the ownership of the real estate cannot be transferred directly to the mortgagee. From the proceeds of the public sale, the following will be paid: the principal amount paid, procedural costs of the public sale, statutory interest, possible contractual interest (three years of interest prior to the application date of the public sale and ongoing interest), insurance costs, and the costs incurred to maintain and protect the value of the real estate.

It should be taken into account that the public sale price is almost always lower than the market value of the real estate. Therefore, it is important to have the real estate properly appraised beforehand.

Transfer

A mortgage in Turkey is always established in Turkish Lira. This regulation is based on the Turkish legislation for the “Protection of the Turkish Lira.” If the recipient of the collateral is a natural person, it is not advisable to demand contractual interest from the party providing the collateral. The reason for this is that interest agreements made during the mortgage establishment must always be reported to the tax authorities. The tax authority may view such an interest agreement as a commercial banking activity, which is not permitted for private individuals.

The seller may still sell the land or property to a third party during the mortgage period, even if there is a mortgage on it. This does not change the guarantee situation. The new owner automatically takes over the mortgage obligations upon purchase. This means that if the mortgagor fails to meet their obligations, the new owner must accept the public sale.

This is also the reason why almost nobody purchases real estate that has a burden (mortgage) and/or limitation attached to it. The new owner may also choose to assume the debt of the previous owner under the same conditions as agreed in the mortgage agreement. In such a transfer of the property, the mortgagee will be notified by the land registry.

The mortgagee is not required to accept the transfer of the debt to another party and may file an objection. However, this must be done within one year; after that period, the transfer of the debt to the new party becomes final.

The conclusion? Doing business in Turkey can be excellent, but no one should rely solely on the ‘blue eyes’ of their business partner. Use common sense, seek professional assistance, and create security wherever possible to avoid disappointment later.

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