Common Fallacy on the Guarantee Function of Mortgage: An Empirical Approach

İpoteğin Teminat İşlevine Dair Yaygın Yanılgı: Bir Ampirik Yaklaşım

Erman BENLİ

There is a common fallacy in the property law coursebooks that mortgage has constant function of guarantee in favor of creditor. However, the guarantee function of mortgage is not constant. It changes from country to country and even from time to time, because the guarantee function of mortgage is dependent on the performance of the foreclosure procedure of a particular country. This paper aims to analyze this link empirically for Turkey. Correlation analysis consists of two components. First is “Total Resolved Cases (TRC)” that presents the performance of foreclosure procedure through Execution Office. Second is “Number of Mortgaged/Hypothecated Transactions (NHT)” via Land Registry. Correlation analysis consists of 19 indicators between 2000-2018. It is shown that there is a positive correlation between the guarantee function of mortgage and the performance of foreclosure procedure betwen the years 2000-2018 in Turkey. This empirical finding proves that the guarantee function of the mortgage is not constant and that the invariability proposition in property law coursebooks constitutes a common fallacy.

Mortgage, Foreclosure, Lex Commissoria, Performance, Correlation.

Eşya Hukuku kitaplarında, ipoteğin alacaklı lehine değişmez bir güvence işlevine sahip olduğu yönünde yaygın bir yanılgı yer almaktadır. Hâlbuki ipoteğin güvence işlevi değişmez değildir. İpoteğin güvence işlevi, ülkeden ülkeye zamandan zamana değişebilir, çünkü ipoteğin güvence işlevi, belli bir ülkedeki ipoteğin paraya çevrilmesi prosedürünün performansına bağlıdır. Bu çalışma, Türkiye özelinde ipoteğin paraya çevrilmesi prosedürünün performansı ile ipoteğin alacaklıya sağladığı güvence işlevi arasındaki ilişkiyi ampirik olarak analiz etmektedir. Çalışmamızda, korelasyon analizi iki unsurdan oluşmaktadır. Birincisi, “Çözüme Bağlanmış Toplam Dosya Sayısı ()” olup, bu unsur icra dairelerinin ipoteğin paraya çevrilmesi performansını göstermektedir. İkincisi, Tapu Sicili’nde kayıt altına alınmış “İpotekli İşlem Sayısı ()”dır. Korelasyon analizi, 2000-2018 yıllarını kapsayan toplam 19 göstergeden oluşmaktadır. Korelasyon analizi sonucunda görülmüştür ki, Türkiye’de 2000-2018 yılları arasında ipoteğin güvence işlevi ile ipoteğin paraya çevrilmesi prosedürünün performansı arasında pozitif bir korelasyon bulunmaktadır. Bu ampirik bulgu, ipoteğin güvence işlevinin (Türkiye özelinde) değişmez olmadığını ve eşya hukuku kitaplarındaki değişmezlik önermesinin yaygın bir yanılgıyı teşkil ettiğini kanıtlamaktadır.

İpotek, Paraya Çevirme, Lex Commissoria, Performans, Korelasyon.

I. INTRODUCTION

The chapter of security rights¹ in all coursebooks on law of property unexceptionally starts with the following sentence: Mortgage (hypothec)² has a function of guarantee in favor of creditor. Legal doctrine implicitly assumes that guarantee function of mortgage is constant/invariable. However, it is not constant and it depends on the performance of foreclosure proceedings in a given country. So that the guarantee function of mortgage vary from one country to another and even from one time period to another in the same country. This paper hypothesizes that guarantee function of mortgage is dependent on the performance of foreclosure (Zwangsversteigerung) proceedings in a given country. Thus, we claim that there is a positive correlation between the number of mortgaged transactions and total resolved cases (performance of foreclosure proceedings) by the Execution Office in Turkey. On this account, we test the hypothesis via correlation method empirically.

The rest of the study is organized as follows. Section 2 introduces foreclosure proceedings of mortgages. Section 3 presents the results of correlation analysis and its interpretation. Finally, Section 4 concludes the paper.

II. FORECLOSURE OF MORTGAGES

Real securities (property security rights) are in the category of limited real rights and unlike personal securities they can be asserted against any third person.³ If debtor fails to discharge of his debt, creditor has right to realize real security through the Execution Office (Bailiff’s Office). There are two main types of real securities: 1. Securities on immovable property and 2. Securities on movable property.

Turkish Civil Code Nr. 4721 (hereinafter TCC) art. 850 regulates three types of securities on immovable property which are mortgage, mortgage certificate and land charge note. According to the principle of numerus clausus, it is impossible to add other types to that list. Although Turkish civil law is based on Swiss model since 1926, mortgage certificate and land charge note are not used in Turkish practice,⁴ but they are regulated in the TCC. The immovable pledge is a secondary right that depends on the actual claim. It means that if the actual claim is invalid or terminated in any way, immovable pledge becomes invalid or terminated as well.

The lapse of time shall not be interrupted after the immovable pledge is registered to Land Registry (TCC art. 864). On the other hand, the claim assured by movable pledge shall not interrupt lapse of time for this claim; nonethless, the creditor shall reserve his right to demand from the pledge according to Turkish Code of Obligations Nr. 6098 (hereinafter TCO) art. 159.

Securities on immovable property consists of three basic principles which are principle of determinacy, principle of publicity and principle of fixed ranks. Principle of determinacy has two dimensions which are determinacy of the claim to be secured by immovable property and determinacy of immovable property.⁵ According to determinacy of the claim, a certain amount must be registered in the Land Registry. If a certain amount of money is registered during the creation of the hypothec, it is called principal hypothec. On the other, if the amount of claim is not certain, parties decide the maximum amount in the immovable pledge contract as a legal basis of immovable pledge, it is called maximal hypothec (TCC art. 851/I). Determinacy of the immovable property is regulated by TCC art. 853. According to this rule, right of immovable pledge is only created on immovables registered in the Land Registry. Immovable property consists of land, independent and permenant rights, and independent parts of a building subject to flat ownership (TCC art. 704). Hypothec can also be created on the shares of co-owners of land (TCC art. 688/III, 857/I). Immovable property must be certain during the creation of immovable pledge. If it is desired to create an immovable pledge on a part of the immovable property, this part should be registered as a separate parcel. Otherwise, it cannot be the subject of immovable pledge (TCC art. 854). According to TCC art. 855, several immovables can be pledged for the same debt. When the properties belong to the same owner or to debtors who are jointly and severally liable, each property would be charged with the entire debt. In all other circumstances where several properties are given as security for the same debt, each property is charged with a specified part of the debt.⁶

According to the principle of publicity, pledge on immovable property is created via registration to Land Registry. Thus, all immovable pledges must be registered to Land Registry (TCC art. 856). Registration ensures the publicity of the right of pledge on immovables. For the creation of immovable pledge, its legal basis must be valid. Legal basis of immovable pledge is the prerequisite of registration which refers to a contract between creditor and mortgagor before registration. This contract must be made or concluded officially in order not to be null and void. In Turkey, this contract is drawn up by the officer of Land Registry according to art. 26 of the Land Register Act Nr. 2644.⁷ If immovable pledge contract is null and void, registration becomes improper. Furthermore, if a right of immovable pledge is arised from a particular law, pledge on immovable property is automatically created without a registration.

Unlike Roman law, if there is more than one pledge right on an immovable, the priority relationship is determined according to the system of fixed ranks.⁸ In the fixed ranks system, the immovable is divided into putative value segments independently of each other and they constitute the ranks. In each rank, the immovable pledge can be created limited to the amount allocated to the rank of that rank. In the fixed ranks system, when the right of pledge that has been created to a certain rank is eliminated, the right of pledge in the lower rank does not automatically move up to the vacant upper rank (TCC art. 871/I), but parties may agree to move up the vacant place. If this agreement is noted to the Land Registry, right to move up to vacant upper rank can be asserted against every new owner of the property and other creditors (TCC art. 871/III). On the other hand, owner of immovable property can create a new pledge to the vacated rank. The owner can classify his real estate in certain amounts without creating any pledge. The maximum amount of each rank is stated in the Land Registry. The owner of immovable property can create a pledge in one of these ranks by agreeing with the owner of the pledge. In addition to these, more than one pledge may be created but their total amount cannot exceed the maximum amount allocated to that rank. According to TCC art. 874/II, among the creditors in the same rank, the sales price falling in that rank is distributed in proportion to their claims.

Immovable pledge covers all integral parts and accessories of property (TCC art. 862/I). Thus, land, independent and permenant rights, and independent parts of a building subject to flat ownership (TCC art. 704) fall within the scope of immovable pledge. In addition to these, integral parts of the immovable are included in the scope of the pledge such as structures, plants etc. If these become movable, they are automatically excluded from the scope of the immovable pledge. Rental fees, running from the beginning of the foreclosure proceeding to the sale of the pledged property, also fall within the scope of the pledge on the leased real estate (TCC art. 863/I).

The assurance provided by the immovable pledge to the creditor includes; principal capital, expenses of foreclosure proceedings and default interest and matured three years interest until the date of bankruptcy or demanding the sale of property and interest starting from the last maturity (TCC art. 875/I). Interest rate must be registered to Land Registry in order to fall within the scope of assurance. On the other hand, for the maximal hypothec (Höchstbetragshypothek), maximum amount in the Land Registry comprises maximum limit of all claims of creditor.⁹

In the event of failure of payment by the debtor, creditor has a right to demand to sale the pledged property through the Execution Office (TCC art. 873/I) in accordance with the provisions of the Code on Execution and Bankruptcy (hereinafter CEB) Nr. 2004 art. 145-153. It should be noted that an agreement made between the parties granting creditor to take the ownership of immovable pledged property is null and void according to TCC art. 873/II. This is called Lex Commissoria Prohibition (Das Verbot der Verfallsklausel) comes from the Roman Law.¹⁰ Lex Commissoria Prohibition is also applied to movable pledge (TCC art. 949). However, an agreement providing that the creditor will take the ownership of the immovable pledge property is valid, if this agreement is made after the maturity of pledge debt. Furthermore, like in the realization of movable pledged property, creditor has power to realize immovable pledged property into money through private sale without Execution Office. However, it should be noted that creditor must repay the surplus to debtor in order not to be fall into the Lex Commissoria Prohibition. This perspective is consistent with German Bürgerliches Gesetzbuch (BGB) § 1147-1149.¹¹