Introduction
Credit security mechanisms play a central role in Turkish commercial and banking practice. Whether financing infrastructure projects, corporate acquisitions, real estate transactions, or trade operations, lenders rely on structured collateral packages to mitigate repayment risk.
Under Turkish law, security interests are divided into real securities (in rem rights) and personal securities (contractual guarantees). The most commonly used credit security mechanisms in Turkey include:
- Mortgage (İpotek)
- Pledge (Rehin)
- Suretyship (Kefalet)
Understanding the legal structure, formal requirements, and enforcement implications of these instruments is essential for both domestic and foreign investors operating in Turkey.
This article provides a comprehensive analysis of credit security mechanisms in Turkey, including establishment procedures, priority ranking, enforcement rights, and risk considerations.
1. Legal Framework
Credit security mechanisms in Turkey are primarily regulated under:
- Turkish Civil Code (Law No. 4721)
- Turkish Code of Obligations (Law No. 6098)
- Enforcement and Bankruptcy Law (Law No. 2004)
- Commercial Enterprise Pledge Law
- Movable Pledge in Commercial Transactions Law
Security rights must comply with strict formal and registration requirements.
PART I – MORTGAGE (İPOTEK)
2. Mortgage Under Turkish Law
A mortgage is a limited real right established over immovable property to secure a debt.
Key characteristics:
- Accessory to a valid debt
- Requires registration in the Land Registry
- Follows the property even if ownership changes
Mortgage is the most commonly used real estate security in Turkey.
3. Establishment of Mortgage
To create a valid mortgage:
- Parties must appear before Land Registry Office
- Mortgage must be registered officially
- Secured amount must be specified
Private agreements alone are insufficient.
Registration gives the mortgage real right effect.
4. Scope of Mortgage Security
Mortgage may secure:
- Principal amount
- Contractual interest
- Default interest
- Enforcement costs
Maximum secured amount must be recorded in registry.
5. Ranking System
Turkey uses a rank-based system.
Important principles:
- Earlier registered mortgages have priority
- Each mortgage occupies a “degree” (rank)
- Higher rank creditors are paid first
Priority structure is crucial in multi-lender financings.
6. Enforcement of Mortgage
If debtor defaults:
- Creditor initiates foreclosure through enforcement office
- Property is auctioned
- Sale proceeds distributed according to rank
Mortgage enforcement does not require prior court judgment in most cases.
PART II – PLEDGE (REHİN)
7. Pledge Over Movable Assets
A pledge is a security right over movable assets.
Traditional pledge required:
- Transfer of possession to creditor
However, modern legislation introduced non-possessory pledge mechanisms.
8. Commercial Enterprise Pledge
Used to secure:
- Entire business assets
- Machinery
- Equipment
- Intellectual property
Registered in:
- Movable Pledge Registry
Allows business to continue operating.
9. Share Pledge
Common in corporate financing.
Shares of:
- Joint stock companies
- Limited liability companies
May be pledged as security.
Requirements differ depending on company type.
For joint stock companies:
- Share certificates must be endorsed and delivered (if issued).
10. Bank Account and Receivable Pledge
Frequently used in project finance.
Includes:
- Pledge over bank accounts
- Assignment of receivables
- Cash flow security
Proper notification to debtor may be required.
11. Establishment Requirements
Modern pledge system under Movable Pledge Law requires:
- Written agreement
- Registration in electronic registry
Registration determines priority.
12. Enforcement of Pledge
Upon default:
- Creditor may request sale of pledged asset
- Or, in some cases, direct ownership transfer (subject to legal limits)
Enforcement is regulated under Enforcement and Bankruptcy Law.
PART III – SURETYSHIP (KEFALET)
13. Suretyship as Personal Security
Suretyship is a contractual guarantee where:
- A third party promises to pay debtor’s obligation if debtor defaults.
Unlike mortgage and pledge:
- Suretyship does not create real right.
- It is personal liability.
14. Strict Formal Requirements
Suretyship is heavily regulated.
Under Turkish Code of Obligations:
- Surety must handwrite maximum liability amount.
- Date must be handwritten.
- Spousal consent required if surety is married.
Failure to meet formalities renders agreement invalid.
15. Types of Suretyship
Ordinary Suretyship
Creditor must first pursue debtor.
Joint and Several Suretyship
Creditor may directly pursue surety.
Commercial practice frequently prefers joint and several suretyship.
16. Liability Scope
Surety’s liability includes:
- Principal debt
- Interest
- Costs
Limited by maximum amount stated.
17. Defenses of Surety
Surety may raise:
- Defenses available to debtor
- Formal invalidity arguments
- Limitation period
Suretyship is strictly interpreted by courts.
PART IV – COMPARATIVE ANALYSIS
18. Real vs Personal Security
| Feature | Mortgage | Pledge | Suretyship |
|---|---|---|---|
| Type | Real Right | Real Right | Personal Right |
| Registration Required | Yes | Yes | No registry |
| Priority Right | Yes | Yes | No |
| Follows Asset | Yes | Yes | No |
| Formal Requirements | Strict | Strict | Very Strict |
Real securities provide stronger protection than personal guarantees.
19. Combined Security Structures
In large transactions, lenders often combine:
- Mortgage
- Share pledge
- Bank account pledge
- Corporate surety
Layered security increases recovery probability.
20. Insolvency Considerations
In bankruptcy:
- Secured creditors have priority over unsecured creditors.
- Real security holders may enforce separately.
Proper registration determines priority status.
21. Risks for Foreign Lenders
Foreign lenders must consider:
- Registration formalities
- Enforcement timing
- Currency risk
- Debtor insolvency
- Court workload
Due diligence before accepting security is essential.
22. Public Policy and Limitations
Certain limitations apply:
- Prohibition of excessive interest
- Consumer protection rules
- Restrictions on family home mortgages
Spousal consent may be required for family residence mortgage.
23. Practical Drafting Considerations
Security documentation should include:
- Clear secured amount
- Default triggers
- Acceleration clauses
- Enforcement rights
- Cross-default provisions
Poor drafting may weaken enforceability.
Conclusion
Credit security mechanisms in Turkey provide a structured and legally robust framework for protecting lenders and investors. Mortgages and pledges create strong real rights enforceable against third parties, while suretyship offers additional personal security.
However, Turkish law imposes strict formal requirements and registration procedures. Failure to comply may render security invalid or unenforceable.
For domestic and international financing transactions, careful structuring of mortgage, pledge, and suretyship arrangements—combined with proper registration and documentation—is essential to ensure effective risk mitigation and legal certainty.
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