The possibility that a debt will not be paid when due leads the creditor to secure his claim in advance. Our legal order meets this need through the institution of the pledge, and it has regulated the mortgage as the most widespread form of the pledge of immovable property. A mortgage is a limited right in rem which, in the event that performance does not take place, allows the creditor to have the immovable encumbered by the pledge sold and to be satisfied out of the sale proceeds.
In practice, not every mortgage rests on a valid legal foundation. Where the registration has no underlying basis, or where the underlying transaction is not binding, there is an improper registration and the owner’s right of ownership has been unjustly restricted. In such a case the owner may resort to an action for the removal of the mortgage; if the court establishes that the registration is improper, the mortgage entered on the land register is cancelled.
The fact that the action concerns a right in rem produces an important consequence: the exercise of the claim is limited neither by a statute of limitations nor by a preclusive period. Below we examine in turn the nature of the action, the grounds of invalidity on which it may rest, its parties, the court with subject-matter jurisdiction and the venue, the burden of proof and the position as to time limits.
Since a mortgage is a right accessory to a claim, the invalidity of the claim leads directly to the invalidity of the mortgage. As a further consequence of the principle of accessoriness, when the claim is extinguished the mortgage likewise ceases to exist and must be struck from the register. In addition, the validity of a mortgage depends on the agreement having been concluded in official form; where that form has not been observed, both the agreement and the registration founded on it are void. The power to request registration belongs to the owner of the immovable; a registration made at the instance of a person without power of disposal is likewise invalid. In all of the situations listed there is an improper registration, and the mortgage entry on the land register may be cancelled by an action brought by the owner.
For the details of the institution of the mortgage, our note entitled “What Is a Mortgage?” may be consulted.
Extinction of the Mortgage
The governing principle in the law of mortgages is that the right is accessory to the claim. The claim may be extinguished by performance, and it may equally come to an end as a result of enforcement proceedings or by release; whatever the ground of its extinction, the mortgage accessory to it loses its existence at the same moment.
The extinction of the right does not, however, clear the land register of its own accord. The creditor must submit a request for cancellation, and upon that request the mortgage entry must be struck from the register.
The Legal Nature of the Action
A mortgage is a right that arises upon registration in the land register; its extinction therefore also requires a cancellation entry in the register. This is why the action is also known in practice as an action for the rectification of the land register. Indeed, by its nature the claim bears the characteristics of an action for the rectification of the land register.
The assertion advanced in the action is that the mortgage entered in the register lacks a legal basis, that is, that the registration was made improperly. The claimant asks the court to set aside that improper entry.
Since the essence of the claim is a finding that the registration is improper, the action is in the nature of a declaratory action. As a rule, once the court has made its finding, the person appearing in the register as the holder of the mortgage is expected to apply to the land registry directorate and request cancellation of the entry. If that person does not request cancellation, the owner is obliged to bring a separate action to compel cancellation, and the mortgage is struck only by the judgment given in that second action.
This is the route that should be followed in theory; the result, however, is that the owner must bring two actions one after the other. According to a view defended in the doctrine, it enables the objective to be reached more quickly if the judge, in the declaratory action, also gives judgment for cancellation. Because it is practical and swift, the courts mostly adopt this route in practice, ruling in a single judgment both that the mortgage is improper and that it be cancelled. The same result is thereby reached directly, without the need for two separate sets of proceedings.
Grounds of Invalidity on Which the Action May Rest
The removal of a right improperly entered in the register may be sought. Under Art. 1024 of the Turkish Civil Code No. 4721, a registered mortgage is improper if it rests on a legal transaction that is not binding or on no legal ground at all. The impropriety may exist from the moment of registration, but a right lawful at the time of its creation may equally become baseless later. An action for removal may be brought in both scenarios. The principal grounds of invalidity are as follows.
Invalidity of the Secured Claim
The natural consequence of the right being accessory to the claim is that the validity of the secured claim is treated as a precondition. If the claim is not valid, the mortgage likewise has no effect.
At this point even the principle of reliance on the land register does not come into play. Where the claim is valid but the mortgage is invalid, third parties acting in good faith may acquire the mortgage right by relying on the entry in the register. If, however, the mortgage was constituted from the outset for an invalid claim, good faith does not suffice to bring about the acquisition of that right.
Extinction of the Secured Claim
The disappearance of the claim, on whatever ground, also brings the mortgage to an end. How cancellation is to be effected in such a case is disputed in the doctrine. One view holds that, once the claim is extinguished, the entry in the land register is left without a basis of its own accord and that the owner may have it struck by a cancellation of declaratory character. According to the opposing view, the owner cannot have this done on his own; he must first ask the holder of the mortgage right to submit a request for cancellation and, if the creditor does not meet that request, bring an action to compel cancellation.
Where the claim has been extinguished by performance of the debt and the owner brings an action on that ground, the court is obliged to investigate whether the payment was in fact made. In some of its decisions the Court of Cassation states that this investigation should be conducted by way of a court-appointed expert examination. For a cancellation judgment to be given on this ground, the whole of the debt must have been paid. The debt here means that part of the claim which is secured by the mortgage. For example, if the amount of the claim is one hundred lira but only seventy lira of it is secured by the mortgage, removal of the mortgage may be ordered where the debtor pays the seventy lira.
How to proceed where part, rather than the whole, of the secured claim has been paid is not expressly regulated in the statute. Nor is there uniformity among the decisions of the Court of Cassation. While some decisions conclude that a partial payment is not sufficient to sustain a request for cancellation, others accept that the mortgage should be removed in proportion to the amount paid.
As regards bank mortgages, our note entitled “Removal of a Bank Mortgage Placed on a Residence” may be examined.
Invalidity of the Mortgage Agreement
Whether the agreement on which the mortgage rests may be regarded as valid depends on compliance with the official form. Under the Land Registry Act No. 2644, this agreement must be concluded before the land registry officer. For instance, a mortgage agreement drawn up before a notary does not satisfy the condition of validity, since it was not made before the land registry officer, and it is absolutely void.
A mortgage agreement may, like other agreements, become invalid on other grounds as well. One of these is the lack of capacity of discernment on the part of one of the parties. Defects of intention lead to the same result: a mortgage agreement concluded under the influence of mistake, fraud or duress may be avoided, and upon avoidance the agreement becomes invalid.
Absence of Power of Disposal
Since the creation of a mortgage gives rise to a right in rem over the immovable, the person constituting that right must have power of disposal over the immovable. If the person submitting the request for registration is neither the owner nor the owner’s authorised representative, the transaction should not be carried out. A registration effected notwithstanding this is improper in character.
Parties to the Action
The right to bring the action is conferred on the person who will suffer harm from the improper registration of the mortgage. Since the person whose right of ownership is restricted by the improper entry is the owner of the immovable, the capacity of claimant likewise belongs to the owner.
The respondent is the person appearing in the register as the holder of the mortgage right by virtue of the improper registration. The action may also be directed against a third party who has acquired the mortgage from that person. In the first scenario good faith has no effect whatever; whether the person in whose name the improper registration was made acted in good faith or in bad faith, he cannot acquire the mortgage right attached to that registration.
In the second scenario, that is, where the mortgage passes from the person in whose name the improper registration was made to a third party, good faith becomes decisive. If the third party knows, or ought to know, that the registration is improper, he will be regarded as acting in bad faith and cannot acquire the right. By contrast, a third party in good faith acquires the mortgage right even if the registration is improper; the principle that comes into play here is reliance on the land register. Under Art. 1023 of the Turkish Civil Code No. 4721, a person who acquires ownership or a limited right in rem by relying in good faith on an entry in the land register is protected in that reliance. As noted above, the sole exception is the invalidity of the claim to which the mortgage is accessory; if the claim is invalid, even a third party in good faith cannot acquire the right. The principle producing this result is the accessoriness of the mortgage to the claim.
Court with Subject-Matter Jurisdiction and Venue
Under Art. 2 of the Code of Civil Procedure No. 6100, general subject-matter jurisdiction over disputes concerning rights of a pecuniary nature belongs to the civil court of first instance. Since the claim examined here also concerns assets, the action must be heard by that court.
As to territorial jurisdiction, the Code of Civil Procedure No. 6100 lays down a rule of exclusive jurisdiction for certain types of action. Actions arising from rights in rem over immovable property fall within this scope, and the statute confers jurisdiction on the court of the place where the immovable is situated. Since a mortgage is a right relating to a right in rem over an immovable, the action is brought before the court of the place where the immovable encumbered by the pledge is situated.
Burden of Proof
The general rule applicable in our law is that the party who will derive a favourable result from an assertion must prove it. Since the party who stands to benefit from the assertion in an action for the removal of a mortgage is the claimant, the burden of proof likewise lies on the claimant. The claimant must demonstrate that the registration in the land register is improper.
The Position as to Time Limits
Since the action concerns a right in rem, it is subject to no statute of limitations or preclusive period. The owner may accordingly bring his claim before the court whenever he wishes.
Independent Legal Assessment
In claims for the removal of a mortgage, what determines success is most often the ground of invalidity on which the assertion is founded. An assertion that the claim never arose and an assertion that the claim was extinguished by performance require different programmes of proof; and in claims directed against third parties in good faith the outcome depends directly on how the principle of reliance on the land register is applied. For this reason it is decisive that the statement of claim be prepared so as to establish the chain of cause and effect correctly from the outset.
When drawing up a road map in a concrete dispute, the following headings come to the fore:
- Documenting the scope of the secured claim and the amount paid by means of an account statement
- Assessing in advance, in files involving partial payment, the divergence in the practice of the Court of Cassation
- Verifying whether the mortgage agreement satisfies the condition of official form
- Examining the power of disposal of the person requesting registration on the basis of the title deed and the instruments of representation
- Investigating whether the mortgage has been transferred to a third party and whether the transferee acted in good faith
- Ensuring that the claim is not confined to a declaration alone, and that the request for cancellation is expressly advanced in the statement of claim
Independent Legal provides advisory and litigation services throughout the whole of the process in disputes arising from the pledge of immovable property, from examination of the land register to the implementation of the cancellation judgment.