In enforcement proceedings, attachment denotes the provisional seizure of the debtor’s assets; that stage does not of itself secure collection of the claim. The true objective is the offering of the attached property for sale and the satisfaction of the creditor out of the proceeds obtained. Put another way, what the creditor is directed towards is not the property itself but the price arising from its sale. The process is conducted under the supervision of the enforcement office and, to a large extent, by way of public auction in electronic form.
In this note we address in detail the procedures by which attached property is sold, the rules to which the sale is subject and the manner in which the auction operates. We provide practically oriented information on the differences between sales of movables and of immovables, the steps that must be completed before the sale, the procedure for publication, the conditions of participation in the auction and the rights arising after the sale.
The Principle of Realisation and the Legal Basis of Sale
One of the load-bearing principles of enforcement law is the "principle of realisation". According to that principle, a monetary creditor is satisfied not directly out of the debtor’s assets but out of the price to be obtained from the sale of those assets. Attached property is therefore not transferred to the creditor in kind; it is converted into cash by public auction and the creditor’s claim is met out of that price.
The principle in question expresses not merely the collection of a single claim but a wide-ranging legal and economic balance that has regard to a fair distribution among creditors and to the valuation of the property at its market worth. By virtue of this approach an environment of competition arises through the public auction and the true market value of the property emerges; the disposal of assets below their value is thereby prevented. The creditor’s prospect of collection is thus strengthened while the loss to be suffered by the debtor is also confined.
The Request for Sale and the Applicable Time Limits
The completion of the attachment is not sufficient for the collection of the debt. The claim is reached only through the realisation of the property. For attached property to be sold, a request for sale must therefore be addressed to the enforcement office. For the general framework of attachment, see the note entitled What Is Attachment? The Attachment Process and Its Legal Consequences.
Who May Make the Request for Sale?
In the past the power to request a sale was conferred upon the creditor alone. Following the amendment made to the Enforcement and Bankruptcy Act No. 2004 by Act No. 7343, the debtor too has become able to request the sale of their attached property.
This provision has removed the debtor from the position of a passive party and enabled them to acquire a more effective standing in the process of discharging the debt. The power introduced by Act No. 7343 shows that the debtor is not merely a person under an obligation but an active party capable of directing the process. By this route the debtor may:
- request the sale of property sufficient to meet the debt in full,
- thereby secure the lifting of the attachments upon their other assets, and
- regain freedom of disposal.
The amendment prevents the debtor from remaining under constant pressure during the enforcement process while, from the creditor’s standpoint, it also increases the likelihood that collection will be accelerated.
Time Limits
The time limits laid down in the Enforcement and Bankruptcy Act No. 2004 for a request for sale are the same for movables and for immovables:
- The rule: the creditor or the debtor must make a request for sale within one year of the date on which the attachment was actually applied. The period begins to run not from the day on which the attachment decision was given but from the date on which the attachment was actually carried out.
- The exception: in respect of movables that are liable to perish, that require expenditure to preserve or that lose value rapidly, the enforcement director may order the sale of their own motion, without any separate request for sale being required. This facility is directed at preventing the property from losing value or unnecessary expense from arising.
What Happens if Sale Is Not Requested Within the Time Limit?
If the request for sale is not advanced within the time limit, the attachment lapses automatically. The seizure of the attached property then comes to an end and the creditor must initiate a fresh attachment.
An important distinction must be drawn here: the lapse of the attachment does not bring the proceedings to an end. The creditor may revive the process by requesting a fresh attachment through the existing file. The file is accordingly not closed; only the security afforded by the attachment falls away.
Valuation
Attached property can be offered for sale only once its market value has been determined, that is to say once a valuation has been carried out. Since this determination fixes the value at which the sale will open, valuation is one of the critical stages of the process.
Purpose and Basis
Under the Enforcement and Bankruptcy Act No. 2004, a valuation is carried out before the sale so that the property may be disposed of at a price close to its true value. This step is regulated in detail, particularly in respect of immovables.
Determination of Value for Immovables
Before an immovable can be offered for sale, its value must be determined by an impartial and independent court-appointed expert. The process follows these steps:
- the court-appointed expert inspects the immovable in person on site,
- the market value is determined by assessing together its location, its characteristics, its current manner of use and market conditions,
- all the factors bearing upon the value are explained with reasons in the report prepared.
The enforcement officer is under a duty to notify the court-appointed expert of the matters to be taken into account in the preparation of the report — such as the encumbrances recorded in the land registry, including mortgages, servitudes and attachment entries.
Service of the Report and the Right to Object
Once the valuation has been completed, the report prepared is served in accordance with the proper procedure upon both the creditor and the debtor. That service is important if the parties concerned are not to lose their rights.
Parties wishing to object to the report may apply to the enforcement court within the seven-day period beginning on the date of service. Where the report has not been served at all, or has been served contrary to the proper procedure, the right to object may be exercised from the date on which the report became known.
Objection to the Valuation
Since the valuation report fixes the value that will form the basis of the sale of the attached property, it directly concerns both the creditor and the debtor. Against the possibility that the report may be drawn up erroneously, incompletely or carelessly, the parties are afforded a right of objection.
Time Limit and Procedure
An objection to the report is advanced, under the Enforcement and Bankruptcy Act No. 2004, by way of a complaint to the enforcement court. The parties may exercise this right within 7 days of service of the report in accordance with the proper procedure.
Where the report:
- has not been served at all, or
- has been served contrary to the proper procedure,
- the period begins to run on the date on which the report actually became known.
To Whom Does the Right of Objection Belong?
The persons and bodies able to object to the valuation are as follows:
- The creditor: where they are concerned that their claim will not be met because the value determined is too low,
- The debtor: where they consider that their property has been valued below its true worth,
- The mortgagee and other interested third parties whose rights may be harmed.
Grounds of Objection
In practice, objections directed against the report generally rest upon the following grounds:
- the existence of serious doubts as to the expertise or the impartiality of the court-appointed expert,
- the value having been fixed far below market realities or at an excessive level,
- the legal position of the property (such as mortgages, attachments or annotations) not having been taken into account,
- the report being superficial or inadequate, or containing technical errors,
- service not having been effected in accordance with the proper procedure.
Examination by the Court
The objection is assessed on the file before the relevant enforcement court. If it considers it necessary, the court may appoint another court-appointed expert and require the property to be valued afresh.
- If the objection is upheld: the determination of value already made is annulled and a fresh report is obtained.
- If the objection is rejected: the report becomes final and the sale is continued on the basis of that value.
Note: the sale may not proceed until the determination of value has become final. Moreover, an error or omission in the determination of value may, once the sale has been completed, form a ground for a request for the annulment of the auction.
The Notice of Sale and Preparations Before the Auction
Preparation and Content of the Notice
Once the valuation has become final, the notice of sale is prepared by the enforcement office. The notice must contain the following information:
- the place where the property is situated,
- the type, character and significant features of the property offered for sale,
- the date and the range of hours during which the auction is to be held,
- the estimated value determined in accordance with the valuation,
- the fact that the public auction is to be conducted through the electronic sale portal (e-Satış).
The Electronic Sale Portal and Publication of the Notice
The official platform on which notices are published in sales conducted by way of enforcement is the e-Satış Portal operated within the Ministry of Justice. The system was established in order to ensure that the process is conducted transparently, accessibly and reliably.
Period of Publication
The day and the range of hours on which the auction is to take place must be announced at least 15 days before the starting date. The notice may be published through the following channels:
- the e-Satış Portal,
- where considered necessary, the Press Advertising Agency Notice Portal,
- and also the courthouse notice boards.
The notice remains published, and open to those concerned, until the auction has been completed. The aim is that the property should reach a wider audience, that competition should increase and that the property should be sold at its value.
Publication of the notice on the portal is not a matter left to the discretion of the enforcement office but a statutory requirement. The notice may in addition be placed on the boards at the courthouses and, where considered necessary, in local newspapers. This arrangement is aimed at strengthening competition and at ensuring that the sale is conducted transparently, by enabling the announcement to reach a wide section of the public.
The List of Encumbrances
In sales of immovables the enforcement officer draws up a list of encumbrances before the sale. The list sets out in detail the following matters affecting the immovable:
- mortgages,
- attachment annotations,
- servitudes,
- other entries of a restrictive character
The list prepared is served upon the debtor and upon the creditors who have caused an attachment to be placed. The parties are allowed a period of 3 days in which to object. The list becomes final upon the expiry of that period or upon the rejection of the objections.
The Auction Terms and Conditions
The enforcement office draws up the auction terms and conditions setting out the requirements for participation in the auction. The terms and conditions include the following matters:
- the documents required for participation,
- the rate of security (10%),
- the rules governing the submission of bids in electronic form,
- the period and method for payment of the sale price.
The auction terms and conditions determine the rights and obligations of the parties who are to take part in the auction and constitute the legal basis of the sale.
The Public Auction and the Sale
General Principles and Periods
Once the valuation has become final and the notice has been published, the auction process begins. The attached property is offered for sale by way of public auction (electronic auction). The process is conducted through the e-Satış Portal belonging to the Ministry of Justice, on the date and within the range of hours determined by the enforcement office.
a. The First Auction
- The date of the notice must fall at least 15 days before the day on which the auction is to begin.
- The auction remains accessible in electronic form for 7 days.
- Bids are submitted throughout that period and the person submitting the highest bid becomes entitled to the sale.
- For a bid to be regarded as legally valid, however, there are conditions it must satisfy (see below).
b. The Second Auction
- If no valid bid is received at the first auction and the sale does not take place, recourse is had to a second auction.
- The day of the second auction is fixed within one month at the latest of the conclusion of the first and is advertised afresh.
- The second auction likewise remains open on the e-Satış platform for a period of 7 days; the same rules apply.
Conditions for a Bid to Be Regarded as Valid
In enforcement sales conducted electronically, having submitted the highest bid does not by itself entitle a person to purchase the property. For the bid to be regarded as valid and the sale to be completed, the following three minimum conditions must be satisfied together:
- The fifty per cent rule: the price bid must be at the level of at least 50% of the estimated (appraised) value of the property.
- The preferential claim rule: the bid must exceed the total of the preferential (prior) claims registered against the property (claims secured by mortgage or pledge fall within this scope).
- The costs rule: the bid must be sufficient to meet the costs of sale and distribution; those costs are determined by the enforcement office and are stated in the notice.
The Obligation to Provide Security
Everyone wishing to take part in an enforcement auction held in electronic form must deposit a specified security. The security is intended to preserve the seriousness of the sale and to forestall bids made in bad faith.
Principles Governing the Security
- The security is fixed at 10% of the estimated (appraised) value of the property.
- That sum must be deposited into the bank account to be notified by the enforcement office.
- It is not possible to submit a bid through the e-Satış system without the security having been deposited.
Persons Exempt from the Security
The obligation to deposit a security is not required of the following persons:
- in sales carried out for the dissolution of joint ownership, the persons who own the share offered for sale,
- the creditor who has advanced the request for sale.
The ability of these persons to benefit from the exemption depends upon their making a written application to the enforcement office by the end of working hours on the business day preceding the close of the auction period and upon their documenting that their claim or their proportionate share corresponds to the security.
This arrangement both raises the reliability of participants and, by separating genuine purchasers from opportunists, renders the auction fair and secure.
How Does the Auction Operate in Electronic Form?
The sale of attached property is today conducted entirely in electronic form. Following the provision made by Act No. 7343, these operations are carried out through the Electronic Sale Portal integrated with the National Judiciary Informatics System (UYAP). The process operates step by step as follows:
The Sale Takes Place in Electronic Form
Attached property is put up for public auction not at a physical location but in electronic form by means of the official sale portal. The operations are conducted solely through this system connected to UYAP.
The Auction Period and Bids
The auction begins on the day and within the range of hours stated in the notice and lasts a total of 7 days. Users may submit bids through the system throughout that period.
There are rules that must be observed when submitting a bid:
- The difference between bids may not be less than five per thousand of the estimated value of the property offered for sale and may in no circumstances fall below TRY 1,000.
- The person submitting the highest bid may not withdraw that bid, and may not recover their security, unless a higher bid is received during the auction period.
Bids in the Final Minutes Extend the Period
If a fresh bid is submitted within the final 10 minutes of the auction, the system automatically extends the period by 3 minutes. If a further bid is received within that additional period, a further 3 minutes is added on each occasion. The total extension may not, however, exceed 1 hour. The Ministry of Justice may lengthen or shorten this period or abolish it altogether.
Confidentiality of Identity Information
Only the officials administering the system may see the identity information of those submitting bids; other users have no access to that information. The auction environment is thereby rendered both secure and transparent.
Finality and Annulment of the Auction
Finality
At the conclusion of the auction, the person submitting the highest bid acquires the capacity of purchaser. The sale does not, however, become final at that moment; its validity depends upon the expiry of the statutory seven-day waiting period running from the day of the sale. If no objection is made within that period, or if an objection made is rejected, the auction becomes final and ownership passes to the purchaser.
Requesting Annulment and the Procedure for Application
Those who consider that the sale was conducted unlawfully may seek the annulment of the auction by applying to the enforcement court by way of a complaint. The persons able to request annulment are as follows:
- the debtor,
- the creditor,
- those who took part in the auction and submitted a bid (they must deposit the ad valorem fee),
- the interested parties holding rights over the immovable (mortgage, usufruct and the like).
The applicant must prove that their own interest has been harmed by reason of the irregularity relied upon.
As a rule the application must be made within 7 days of the day on which the auction was held. In certain special cases (such as the rigging of the auction, the giving of misleading information or the defective service of the notice of sale) the period begins on the date on which that situation became known. In every case this period may not exceed one year from the publication of the notice of the auction.
Grounds of Annulment and the Procedure of Adjudication
A request for the annulment of the auction is examined by the enforcement court at a hearing and in accordance with the simplified procedure. The grounds of annulment most frequently advanced are as follows:
- the rigging of the auction,
- the defective service of the notice of sale,
- the purchaser having been misled as to the characteristics of the immovable,
- a long time having elapsed since the valuation,
- the auction having been held otherwise than at the place and time advertised.
If the complaint is rejected, the applicant may be ordered to pay damages amounting to 10% of the auction price. By contrast, that sanction is not applied where the application is rejected on procedural grounds such as the expiry of the time limit.
If the annulment of the auction is ordered, ownership comes to an end and the sale price is repaid to the purchaser together with the return accrued upon it. Even if the purchaser has used the immovable, they are not held liable to pay compensation for unjust occupation; they must, however, restore the benefits they derived from the property and may claim the value of the necessary and useful expenditure they incurred.
Completion of the Sale and Registration in the Land Registry
At the conclusion of a properly conducted public auction, the holder of the highest valid bid becomes entitled to the sale. For ownership to be transferred and the transaction completed, however, the following statutory stages must be carried through in full:
a. Finality of the Sale
Following the completion of the auction, a record of sale is drawn up by the enforcement office. The record sets out matters such as:
- the price bid,
- the person who won the auction,
- the security that has been deposited.
Once the record has been drawn up, the seven-day period relating to the annulment of the auction begins to run under Art. 134 of the Enforcement and Bankruptcy Act No. 2004. If no request for annulment is made within that period, the sale becomes final.
b. Payment of the Price
The purchaser is obliged to pay the whole of the price in a single instalment and in full within the period fixed by the enforcement office. Failing that:
- the sale becomes invalid,
- the security is forfeited, that is to say recorded as revenue of the Treasury,
- the property is put up for sale afresh.
This sanction is intended to preserve the reliability of the sale and to ensure seriousness in participation in the auction.
c. Registration (in the Case of Immovables)
In sales of immovables, once the auction has become final and the price has been paid, a "certificate of sale of immovable property" is drawn up by the enforcement office. That document is transmitted to the Land Registry Directorate for the transfer of ownership.
Once registration has been completed:
- ownership passes to the purchaser,
- subject to the exceptions, the attachments, mortgages and annotations affecting the immovable are struck off.
Payment and Distribution of the Sale Price
Once the auction has become final and the price has been deposited, the sum obtained is distributed in accordance with a particular order of priority. This stage assumes importance especially in files involving more than one creditor.
a. Items Met First
Out of the sale price the enforcement office first meets the following expenses:
- the costs of the proceedings and of the attachment
- the costs of the sale and the auction
b. Payment Made to the Creditors
Once the expenses have been deducted, the sum remaining is distributed among the creditors. Where there is more than one creditor in the file:
- a ranking schedule is drawn up by the enforcement office,
- payments are made according to the creditors’ legal priorities; a mortgagee, for example, holds a prior position.
c. Delivery of the Surplus to the Debtor
If a balance remains once the sale price has met all the debts and expenses, that sum is returned to the debtor. The provision in question is a statutory safeguard having regard to the debtor’s interests.
The Independent Legal Assessment
The sale stage is the part of enforcement proceedings that gives rise to the greatest loss of rights. While a failure to observe the one-year period for requesting a sale causes the attachment to lapse, a failure to object to the valuation within seven days may result in the property being disposed of far below its true value. The process must therefore be managed against a calendar from the moment the attachment record is drawn up.
There are also points requiring attention on the part of those taking part in the auction as purchasers. Bids submitted without the list of encumbrances having been examined may lead to the purchaser being confronted with continuing obligations affecting the immovable acquired. In practice we consider it useful that the following points be observed:
- monitoring the period for requesting a sale by reference to the date on which the attachment was actually applied
- checking the date of service of the valuation report and the technical data it contains
- examining the list of encumbrances together with the land registry record before taking part in the auction
- calculating in advance whether the bid satisfies the fifty per cent, preferential claim and costs criteria
- establishing concretely, in a request for the annulment of the auction, the harm to a personal interest, and assessing the risk of the ten per cent award of damages
- anticipating, in files involving more than one creditor, the possibility of an application against the ranking schedule
Independent Legal provides advisory services and conducts litigation in the conduct of the sale stage of enforcement proceedings, in objections to valuations and in proceedings for the annulment of auctions.