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Constitutional Court issues significant decision on violation of right to property

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Banking & Finance
Real Estate
Real Estate

Recent development

The Constitutional Court’s decision No. 2018/25663 regarding violation of the right to property was published in the Official Gazette on 20 December 2021. The Constitutional Court ruled that not releasing the mortgage established in favor of the bank as a security for a third party’s debt, even though the debt was discharged, violates the right to property.

Background of the case in question

In the case subject to the decision, a mortgage was established on the applicant’s real estate in favor of the bank as a security for the third party’s housing loan. In the mortgage deed, it is stated that the mortgage secures all kinds of existing and future obligations owed to the bank.

Although the housing loan debtor fully discharged the housing loan debt, the bank did not release the mortgage on the grounds that the debtor had other debts owed to the bank arising from other transactions.

The Civil Court of First Instance decided that the mortgage must be released, stating that the debtor’s other debts were not related to the loan agreement that was secured by the mortgage. However, this decision was first overturned in the appeal and then upheld by the appeal court. The applicant then made an individual application to the Constitutional Court, claiming that the power of disposition on the immovable and accordingly the right to property, were restricted.

What does the decision say?

The Constitutional Court ruled that the fact that the mortgage deed states that the mortgage secured the housing loan obligations whereas it also sets forth that it also secures the debts of the debtor arising from the transactions the debtor entered into with the bank causes a contradiction in terms of the scope of the mortgage and what obligations it secures.

The Constitutional Court emphasized that since the contradiction in the mortgage deed did not make it clear whether there is a harmony between the will of the parties regarding the scope of the mortgage, the security was extended to a degree that could not be reasonably foreseen by the applicant and the applicant was exposed to a disproportionate burden. Therefore, the Constitutional Court decided that the applicant’s right to property had been violated.

Conclusion

The Constitutional Court provided guidance as to the scope and limits of the right to property and emphasized the importance of identifying the secured obligations when taking security.