The housing financing system is poised to play a key role in providing affordable housing to families and to increase real estate development, construction and finance, secondary markets, and related sectors in Turkey's economy. Solving the current problems of housing and housing finance through a modernized financial and real property system will have many positive social and economic effects on the entire country, including an increase in home ownership, the promotion of economic development through planned urbanization, a decrease in unauthorized construction and a steady rise in the market value of real property as it becomes more widely available to the public.

The financial system

The problems in the current Turkish housing market are two-pronged and largely a result of the problems with Turkey's economy. First, large urban cities in Turkey have a high volume of unofficial and unauthorized housing. Due to high levels of unemployment, Turkey has been undergoing a large in-country migration as more people relocate from rural areas to urban areas in search of work. This has resulted in unofficial and unlicensed construction, unplanned urbanization and an unofficial economy. Approximately 40% of the housing stock in Turkey is unofficial and most of it is in need of rehabilitation.

Second, an ineffective and almost non-existent housing finance system not only keeps this unofficial market afloat, but also hinders the growth and development of a potentially booming Turkish real estate sector. Housing credits (the Turkish version of the mortgage), available through Turkish banks, make up only 3% of the housing finance market, while the rest of Turkish homebuyers either self-finance their homes or borrow from family and friends. This is due largely to the fact that housing credits are far from being affordable to the common wage earner, even where there are two or more income earners in a given family. Housing credits commonly have very short terms of up to only five or 10 years at most and incredibly high interest rates, which results in homebuyers being faced with extremely high, and in most instances unaffordable, monthly payments. In Turkey, only a small percentage of families with very high earning power can afford to purchase housing credits. Consequently, compared with other European and American countries, the volume of homes being sold on the market in Turkey is fairly low.

However, due to the recent stabilization of the Turkish economy (among other factors, including increased competition among banks) there is a new trend in the housing credits market: Turkish banks are beginning to offer longer terms and lower interest rates than in the past. Now, housing credits of 10 or more years are becoming increasingly common and interest rates are gradually dropping, although the housing market still remains quite unaffordable to the average potential homebuyer.

Against this backdrop, there are investors both in Turkey and abroad who are willing to provide funds to Turkish homebuyers with more favourable terms than current housing finance opportunities available in Turkey. Every year, all over the world, approximately $5 trillion-worth of funds are transferred to homebuyers over the capital markets. While countries with economic conditions similar to Turkey are able to utilize these international funds, the lack of a modern housing finance system prevents Turkey from taking advantage of these widely available funds and services. Turkey's current housing finance system stands as a barrier against uniting investors and homebuyers in a mutually beneficial relationship in the housing finance sector.

The housing system

The efficiency of the housing finance system depends on a variety of factors, including the macroeconomic stability of Turkey and adequate internal infrastructure. The new infrastructure requires the means to establish and transfer liens; a well functioning and independent appraisal profession; an effective and quick foreclosure procedure; and, capital market institutions and instruments available for securitization of mortgages. When these preconditions are met through the amendments to the various laws of Turkey, there may still be a need for public or private sector intervention in order to act as a catalyst and trigger the new system into operation. Thus, the security, effectiveness and efficiency of the housing finance infrastructure are intended to promote ease and profitability for both foreign and domestic investors alike.

The Law Amending The Laws Related To The Housing Finance System aims to cure these housing problems by establishing an efficient housing finance system. This goal requires a coordinated effort in several different areas of law. In order to provide the infrastructure needed to establish this effective housing finance system, the law needs to amend (i) Capital Markets Law 2499, (ii) Execution and Bankruptcy Law 2004, (iii) various tax laws, (iv) Consumer Protection Law 4077, (v) Financial Leasing Law 3226, and (vi) Mass Housing Law 2985.

The most important of these amendments will be discussed in detail below.

Capital markets law (CML)

The Law covers various amendments on CML 2499 dated July 30 1981 mainly related to newly structured corporations (such as housing and mortgage finance corporations), mortgage capital markets instruments (such as mortgage-backed bonds and asset-backed bonds), funds (such as housing finance and asset finance funds) and other material issues.

The Law regarding the housing finance system specifies two corporations: housing finance and mortgage finance corporations. According to the Law, these two corporations shall be defined in Articles 38/A and 39/A of the CML.

Housing finance corporations

As per the Law, the housing finance corporations shall be defined in Article 38/A of the CML.

According to Article 38/A of the CML, housing finance corporations are banks that provide loans directly to the consumer or engage in financial leasing for the purpose of housing finance and the leasing companies and the financing companies approved by the Banking Regulation and Supervision Agency (BRSA) to operate for the housing finance activities.

Housing finance is defined as the granting of loans to consumers for house purchasing purposes, leasing of the houses to the consumers through housing finance and granting of loans secured by the houses owned by the consumers.

The Capital Markets Board (CMB) is authorized to require that the valuation of houses only be performed by authorized independent real estate appraisers and appraisal companies. Appraisals are to be conducted in the lending or leasing stage for the loans and leasing receivables, and will become the basis and the collateral of the mortgage capital market instruments to be issued.

According to Article 20 of the Law, leasing and financing companies may not carry out housing finance activities for six months after the enactment of Article 38/A of this law.

Mortgage finance corporations

As per the Law, the mortgage finance corporations shall be defined in Article 39/A of the CML. These corporations are incorporated as joint stock companies approved by the CMB, for the purpose of taking over, transferring and managing the receivables arising from housing finance, providing financial resources by means of taking over receivables as the security. The mortgage finance corporations may run the risk-management activities for their operations.

The paid up capital of the mortgage finance companies shall not be less than the amount for the investment and development banks specified in the Banking Act 5411. The shareholders, the owner of the shares representing directly or indirectly 10% or more of the capital or voting rights and the owner of the shares has the privilege to determine the members of the board of directors, and are required to have the qualifications for the founders of the banks specified under this Banking Act.

With regard to providing finance by means of taking over receivables arising from housing finance, those receivables cannot be used for any other financial purposes, may not be pledged or provided as guarantee and may not be attached, subject to preliminary injunction or be included in the process of bankruptcy by third persons even for the public receivables. The CMB, provided that necessary approval is obtained from the Banking Regulation and Supervision Board (BRSB), may authorize a separate registry institution to keep records of the assets used as collateral.

The matters regarding the incorporation, the procedures and principles of the operation and the obligations of the mortgage finance company are determined by the CMB provided that the necessary approval of the BRSB is obtained. The mortgage finance companies are required to apply to the CMB in order to obtain the consent for the incorporation and operation. If a company, supervised and audited by the BRSA, applies to the CMB in order to obtain consent for the incorporation of a mortgage finance company of which such company shall be a shareholder, the consent of the BRSB is also required for the incorporation process.

Mortgage finance corporations are subject to the gradual liquidation process, conducted by the Investor Protection Fund, with the CMB determining the principles and applications.

Mortgage capital markets instruments

As per the Law, the mortgage capital markets instruments shall be defined in sub-paragraph (k) of Article 3 of the CML, as mortgage-backed bonds, mortgage backed securities, capital market instruments other than stocks, which are issued by mortgage finance corporations, and other capital market instruments collateralized by the receivables arising from housing finance.

Mortgage-backed bonds

As per the Law, mortgage backed bonds shall be defined in Article 13/A of the CML. Mortgage-backed bonds are the debt securities which are general obligations of the issuer and secured by assets in the cover pools. Mortgage-backed bonds can be issued by the banks and mortgage finance corporations.

Material specifications of the mortgage-backed bonds are as follows:

1. Issuers are obliged to follow the cover assets of the mortgage-backed bonds, apart from other assets, in a cover pool. The procedures for registration of assets shall be determined by the CMB provided that the consent of the BRSB is obtained. The CMB may oblige registration of the assets in the cover pool also in a third party registration agency.
2. The cover pool may consist of receivables secured by mortgages on authorized houses and other real properties, substitute assets and contracts protecting against the risks associated with these.
3. For housing finance receivables, no portion in excess of 75% of the value of the house securing the receivable, for those secured by mortgages on the other authorized real properties, and no portion in excess of 50% of the value of the real estate securing the receivable can be included in the calculation of cover value. In this respect, the CMB may require the appraisal to be done by appraisers or appraisal companies authorized with the law according to principles defined by the CMB. For housing finance receivables or receivables secured by mortgages on other authorized real estate properties to be included in the cover pool, all the payments due up to the date of inclusion must have been made by the debtor.
4. Substitute assets may consist of cash, domestic public debt instruments, securities issued under treasury guarantee, securities issued by governments or central banks of OECD member states and other similar securities found appropriate by the CMB.
5. Each of the receivables secured by mortgages on other authorized real estate properties and substitute assets may not be higher than 15% of the cover pool.
6. Issuers may enter into contracts in order to protect assets in the cover pool from interest rate, currency, credit and similar risks. The contracts made for the purpose of protecting assets in the cover pool from risks are also part of the cover pool.
7. At all times until redemption of the mortgage-backed bonds:
   a) The nominal value of the assets in the cover pool must equal or exceed the nominal value of the mortgage-backed bonds.
   b) The yield from the assets in the cover pool must equal or exceed the yield of the mortgage-backed bonds.
   c) The revenues from the assets in the cover pool must meet the amount and the payments to the mortgage-backed bond owners.
   d) The net present value of the assets in the cover pool must exceed the net present value of the mortgage-backed bonds by 2%.
   The principles regarding the above mentioned article shall be determined by the CMB.
8. With the consent of the cover monitor, the issuers may take out or replace an asset in the cover pool for good cause.
9. Issuers must appoint a cover monitor approved by the CMB. The qualifications of the cover monitor shall be determined by the CMB. The CMB may request the replacement of the cover monitor or may replace the cover monitor ex officio.
10. Until the mortgage-backed bonds are redeemed, the assets in the cover pool cannot be used for any other purposes than securing the mortgage-backed bonds, cannot be pledged, used as collateral, attached including the collection of the public receivables, subject to precautionary injunctions nor included into a bankruptcy process.
11. The contracts made for the purpose of protecting the assets in the cover pool from risks must have a clause that prohibits the unilateral termination of the contract in the event of bankruptcy of the issuer.
12. In case an issuer fails to meet its obligations under the mortgage-backed bonds on time, the management of the issuer is taken over by public authorities, the operation license of the issuer is cancelled or the issuer goes bankrupt. The income of the assets in the cover pool is used primarily to make payments to the mortgage-backed bond holders and counterparties of the contracts made for the purpose of protecting the assets in the cover pool from risks. In this case the CMB is authorized to decide on:
    a) The liquidation of the assets in the cover pool, early redemption of the mortgage-backed bonds, and appointment of a manager to manage relevant transactions; or the gradual liquidation of the assets in the cover pool, and appointment of an Investor Protection Fund to manage liquidation.
    b) The transfer of all assets in the cover pool and liabilities related to the mortgage-backed bonds to another qualified issuer.
    c) The appointment of a manager, who will manage the assets in the cover pool and make payments to the mortgage-backed bond holders with the income of the assets in the cover pool.
13. In case the issuer defaults on the payments of the mortgage-backed bonds and the assets in the cover pool are not enough to pay the receivables of the mortgage-backed bond holders, the latter have the same rights with the other creditors over the other assets of the issuer.

Limits stated in Article 13 of the CML shall not be applicable for the issuance of mortgage-backed bonds. Issue limits, issuing requirements, the contracts made for the purpose of protecting the assets in the cover pool from risks and the procedure for registration of these securities with the CMB shall be determined by the CMB. Apart from the issues mentioned above, the CMB is authorized to make regulations in any issue related to the mortgage-backed bonds if deemed necessary.

Asset-backed bonds

As per the Law, the mortgage finance corporations shall be defined in Article 13/B of the CML. Asset-backed bonds are debt securities which are general obligations of the issuer and secured by receivables and fixed assets. Eligible issuers, issue limits, issue requirements, types of assets that can be used as cover assets, limitations regarding types of cover assets, registration and valuation of cover assets and reporting standards regarding asset-backed bonds shall be determined by the CMB.

Material specifications of the asset-backed bonds are as follows:

1. The CMB may oblige the issuers to appoint a cover monitor. The cover monitor has to inspect the existence and quality of the cover assets, establishment of the cover pools, and registration of the assets in the cover pools, and has to report to the issuer and the CMB.
2. The cover monitor is entitled to demand any kind of information from the issuer, registration agency and the title offices, to inspect relevant records and to get information from the employees. The issuer, registration agency and the title offices are required to provide the information and documents requested by the cover monitor. If the cover monitor is blocked from reaching the information or documents he requested, he is obliged to inform the CMB immediately.
3. Until the asset-backed bonds are redeemed, the assets in the cover pool cannot be used for any purposes other than securing the asset-backed bonds, cannot be pledged, used as collateral, attached including the collection of the public receivables, subject to precautionary measure decisions of courts nor included into the bankruptcy process.
4. The CMB may require the registration of assets in the cover pool with a third party registration agency provided that the consent of the BRSB is obtained.
5. The qualifications of the cover monitor shall be determined by the CMB. The CMB may request the replacement of the cover monitor or may replace the cover monitor ex officio.

The Law specifies two types of funds: housing finance fund and asset finance fund. According to the Law, these two types of funds shall be defined in Articles 38/B and 39/C of the CML.

Housing finance fund

As per the Law, the housing finance fund shall be defined in Article 38/B of the CML. The housing finance fund is a property established by means of the funds collected in return for mortgage backed securities issued on behalf of the mortgage backed securities' holders, in accordance with the principle of fiduciary ownership.

Material specifications of the housing finance fund are as follows:

1. The CMB determines founders, intermediaries of disbursement for the loans that are included in the fund portfolio and related transactions, the fund establishment limit, the assets to be taken into the fund portfolio (including contracts done for the purpose of hedging these assets against the decrease in value or increasing the credit valuation), the portfolio restrictions, and the conditions to issue and register the mortgage backed securities with the CMB. The founders may provide guarantee for the mortgage backed securities issued.
2. The fund is not a legal entity, although its assets are separate from its founder's assets. Until mortgage backed securities issued by the fund are redeemed, the assets of the fund cannot be used for purposes other than the ones stated in the Law, pledged or used as collateral, attached, subject to precautionary measure decisions of courts, nor included into the bankruptcy process, even for the purpose of the collection of government receivables.
3. The board of the fund shall represent, manage or supervise the management of the fund in such a manner as to protect the rights of the holders of the mortgage backed securities. The board of the fund is responsible for the protection and the custody of the fund assets. The conditions for the board of fund and the principles and methods related to the management of the fund assets are determined by the CMB.
4. The provisions of the Code of Obligations regarding the procuration shall apply to the relationship between the founder, the board of the fund and the mortgage backed securities' holders, so long as the Law and related regulations do not provide otherwise.
5. The CMB is granted the authority to require that the bookkeeping and the custody of the fund assets be held by another registration entity.
6. In the case of having the credits backed by collateral or the receivables arising from the financial leases for real estate in the fund portfolio, the matter of assignment of the credit and the receivables to the fund is registered with the column of statement of the relevant real property in the land registry. In the case of having the credits backed by collateral or the receivables arising from the financial leases for a real estate in the fund portfolio, the CMB may require that the collateral or the ownership (in the case of financial leases) be registered to the title register under the name of the founder on behalf of the fund.
7. The statute (trust indenture) of the fund is a contract between investors, the founder, and the board of fund. It consists of the conditions involving the management of the fund portfolio in accordance with the provisions of proxy agreement and custody of the fund portfolio in accordance with the principle of fiduciary ownership.
8. Founders are obliged to apply to the CMB with the status of the fund and necessary documents to be determined by the CMB, in order to establish the fund and to register the mortgage backed securities to be issued.
9. Different classes of mortgage backed securities for different classes of fund portfolios may be issued. The principles regarding the classes of mortgage backed securities and the rights arising from a certain class of mortgage backed securities must be specified in the statute of the fund.
10. The CMB determines the principles and methods regarding the valuation standards for the fund assets, the principles of the operation and the management of the fund, the merger, the close up and the liquidation of the fund, the scope of the portfolio management and the custody contracts, the conversion of the fund, and its registration and announcement.
11. In the case of the issuer or the fund failing to repay, the CMB may require that the fund be managed and represented by the Investor Protection Fund, or another board of fund, designated by the CMB. In this case, the founder keeps the liability to repay, in full and in due time, the portion of the securities issued which cannot be paid by the fund portfolio, provided that the founder has procured a guarantee. The board of the fund is authorized to pay to the designated board of the fund and Investor Protection Fund, from the fund assets in consideration of their services within the scope of this article and is also authorized to determine the procedures and principles regarding the calculation of the payment.
12. The CMB is granted the authority to take the necessary actions in the case of a bankruptcy or liquidation of the founder of the fund, or bankruptcy of the members of the board of fund.

Asset finance fund

As per the Law, the asset finance fund shall be defined in Article 38/C of the CML. The asset finance fund is a property established by means of the funds collected in return for the asset backed securities issued on behalf of the asset backed securities' holders, in accordance with the principle of fiduciary ownership. The assets to be held by the fund portfolio are determined by the CMB.

All the provisions of the article 1.3.1 other than the first paragraph are also applicable for the asset finance fund.

Other material amendments

According to the Article 13 of the Law, Article 39 of the Law 2499 has been amended as follows:

"Other capital market institutions are institutions whose establishment and principles of operation are determined by the CMB, including institutions which are engaged in clearing and settlement functions, rating of the capital market instruments, institutions which are engaged in the supervision of issuers and capital market institutions, companies which carry out capital market activities such as investment consulting and portfolio management, assets management companies, mortgage finance corporations, housing finance funds, asset finance funds, venture capital mutual funds, venture capital investment companies, future transaction intermediary institutions, real estate appraisal companies to operate in capital markets and portfolio custody companies."

According to Article 20 of the Law, the following Temporary Articles have been added to the Law 2499

Temporary Article 10 – The Statutes of the Occupational Association of Real Estate Appraisal Specialists of Turkey shall be put into force within a maximum of two years from the date that this Law goes into effect. Those who have a license for real estate appraisal are obliged to apply to the CMB for membership in the Occupational Association of Real Estate Appraisal Specialists of Turkey within this period.

These membership applications shall be concluded by the CMB. The CMB shall call the Association members to their first general assembly meeting within one month after the Statutes go into force. The costs related to the first meeting will be assumed by the CMB until the organs of the Association are formed.

Temporary Article 11 – The consumers who are a party to the loan and financial leasing agreements drawn up in line with the housing finance, before this Article comes into effect, may apply to the Housing Finance Corporation, which is a party to the agreement within three months as of the effective date of this Article. They may request an evaluation of the subject-transaction of this agreement outside of the scope of the housing finance. For the consumers who did not apply within due time and whose agreements have been drawn up before the Article comes into effect, such agreements shall be evaluated within the scope of paragraph one of Article 38/A of the Law 2499. Regarding the agreements which have been executed according to the Law 4077 before the Article comes into effect, in the event that the debt has been paid before its maturity, the provisions set forth in paragraph four of Article 10 of the Law 4077 shall be applied.

Temporary Article 12 – Financial leasing companies and finance companies shall not enter into any transaction regarding housing finance within four months as of the effective date of the Article 38/A of the Law 2499.

Execution and Bankruptcy Law

The intention behind the amendments in the Execution and Bankruptcy Law (Law 2004, published in the Official Gazette dated June 19 1932) is to reduce the foreclosure periods which can last for up to two to three years in the current Turkish foreclosure system, in order that the investors will show interest to the mortgage capital market instruments and will not be more cautious and hinder the development of the market. Such amendments are summarised below;

Foreclosure of the mortgage process

Under general principles of the Turkish Execution and Bankruptcy Law, the receivables which are secured by a pledge may be collected only by way of foreclosure of the pledge, and the creditor cannot commence attachment or bankruptcy procedures against the debtors. Only in the case of an insufficiency of the pledge amount, is proceeding through bankruptcy or attachment possible. By the Law, the creditors shall be granted with the option right to choose either the attachment or foreclosure of the pledge against the debtors for the collection of the receivables arising out of the housing finance, and for the collection of the receivables secured by a pledge of the Mass Housing Administration (MHA).

Appraisal of the properties

The Law states that if the foreclosure of the receivables arises out of the housing finance and the collection of the receivables is secured by a pledge of the MHA, the appraisal of the real property subject to the foreclosure shall be performed by the individuals or appraisal firms authorized and licensed by the CMB. By this provision, the Law aims to make sure that valuations of properties are performed by professional and qualified appraisers who meet the certain criteria of the CML, thus improving the quality of the service and minimizing the number of objections to those valuations.

Expert investigation

The Law states that in a case where a judge determines that an expert investigation should be made in relation to the property, subject to the foreclosure of the receivables arising out of the housing finance and in relation to the collection of the receivables secured by a pledge of the MHA, such an investigation shall be made by individuals or appraisal firms who are authorized and licensed by the CMB.

Three-year transition period

The Law envisages that following the three years starting from the enactment of sub-paragraph three of Article 128 and sub-paragraph two of Article 128/a of the Law 2004, the appraisal and expert examination in the foreclosure of the receivables arising from housing finance and in relation to the collection of the receivables secured by a pledge of the MHA may be conducted by other appraisers and experts in addition to qualified appraisers under the CMB. At the end of three years, only the appraisers or experts who are qualified under the CMB may make relevant appraisals and examinations.

The Law foresees that a three-year transition period should suffice for the development, harmonization, organization and profession standards of the qualified and licensed appraisers and authorized appraisal firms. Therefore, in this three-year transition period other experts and appraisers may use the system in addition to the licensed ones.

Penalty amount in the cancellation of an auction

The Law states that in the case of a property subject to the foreclosure of the receivables, arising out of the housing finance and the collection of the receivables secured by a pledge of the MHA, and to be sold to a bidder in a legal auction, the creditor or the debtor shall have the right to claim for the cancellation of such an auction. However, if the court decides not to accept the claim, then this party will be required to pay 20% of the auction amount as a monetary penalty where the amount is regulated as 10% of the auction amount in other receivables. Thus the Law aims to prevent the misuse of such cancellation rights in legal auctions by increasing the fine rate applied.

Collateral amount for the appeal of the foreclosure suspension

Under the general principles of the Execution and Bankruptcy Law, the court may decide to suspend execution procedures against the debtors under certain circumstances. In such cases the debtors or relevant parties have the right to appeal the relevant decision of the court by depositing 15% of the debt amount subject to the procedure. Under the Law, this amount will be increased to up to 30% of the receivables for the foreclosure proceedings in relation to housing finance and for the collection of the receivables secured by a pledge of the MHA. As a result of such an increase, the Law aims to prevent the misuse of appeal rights.

Amendments to various tax laws

Certain tax considerations and amendments provided by the Law are summarised below:

Income tax amendments

According to Article 28 of the Law, the income generated from mortgage capital market instruments (except income generated from mortgage backed securities issued by mortgage finance corporations and housing finance corporations) issued by mortgage finance corporations and housing finance corporations will be subject to withholding tax at a rate determined according to Article 94 of the Income Tax Law. Article 94 of the Income Tax Law states that the Council of Ministers is entitled to determine this rate.

Exemptions for banking and insurance taxes

According to the Law, the following are exempt from banking and insurance tax: (a) the monies gained by banks, insurance companies, pension companies and mortgage finance corporations as a result of the disposal of their company stocks above nominal values during their establishment and capital increases; (b) the monies gained from all transactions (including the transactions in foreign currencies) within the scope of housing finance carried out by mortgage finance corporations, housing finance corporations and housing finance funds; and (c) the monies gained from insurance agreement and policies within the scope of housing finance.

Exemptions for certain charges

According to the Law, the following are exempt from tax: (a) all the mortgage transactions carried out within the scope of housing finance by mortgage finance corporations and housing finance corporations; and (b) the transfer of houses which are leased via a financial lease within the scope of housing finance to the lessor.

In addition, according to the Law, charges at the rate of 0.54% of the amount that is the subject of the dispute shall be taken when the cancellation of an auction in the foreclosure of the receivables arising from housing finance is refused. The rate may be reduced to 0.10% by the Council of Ministers.

According to the Article 33 of the Law, a 50% charter, certificate and diploma duty charged on the fees applied by Istanbul Stock Exchange for transactions and Capital Markets Board registration has been cancelled.

Stamp duty exemptions

According to the Law, papers issued in relation to: (i) all housing finance transactions including the issuance of mortgaged capital markets instruments, asset backed securities by housing finance corporations; and (ii) all housing finance transactions including the issuance of mortgaged capital markets instruments, asset backed securities by mortgage finance corporations and housing finance funds including the establishment of the same shall be exempt from stamp duty taxes.

Vat exemptions

According to the Article 35 of the Law, the delivery of the residences which have been provided as a security or mortgaged for housing finance to mortgage finance corporations, housing finance funds, mass housing administration and third parties, or delivery of the residence acquired in such respect by the same (except third parties) is exempted from VAT.

Mortgage housing finance system

Consumer Protection Law

The Law brings new amendments and developments in relation to housing finance in the Consumer Protection Law 4077. The most significant amendments on the Consumer Protection Law are summarized below:

Joint Liability

According to the Law, the lender granting loans in accordance with sub-paragraph five of Article 10 and sub-paragraph nine of Article 10/B of the Law 4077 shall be jointly liable to the consumers together with the producer, manufacturer, seller, dealer, agent, and supplier under the following circumstances;

The lender granting the loan in accordance with sub-paragraph five of Article 10 and sub-paragraph nine of Article 10/B of the Law 4077 shall be jointly liable with the consumer and manufacturer, producer, seller, dealer, agent, and importer for the defective good and the alternative rights of the consumer, up to the credit amount and for one year following the delivery of the defective good. In the event that the loan is assigned by the housing finance corporation to another corporation, the joint liability of the housing finance corporation shall remain and the assignee shall have no responsibilities within the relevant provision of the Law 4077.

The lender granting the loan in accordance with sub-paragraph five of Article 10 and sub-paragraph nine of Article 10/B of the Law 4077 shall be jointly liable to the consumer with the seller, supplier, dealer, agent, manufacturer-producer, and importer up to the credit amount in the event that delivery of the house announced or undertaken has not been affected at all, in time or duly. In the event that the loan is assigned by the housing finance corporation to another corporation, the joint liability of the housing finance shall remain and the assignee shall have no responsibilities within the relevant provision of the Law 4077.

Standards of agreements and documents

The Law states the standards and the principles in relation to the execution of the housing finance agreements and documents. The most significant standards are summarised below;

1. Before entering into related loan or financial lease agreements with the consumers, housing finance corporations are obliged to provide the consumers with general information regarding the loans or leasing transactions and a pre-contractual information sheet, which explains the conditions of such agreements. The standards of the pre-contractual information sheet will be determined by the Ministry of Industry and Trade provided that the relevant authorities are conferred with.
2. When related agreements are executed within the same day that the pre-contractual information sheet is provided to the consumer, such agreements are invalid.
3. The consumer shall have a right not to accept offers for loans or leases upon review of the pre-contractual information sheet under housing finance.
4. The agreements will need to be in written form and a copy shall be submitted to the consumer. The agreements are required to contain the minimum conditions stated in the Law.
5. The conditions of the agreements may not be amended against the benefit of the consumers during the term of the agreements.
6. In case the consumer is in default for the payments, housing finance corporations shall be required to serve the consumer a notice with return mail within five working days starting from the default date.
7. If the borrower is in default, housing finance corporation may choose to claim the remaining credit amount at once on the condition that the consumer defaults on at least two consecutive payments. It should allow the consumer at least a month's notice for the payment.
8. The consumer shall have the right to prepay the total sum owed as well as to pay in one or more installments before its maturity. In either case, the housing finance corporation is obliged to make necessary deductions in interest and fees corresponding to the sum repaid. The Council of Ministers shall determine the principles and guidelines for determining the deduction in interest and fees..
9. If the interest rate is fixed in the agreement, and one or more payments made before maturity, the creditor may demand a prepayment fee from the consumer. The prepayment fee cannot exceed 2% of the prepaid sum, calculated by making the necessary deductions of interest and fees. A prepayment fee cannot be demanded from the consumer if the interest rate is variable.
10. Housing finance corporations are obliged to put the housing immediately up for sale in the event that the financial leasing agreement is terminated due to consumers default in payment.
11. In the event of a personal guarantee, the housing finance corporation may not claim payment from the guarantor before applying to the consumer and other securities.
12. Payments of the loan granted for housing finance may not be bound to securities. If a security is obtained from the consumer, the consumer has the right to demand it back from the housing finance corporation.
13. Interest rates for housing finance loans may be determined as in the system of fixed, floating or as in both systems for the same loan.

Financial Leasing Law

According to Article 26 of the Law, the following paragraphs are added to the Article 15 of Financial Leasing Law 3226 dated June 10 1985:

In transactions of financial leasing, which finances the consumers' housing activities and investments, the lessee may transfer its capacity as a lessee and/or its rights and/or liabilities arising out of the agreement; provided that written consent of the lessor is obtained. Change of the lessee made in the financial leasing agreement due to such a transfer is registered and annotated within the frame of Article 8 of Law 3226.

In case of financial leasing transactions carried out within the frame of the housing finance, the lessee may transfer possession of the property, subject matter of the financial leasing; provided that it notifies the lessor; and in case of other financial leasing transactions, it may transfer the same; provided that a relevant provision is included in the agreement.

Mass Housing Law

According to Article 27 of the Law, the following article is added to the Mass Housing Law No. 2985 dated March 2, 1984:

Supplement Article 10. The mortgaged and unmortgaged receivables of the Mass Housing Administration arising out of the sale of the houses can be acquired and transferred by mortgage finance corporations.