The property to be sold through auction as decided under the Execution and Bankruptcy Law must comply with the regulations. The subject of the auction may be seized property or may involve the dissolution of a partnership. In the event that the auction deviates from the procedure stipulated in the law and regulations, interested parties have the right to file a lawsuit based on grounds for the cancellation of the auction.
I. What is the Tender in Turkey?
An auction is a procedure carried out to convert property subject to seizure or dissolution of a partnership into cash. It is crucial for this procedure to comply with the procedural requirements set forth in the law for the debtor, creditor, concerned parties, or shareholders to prevent potential loss of rights. Otherwise, the parties may suffer legal consequences.
To initiate the sale of seized property, a sale request will be made to the enforcement office. For immovables related to the dissolution of a partnership, a court enforcement office may be requested from the conciliation law court for the execution of the court decision. According to Article 322 of the Civil Procedure Code, a judge appoints an official for the sale for distribution and dissolution of a partnership. The sale of both movable and immovable properties is conducted in accordance with the provisions of the Execution and Bankruptcy Law.
The procedural rules for converting into cash are generally regulated between Article 111/a and Article 143 in the Execution and Bankruptcy Law.
II. Summary of the Tender Procedure
The tender procedure can be summarized as follows:
1. Decision on the seizure of movable or immovable property or the dissolution of a partnership.
2. Submission of a sale request for seized property (Request for the execution of the court decision from the court enforcement office in the case of the dissolution of a partnership).
3. Deposit of an expense advance for the sale.
4. Collection of relevant information and documents by the official (e.g., title deed, zoning and survey status for the sale of real estate).
5. Appraisal of the value and notification to the concerned parties.
6. Examination of whether there is a complaint process regarding the appraisal.
7. Issuance of a sale decision.
8. Preparation and notification of the auction announcement and terms, as well as publication.
9. Acceptance of auction guarantees.
10. Conducting the auction.
11. Payment of the auction price.
12. Determination of whether there is a lawsuit for the cancellation of the auction.
13. Collection of stamp duty and Value Added Tax.
14. Transfer of ownership for registered properties through the relevant registry.
15. Payment of the collected sale proceeds to the concerned parties through a list.
III. Reasons for Annulment of Tender
Some of the processes outlined in the auction procedure, summarized above, can be legally expressed as the “Preparation for Auction” stage, “Auction” stage, and “Post-Auction Processes.” Actions or omissions in these stages by the official may be considered grounds for the cancellation of the auction. We will examine these reasons for cancellation in general terms.
1. Reasons for Annulment of the Tender Before the Preparation for Auction Stage:
a. Lack of Party or Execution Eligibility:
In execution law, party and execution eligibility are prerequisites for the execution procedure. Both the creditor and the debtor must have party and execution eligibility at every stage of the execution process. This is a matter of public order and must be examined at each stage of the execution. Therefore, circumstances such as death or mental illness in individuals, and issues like removal from the registry or dissolution in legal entities, may be considered grounds for the cancellation of the auction.
b. Sale of Unseizable Property:
The Execution and Bankruptcy Law, in Article 82, lists properties that can and cannot be seized. The sale of property that cannot be subject to seizure by converting it into cash would be unlawful.
c. Failure to Submit a Sale Request Within the Time Limit:
A sale request for movable and immovable properties must be submitted within one year from the date of seizure. Failure to submit the sale request within the specified time limit may lead to the cancellation of the auction.
Along with the sale request, the entire appraisal and conversion expenses must be paid in advance. For registered motor vehicles, storage expenses must also be paid in advance. In case of deficiency, an expense advance will be requested within fifteen days. Failure to cover the expenses or deficiencies within the specified period will render the sale request invalid and may be considered a reason for the cancellation of the auction.
d. Other Reasons:
According to Articles 146 and 149 of the Execution and Bankruptcy Law, a follow-up must be initiated against the debtor, along with the movable property subject to a pledge or the immovable property subject to a mortgage. This discrepancy is also a reason for indefinite complaint and may be considered a reason for the cancellation of the auction.
According to Article 45 of the Execution and Bankruptcy Law, if the debt is secured by a pledge, the creditor must first resort to the pledge. Therefore, execution proceedings initiated outside the conversion of the pledge into cash would be irregular. In case of a violation of the requirement to resort to the pledge first, the consequence could be the cancellation of the auction.
Discovering issues such as non-payment or non-service of the execution order before moving to the conversion/sale stage, or realizing that the auctioned property has not been seized, can result in the cancellation of the auction.
2. Reasons for Annulment of the Tender During the Auction Preparation Stage:
According to established precedent in the Supreme Court, reasons for the cancellation of the auction during the auction preparation stage must be raised through a complaint within a maximum of seven days. Therefore, the time when the involved party becomes aware of the reasons for the auction cancellation should be considered. Complaints regarding the auction that are not raised within this timeframe can only be made after the finalization of the auction advertisement and appraisal.
a. Auction Advertisement – Sale Advertisement:
According to the Execution and Bankruptcy Law, the sale is conducted through an open auction. The widespread distribution of the auction advertisement increases the likelihood of competitive bids. Therefore, the complete absence of advertisement itself can be a standalone reason for the cancellation of the auction.
The date and time range for the first and second auctions must be announced at least fifteen days before the starting date of the auction. The announcement is published until the end of the auction on the electronic sales portal and the Official Announcement Portal of the Press Advertisement Institution. Two auctions must be held within a period of no more than one month.
The base price:
* For auctions up to five hundred thousand Turkish Liras, the decision on whether to publish an advertisement in a newspaper or on an internet news site will be made by the execution office, taking into account the interests of the parties. (*As of 01/02/2024, this threshold is 720,000 TL.)
* For auctions with a value between five hundred thousand and two million Turkish Liras, the sale must be advertised in a local newspaper or on an internet news site with the right to publish in the location of the sale. (*As of 01/02/2024, this threshold is from 720,000 TL to 2,885,000 TL.)
* For auctions with a value of two million Turkish Liras or more, the sale must be advertised in a newspaper with the right to publish an official announcement that is distributed nationally or on an internet news site, and it should be available for sale in daily circulation exceeding fifty thousand copies at the time of the announcement request. (*As of 01/02/2024, this threshold is 2,885,000 TL and above.)
Advertisements published in newspapers or on internet news sites will also be published on the Press Advertisement Institution Portal.
The electronic publication of the sale advertisement is a mandatory provision of the law, and any practice contrary to this requirement could be a reason for the cancellation of the auction.
The advertisement must include information about the type, nature, characteristics, value, location, and photographs of the movable or immovable property.
For movable properties, the notification of the sale advertisement to the parties is not mandatory. However, if the execution office decides to notify the sale advertisement to the parties, this condition must be fulfilled.
For immovable properties, the notification of the sale advertisement is mandatory for the creditor, debtor, and other relevant parties registered in the title deed.
b. Auction Specifications and List of Obligations:
The execution office or sales officer prepares auction specifications for participants to acquire information about the property to be sold and other details. The records contained in the auction specifications are crucial for buyers. In particular:
– Incorrectly indicating a high rate of Value Added Tax in the specifications,
– Providing inaccurate information about the latest zoning status of the property,
– Incorrect measurement of the property,
– Incorrectly indicating the base price,
– Misrepresenting the security deposit or the deposit rate,
– Preparing separate specifications for the auction of multiple properties,
– Failure to prepare a list of obligations,
Can be considered reasons for the cancellation of the auction regarding auction specifications and the list of obligations.
c. Appraisal:
Appraisal is mandatory for immovable properties under all circumstances. The appraisal must be conducted by an expert witness. If the execution director or officers conduct the appraisal, it could be a reason for the cancellation of the auction.
The expert witness report on the appraisal must be notified to the debtor, creditor, and other relevant parties. However, even if the appraisal is not notified to the parties, the notification of the auction advertisement is sufficient.
Complaints can be made through the complaint procedure against the appraisal procedure. However, issues contrary to the appraisal report cannot be considered as reasons for the cancellation of the auction. On the other hand, reasons related to public order can always be raised.
The appraisal report is valid for two years. This is a matter of public order, and if an auction is conducted after the expiration of the two-year period, the auction could be canceled. The two-year period will be calculated from the date of the appraisal conducted during the exploration.
3. Reasons for the Cancellation of the Auction Due to Auction-related Issues:
In an electronic auction, the first auction must be held for seven days. If a new bid is submitted in the last ten minutes of the auction, the auction will be extended by ten more minutes. If, due to a systemic error, a bid cannot be submitted, the execution director or sales officer will decide to extend the auction by one day.
a. Security Deposit Requirement:
To participate in the auction and submit a bid, a security deposit must be paid. In cases where an exemption from the deposit is applicable, the security deposit requirement will not be imposed. The debtor cannot participate in the auction.
b. Allegations of Collusion in the Auction:
It is challenging to interfere with an auction or collusion in electronic sales since participants do not physically gather, and interference cannot occur. Determining who participated in the auction may be difficult for the involved parties.
The Supreme Court has accepted the allegation of collusion in electronic auctions in a case where the winning bidder submitted a significantly high bid but did not deposit the auction amount, and the second-highest bid was much lower than the first bid.
c. Incorrect Auction Conducted in the UYAP System:
Participants submitting bids through the UYAP Electronic Sales Portal Information System must be very careful. Errors in the process may lead to financial losses for the participants.
In a decision dated November 13, 2018, the 12th Civil Chamber of the Supreme Court (Case No: 2018/9263, Decision No: 2018/11321) ruled for the cancellation of the auction due to a substantial error made by a buyer who submitted a bid approximately ten times higher than the actual amount. A similar decision was made by the 12th Civil Chamber of the Supreme Court in a decision dated November 28, 2022 (Case No: 2022/9841, Decision No: 2022/12370).
d. Failure to Cover Half of the Base Price or Preferential Claims:
The offered bid in the auction must cover at least half of the base price or the total of preferential claims, whichever is higher, along with the expenses. Otherwise, it would be contrary to the provisions of Article 114, paragraph seven, and Article 115, paragraph one, of the Execution and Bankruptcy Law. This situation would necessitate the cancellation of the auction.
4. Substantial Mistake by the Buyer:
If the buyer in the auction makes a substantial mistake related to the property being auctioned, it serves as another reason for canceling the auction. This might occur if the information in the auction announcement or specifications does not reflect the reality.
Examples of such substantial mistakes include the specifications not matching the actual features of the auctioned property, incorrect measurements, or a higher Value Added Tax rate than specified in the auction and specifications. These instances can be considered grounds for canceling the auction.
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