LEGAL OWNERSHIP CLAIM REGARDING SEIZED PROPERTY AND LAWSUIT
When a seizure (attachment) is carried out against a debtor, an asset believed to belong to the debtor may be seized. If either the debtor or a third-party claim that the asset actually belongs to the third party, it becomes necessary to determine the true owner of the property. The lawsuit filed for this purpose is called an action for ownership. This article examines ownership claims and lawsuits arising from attachment proceedings under Turkish law.
1. Ownership Claim Over Seized Property in General
If a third party claims that a seized asset belongs to them, the procedure of ownership claim in seizure (regulated under Articles 96 and following of the Enforcement and Bankruptcy Law) comes into play. When an item is being seized and a third-party claims ownership, this claim is recorded in the seizure report, but the item is still considered seized.
Sometimes, the seized asset truly belongs to another person. Other times, the debtor may act in bad faith and try to prevent the seizure by pretending that the asset belongs to someone else. The asset may be in the hands of the debtor or a third party. In either case, a similar yet distinct ownership claim process is followed.
The goal of the ownership claim process in seizure is not to definitively determine the legal ownership of the property, but rather to establish who has control over the asset and whether it can be seized in connection with the enforcement file.
As a rule, the first items to be seized are those in the possession of the debtor that are not disputed by others. These are considered undisputed assets. If these are insufficient to cover the debt, assets that are potentially jointly claimed (disputed) can be seized. If such assets are in the debtor’s possession, they may be confiscated, and the ownership claim process will follow.
If the disputed assets are in the control of a third party, seizure can still be attempted. However, if the third party does not consent to the confiscation, the asset cannot be physically taken and is left with the third party under their custody as a trustee.
Moreover, ownership claims do not necessarily have to be based on ownership rights. Pledge rights are also considered priority rights. If a pledged item is seized, the third-party pledgee can assert a claim. In such cases, the existence of the pledge will be examined during the lawsuit, and if valid, the right of pledge shall be considered superior to seizure.
The procedure for ownership claims varies depending on who holds the item at the time of seizure. Two scenarios arise: (1) the item is in the possession of the debtor or jointly with a third party; (2) the item is solely in the possession of a third party.
2. When the Property Is in the Possession of the Debtor or Jointly Held with a Third Party
During the seizure, either the debtor or a third party may claim that the item in the debtor’s possession does not actually belong to the debtor. The debtor may assert that the item is owned by or pledged to someone else, while a third-party may claim the item belongs to them. This may occur whether the item is solely with the debtor or jointly held with a third party making the ownership claim. In both cases, these assertions are recorded, and the item is deemed seized.
It is not required that the ownership claim be made during the seizure itself. The debtor or third party can assert the claim within 7 days from the date they become aware of the seizure. If no claim is made within this 7-day period, the seizure becomes final.
Once the claim is submitted, all parties involved in the enforcement file are notified. Upon receiving this notification, the creditor or the debtor must object to the ownership claim within 3 days. If no objection is made within this period, the seizure is lifted. If the claim involves a pledge rather than ownership, and no objection is raised, the seizure proceeds but is ranked after the pledge.
If an objection is made within the legal 3 days period, the enforcement officer refers the file to the Enforcement Court. The enforcement judge will then decide whether to suspend or allow the continuation of the enforcement proceedings. Although this decision is typically made based on the file, the judge may summon the parties if necessary.
In practice, judges generally decide to suspend the enforcement when there is an objection to the ownership claim. This suspension applies only to the disputed item—undisputed items can still be seized and sold.
To prevent abuse of the ownership claim process that could harm the creditor, the court may require a security deposit from the third-party making the claim. The amount and nature of this deposit are determined by the judge, based on the available evidence. If the deposit is not paid, or if the judge concludes that the claim was made in bad faith solely to delay proceedings, the enforcement continues. This decision is final and not subject to appeal.
After this initial phase, the third party who receives notification of the court’s decision to suspend or continue the enforcement must file the ownership lawsuit within 7 days at the same Enforcement Court. If this is not done within the deadline, the claim is considered abandoned, and the dispute over the item is resolved in favor of the enforcement process. The creditor may then proceed with the sale of the item.
Although the third party will lose their rights against the creditor, they may seek restitution against the debtor under unjust enrichment provisions, if the legal conditions are met.
If the item is seized while in the possession of the debtor or jointly with a third party, there is a presumption that the item belongs to the debtor. The third party must prove in the ownership lawsuit how they acquired the item, that they are the rightful owner or pledgee, and why the item was in the debtor’s possession.
If the item is sold before the ownership lawsuit concludes, the ownership claim will proceed over the sale proceeds rather than the item itself.
3. When the Property Is in the Sole Possession of a Third Party
If the seized item is in the possession of a third party and that person asserts an ownership claim, the item is deemed seized, but it will not be removed from the third party's possession without their consent. In this case, the third party will continue to hold the item as a trustee (custodian).
When an item is seized from the possession of a third party in this manner, the burden of proof lies with the creditor, who must establish that the item belongs to the debtor. The key difference from seizures where the item is with the debtor is this shift in the burden of proof.
Upon the third party's ownership claim, the enforcement office grants the creditor a 7-day period to file an ownership lawsuit. If the creditor does not initiate the lawsuit within this period, it is deemed that they have abandoned the seizure concerning that item, and the seizure is lifted.
Until the creditor proves through a lawsuit that the item belongs to the debtor, the item cannot be sold. Therefore, there is no need for a separate court order to suspend the enforcement proceedings in this scenario.
4. Which Court Has Jurisdiction Over Ownership Lawsuits?
Ownership claims raised during the enforcement process are to be heard by the Enforcement Civil Court. The court with territorial jurisdiction is the one in the district where the enforcement office handling the case is located. Therefore, the lawsuit must be filed at the Enforcement Civil Court that corresponds to the relevant enforcement office.
5. Who Are the Parties to the Ownership Lawsuit?
The parties involved in an ownership lawsuit vary depending on who was in possession of the seized item. If the item was seized from the debtor, the third party claiming ownership must file the lawsuit. In this case, the plaintiff is the third party, and the defendant is the creditor who had the item seized. The burden of proof lies with the third party.
If the item was seized from the third party, and they claim it belongs to them, it is the creditor who must file the lawsuit to prove that the item actually belongs to the debtor. Here, the plaintiff is the creditor, and the defendant is the third party claiming ownership.
6. Time Limits in the Ownership Claim Process
To initiate the ownership claim process, the claim must first be asserted by either the debtor or a third party within 7 days from the date they learn of the seizure. If this period expires without a claim being made, the seizure becomes valid and sale proceedings may commence.
Once a claim is submitted, the creditor or the debtor claiming ownership has 3 days to object. If no objection is raised, the item is considered to belong to the third party, and the seizure is lifted.
If an objection is made, the next step is filing the ownership lawsuit. As explained earlier, If the item was seized from the debtor, the third party must file the ownership lawsuit within 7 days of receiving the court’s decision on whether to suspend or continue the enforcement. If the item was seized from a third party, the creditor must file the lawsuit within 7 days of being notified by the enforcement office.
Time limits are crucial in enforcement practices. Delays may lead to irreversible loss of rights.
7. Outcomes of the Ownership Lawsuit
If the lawsuit filed by the creditor or third party results in a finding that the item belongs to the debtor, the seizure and sale processes continue. However, the court's decision in this type of case does not constitute res judicata (a final, binding judgment); it only applies to the specific enforcement file in question.
If the court initially suspended enforcement and later rules that the item belongs to the debtor, the third party may be required to pay compensation to the creditor. This compensation cannot be less than 20% of the delayed amount.
If the third party's ownership claim is upheld, and ownership is confirmed, the seizure is lifted. If a pledge is confirmed instead, the seizure continues in a way that does not infringe upon the pledgee’s rights. In such a case, the pledge has priority over the seizure.
If the third party’s claim is accepted and the creditor is found to have maliciously objected to the claim, the court may order the creditor to pay compensation to the third party. This compensation cannot be less than 15% of the item's value.
However, simply objecting to a claim does not establish bad faith. Bad faith must be clearly proven. The compensation awarded in these cases is specific to enforcement law and does not prevent the third party from seeking further compensation under general provisions for actual losses.