Ship Mortgage: Establishment, Classification and Foreclosure (2026)

In maritime trade, financing needs often necessitate using the ship itself as collateral. In relationships such as bank loans, leasing, shipbuilding financing, shipyard receivables, fuel/supply procurement, and major repair contracts, a ship mortgagestands out for the creditor as both a "real security" and a highly enforceable guarantee. However, if a ship mortgage is not properly established, is incorrectly rated, or if an erroneous enforcement procedure is followed, the creditor's most powerful instrument can suddenly become ineffective.

This article examines the establishment of ship mortgages in Turkish law , the ranking system , and their conversion into cash (sale through compulsory execution and distribution of proceeds) from a practical perspective

1) What is a ship mortgage, and what is its legal nature?

According to the Turkish Commercial Code, a ship mortgage is a limited real right that can be established on a ship to secure a debt, granting the creditor priority in receiving their claim from the sale price of the ship. The law explicitly states that contractual pledging of registered ships only be secured through a ship mortgage.

The main consequences of a ship mortgage are as follows:

It can be asserted against third parties as a real right (publicity of the registry/presumptions is important)
If the debt becomes due and remains unpaid, the vessel can be forcibly sold through the conversion of the mortgage into cash (a matter of enforcement law)
Coverage (ship + components/accessories + replacements) significantly increases the likelihood of collecting the debt in most cases.

2) On which ships can a ship mortgage be established?

In practice, the fundamental distinction is this:

A) Ships registered in the registry

For contractual pledges (ship mortgages), the main requirement is that the ship be registered; the Turkish Commercial Code emphasizes that contractual pledges can only be established as ship mortgages on registered ships.

B) Mortgage on the ship's share

A ship's share can only be restricted by a mortgage if it belongs to a co-owner who holds the ship under the principles of co-ownership; it is prohibited to establish mortgages on individual shares to different persons when all shares are held in a single entity.

C) Ships under construction (ships being built)

The law allows for mortgages to be placed on ships under construction; moreover, it is specifically stipulated that the rank of the mortgage will be preserved once construction is completed.

This aspect is critical for shipyard financing: the ability to establish a mortgage once distinguishability is ensured after the keel is laid is a powerful tool in terms of "construction process security".

3) How to establish a ship mortgage? (Establishment requirements)

The establishment of a ship mortgage has two components:

(i) Mortgage agreement between the owner and the creditor

For a mortgage to be established, the ship owner and the creditor must agree on the establishment of a mortgage on the ship.

(ii) Registration in the ship register

The contract alone is not sufficient; registration of the mortgage in the ship registry is required.

Formal requirements: Written + notarized (or certified by the registry office)

Agreements regarding the establishment of a mortgage must be in writing and the signatures must be notarized; alternatively, the agreement can be made in person at the ship registry office. The agreement is not valid unless one of these methods is followed.

The critical error in practice: The parties simply draw up a protocol based on the logic of a "letter of guarantee," delaying notarization and registration. This delay creates a risk that is difficult to remedy for the creditor, especially if the vessel changes hands or other liens/attachments are placed on it.

4) What information should be included in the registration? (Matters to be recorded in the register)

In ship mortgages, registration does not simply state that "a mortgage exists"; it also defines the limits of the collateral. The law specifically mandates that the registration include the following:

creditor's name/title,
Amount of receivables in TL (or the equivalent in TL for non-monetary receivables),
interest rate (if it is an interest-bearing receivable),
accepted secondary obligations (if any),
mortgage degree,
The amount secured by each degree (in the currency in which the claim is specified).

Maximum limit mortgage (if the amount of the debt is variable)

If the amount of the debt is not fixed or is variable, an upper limit for the debt that the mortgage will secure is determined and registered in the registry; interest is, as a rule, included within this upper limit.

Ship mortgage in foreign currency

Mortgages can be established in foreign currency; the calculation is based on the Central Bank of Turkey's (TCMB) foreign exchange buying rate, and multiple currencies of the same value cannot be used.

The critical error in practice: Loans are granted in foreign currency, but the amounts are recorded as a "mixed" mix of Turkish Lira and foreign currency, or interest/ancillary obligations are not clearly indicated. This can narrow the items that can be claimed in enforcement proceedings.

5) Scope of the mortgage: What does a ship mortgage cover?

It is explicitly stipulated that Articles 862 and 863 of the Turkish Civil Code shall apply regarding the scope of ship mortgages.

In practical terms, a mortgage often creates a broad security umbrella that covers not only the "bare ship" but also the integral parts/accessories that constitute the ship's economic value, and in some cases, the values that replace the ship (such as the sale/expropriation price or specific compensation claims).

6) Degree system: What does "degree" mean in ship mortgages?

A) How are grades determined?

The rank of mortgages on a ship is determined according to the provisions of the Turkish Civil Code regarding real estate mortgages.

This reference a ranking logic similar to that of real estate mortgages exists in ship mortgages: each mortgage is placed in a specific rank, and if there is more than one mortgage on the same vessel, the priority of collection is, as a rule, determined by the rank.

B) The degree must be visible in the registration

It is mandatory to clearly state the rank of the mortgage during registration.
Therefore, the "rank" is not merely a technical detail, but core information that concretizes the creditor's priority in collection.

C) Is a degree change possible?

Changing the rank of an existing mortgage in favor of a new mortgage, or subsequently changing mortgage ranks, generally requires the duly approved and registered by the owner and the relevant mortgage creditors (and subsequent rank holders). It is stipulated that a notarized agreement or a settlement at the registry office is required for a rank change.

The critical error in the implementation: the failure to reflect the de facto agreement – "We reached an agreement with the bank, we moved the second priority to the first" – in the registration. Priority is only legally binding against third parties through registration records; without registration, there is a risk of loss of priority.

D) The degree is maintained in ships under construction

A mortgage placed on the structure remains on the ship with its original status after the ship is completed.

7) Rank and “priority list” are not the same thing: Maritime claims and priority conflict

The ranking system in ship mortgages regulates the priority "among mortgagees". However, in the forced sale of a ship, the order of priority is often the primary determining factor .

A) Maritime lien and mortgage relationship

The Turkish Commercial Code (TTK) stipulates that certain maritime receivables are granted a "ship creditor's right."
This right creates a privileged legal lien system that, in practice, can even surpass the right of a ship mortgage creditor. Furthermore, the order of these legal lien rights is determined according to the legal order of the receivables that grant the ship creditor's right.

B) Order of priority in forced sales

If a ship is sold through forced execution and the sale proceeds do not cover all debts, the enforcement office prepares a priority list, and the debts are recorded according to the order specified in Articles 1390-1397 of the Turkish Commercial Code.

Practical conclusion: The approach of "I am a first-degree mortgagee, therefore I have the absolute first interest" is not always correct. Certain maritime claims and statutory securities (e.g., public expenses in certain cases, ship creditor rights, etc.) may take precedence over the mortgage in the priority list. Therefore, when establishing a mortgage, not only the degree but also the risk of maritime claims arising from the vessel's operations should be considered.

8) Foreclosure of ship mortgage: Correct procedure and competent enforcement office

The most critical advantage of a ship mortgage is that it allows the creditor to sell the property through forced execution . However, two fundamental issues are vital here: jurisdiction and procedure.

A) Authorized enforcement office

In foreclosure proceedings involving ship mortgages, it must be explicitly stated that the enforcement office with jurisdiction is the one where the ship was provisionally seized or the one where the ship is registered

This rule is important because "a ship can change port at any time": wherever the precautionary attachment (or preservation) was made, that place becomes a practically critical center for the enforcement office in the follow-up.

B) Sales procedure: Application of real estate sales regulations to ships

The Enforcement and Bankruptcy Law stipulates that the provisions regarding the sale of immovable property shall apply to all ships registered in the ship registry, regardless of their flag; the term "land registry" used in these provisions refers to the ship registry, and the term "mortgage" refers to ship mortgages.

Practical conclusion: A regime similar to that of a real estate sale is applied in many steps, such as the tender announcement, valuation, auction, and cancellation of the tender. This renders the assumption that "a ship is movable property, so it should be sold like movable property" incorrect in most cases.

C) What happens if the wrong route is chosen?

In maritime enforcement proceedings, choosing the wrong type of enforcement action in certain cases, such as "a lien based on a maritime claim," can lead to consequences that may even result in the cancellation of the proceedings; there are examples of decisions from the 12th Civil Chamber of the Supreme Court of Appeals showing a practice of cancellations based on such procedural errors.
Therefore, the nature of the claim (is it a contractual maritime mortgage, a statutory lien based on a maritime claim, or a right of retention?) must be correctly identified.

9) Step-by-step monetization process: A practical "roadmap"

The process of foreclosing a ship mortgage roughly involves the following steps:

Determination of Acceleration and Default:
Credit agreements/collateral agreements, acceleration clauses, and notice mechanisms are checked (especially acceleration/deceleration records).
creditor
, relying on the ship mortgage, seeks to foreclose on the collateral. At this stage, the accuracy and completeness of the mortgage registration and records (amount, interest, rank) are crucial.
Risks of Objection/Complaint:
The debtor may object to the payment order or file a complaint against the enforcement proceedings. The form of the mortgage, jurisdiction, maturity, and registration records are central to these disputes.
Valuation and sales preparation
, sales announcement, auction conditions, collateral, and risks of auction cancellation are carried out in parallel with the "real estate sales regime".
the
forced sale is finalized, the registration procedures (cancellation of mortgage, registration of new owner, etc.) are carried out synchronously with the process in the enforcement file.
Distribution of Proceeds and Priority List:
If the sale proceeds are insufficient, a priority list is prepared, and claims are ranked according to Articles 1390-1397 of the Turkish Commercial Code.
This stage is as important as (or even more important in many cases) the mortgage ranking, because maritime claims/legal securities can alter the priority game.

10) The most common “critical errors” in establishment and operation (and brief prevention recommendations)

1) Skipping the format requirement

Assuming a mortgage has been established without proper notarization or registry office registration is one of the most serious mistakes.

Prevention: The collateral should not be considered "complete" until the mortgage agreement, notarization, and registration are finalized.

2) Failure to include interest/secondary obligations in the registration

If the interest rate and secondary obligations are not shown in the registration, the items that can be claimed in the enforcement proceedings may be limited.

Prevention: All claim items in the credit documentation must be accurately translated into the registration language.

3) No upper limit is set for variable receivables

The upper limit mortgage logic plays a critical role in items such as limit/revolving credit, interest rate variability, and commissions.

Prevention: Upper limit + clear indication in registration that interest rates are within the upper limit.

4) Incorrectly established degree strategy

The degree refers to the "order" of the security; however, it should be considered in conjunction with maritime receivables and the order of priority.

Prevention: A safety plan should not be established solely based on the rating without evaluating the vessel's operational risks (crew wages, salvage/environmental expenses, port charges, etc.).

5) Incorrect selection of the competent enforcement office

Jurisdiction rules are important in the foreclosure of a ship mortgage.

Prevention: The vessel's port of registration, place of provisional attachment, and actual location must be clearly stated at the beginning of the file.

Conclusion

When properly established and operated with the correct execution strategy, a ship mortgage is one of the strongest collateral instruments in maritime trade. However, success in a ship mortgage depends on: (i) complete compliance with the formal and registration requirements, (ii) the correct design of the degree/upper limit and the content of the registration, (iii) the prior anticipation of maritime debt and priority list risks, and (iv) the application of the correct jurisdiction and sales regime in execution. It can be misleading in practice to say "ship mortgages are secure" without considering the provisions of the Turkish Commercial Code regarding the establishment, degree, and scope of mortgages, and the rules of the Turkish Enforcement and Bankruptcy Law regarding the sale and liquidation mechanism of ships.

Creditors' Rights, Maritime Law, Scope of Ship Mortgage, Foreclosure, Priority List, Turkish Commercial Code Ship Mortgage

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Ship Mortgage: Establishment, Classification and Foreclosure (2026)