Real estate prices are skyrocketing. Too high for some. So it makes sense to go for a forced auction. It can be worth it. But in addition to bargains, there are also several pitfalls.
A forced auction can have many reasons: a financial emergency, a failed marriage, disputes among heirs – as examples. However, all have in common the farewell to their own home and mostly also the dream of happiness. Because the sale of a property or land is usually involuntary – for reasons of time or money. The conclusion suggests that buyers can bargain at a foreclosure sale.
However, properties threatened by foreclosure are less and less under the hammer, especially in times of low interest rates. Most attempts are made to sell the house, apartment or property on the regular market.
Foreclosure: In the case of a forced auction, a debt-laden property is sold to the highest bidder. And not infrequently at prices well below the market value. However, if you do not know the pitfalls, you either pay too much at the foreclosure sale or buy a scrap property.
Foreclosures: dates and information
The dates and objects of foreclosures are published by the respective district court six weeks in advance. The judicial officers compile the available information about the objects. If you want to search for foreclosures nationwide, you can go to the website www.zvg-portal.de inform about upcoming foreclosures across Germany.
The following information is usually published:
- Location of the property
- Size of the property
- Legally determined market value
- If necessary, outside shots
If known, among other things:
- Charges in the land register
- Existing tenancies
The legal basis are in “Law on Forced Auction and Forced Administration“(ZVG). For the rest, a forced auction may only be ordered if the debtor is registered as the owner of the property in the land register or is the heir of a registered owner.
Entry-level bid: market value of the property
The starting bid for a forced auction is usually based on the market value of the building in question. However, it is not uncommon for the highest bids in a forced auction to be far below the estimated market value. It is quite possible that bids of 30 percent below the stated price will be awarded.
However, if the highest bid is less than 70 percent of the market value declared, the creditors do not have to accept it. In this case, you can initiate a new bidding round on a different date. If you really want the property, you should offer at least 70 percent of the market value.
Market value: The market value of a property corresponds to the current market value on a specific key date. The legal basis is the Real Estate Valuation Ordinance (ImmoWertV). Appraisals commissioned by the authorities or the judiciary are only allowed to prepare publicly appointed experts.
Bought as seen: The problem with the information
The size, location and market value determination are among the minimum details that are published before a foreclosure sale – that is, they are known. The interested parties have to get a lot of further information themselves. And that’s not easy. Because: prospective buyers have no legal right to be allowed to view the property. Hidden damage can lead to high follow-up costs after purchasing the property.
If the owner does not allow an inside inspection, interested parties should nevertheless research as many details about the property as possible. In this way, valuable information about the condition of the property and the local conditions can be gathered.
This is what prospective buyers should do before a forced auction:
- Obtain a legal opinion on the property
- Carry out an outside inspection
- Inside visit if possible
- View land register extract
- Talk to the neighbors
- Talk to the creditor bank
To evaluate the information, it is advisable to consult an architect or construction expert. For example, the condition of facades, roof areas and windows can give conclusions about the inventory inside. The experts discover damage and weaknesses that are often hidden from laypeople and can realistically assess remediation costs.
Important: The bidder is not legally entitled to view the property before the auction date. Both appraisers and debtors can usually not be held liable for any damage.
Land register entry: encumbrances of the property
It is also important to check whether the house is burdened by loans or otherwise. Because: If a land charge or mortgage remains after the auction, the highest bidder has to pay for it – in addition to the hammer price. It is also possible that third parties still have a right to live on the property or a right of way on the property, which the new owner takes over with the purchase. There are additional things to consider when it comes to condominiums – for example, if they are part of a homeowners’ association (WEG). To what extent the property is encumbered or special obligations exist, it is best to ask the registrar of the district court.
Financing: Every bid is binding
Funding must be secure before placing a bid. Once a bid has been placed, it cannot usually be withdrawn. In order to be able to bid at all, bidders must also deposit a security of ten percent of the market value – for example in the form of a bank guarantee – with the court cash register.
Bidders who have won the bid must transfer the price obtained at the auction to the cashier within four to eight weeks. The decisive factor is the distribution date of the auction object to the new owner. For this reason, it is advisable to obtain a bank commitment in advance for the entire loan amount of the planned maximum bid.
Additional costs: Don’t forget the additional costs
In addition to the amount of the bid, the ancillary costs must be included in the financing. On the one hand, the successful bidder has to pay the court costs for the award of the contract. On the other hand, there are also the usual additional costs of buying a house. These include the costs for the entry in the land register and the real estate transfer tax. Notary fees do not apply to a compulsory auction, since the district court takes over the formalities of the transfer of ownership – corresponding costs are to be paid to the court treasury. In total, depending on the federal state, around ten percent can be added to the purchase price.
Expiry of a forced auction
There are some important rules in a foreclosure that apply to real estate as well as mobile items. First of all, keep calm and not let yourself be carried away. It is even more important not to go over your own planned maximum bid. The possibility of financing should be the ultimate limit here.
And then it’s often over. Usually, a foreclosure sale of a property or land does not take longer than the minimum time of half an hour. There are no fixed bidding steps. So you can bid in “crooked sums” and raise bids at will.
Moveable things: Automobiles, cell phones, music items and much more are auctioned off by customs, the police or the bailiff. In some cases, authorities also offer their own furnishings or utensils. Official national auction houses are: www.zoll-auktion.de and www.justiz-auktion.de.
After the knockdown, rights and obligations pass
The highest bid wins. The highest bidder is already the owner of the property – not only with the entry in the land register. However, this also means that all rights and obligations are transferred to the new owner. For example, the house must be reinsured. With the knockdown, the new owners also receive a so-called clearance title, with which they can arrange for the immediate clearance or eviction of the property.
However, this is only possible if the previous owner also lives in the property. If the house is rented out, residents enjoy tenant protection. With his highest bid, the new owner automatically takes over all landlord obligations that derive from existing rental contracts. However, the compulsory auction law grants the new owner a special right of termination (Section 57a ZVG) with a statutory period of three months to the next permitted date. Here, however, the new owner must express a legitimate interest – for example, personal needs.