Foreclosure Auction

Information, Tips, and Tricks


Principles of Foreclosure Auctions


Enforcement Proceedings


Before a foreclosure auction, enforcement proceedings are initiated. A prerequisite for this is an enforceable title. This can be a court judgment, a settlement agreement, or an enforceable instrument (e.g., an enforceable deed of sale drawn up by a notary).

An enforcement clause is also a further requirement. This clause is added to the judgment or instrument ("enforceable instrument"). This ensures that the debtor is informed of the foreclosure proceedings initiated against them. A compulsory mortgage is then registered in the debtor's land register, and the foreclosure auction or receivership is ordered. This constitutes the seizure of the property, including its essential and non-essential components and accessories. The creditor now has the right to satisfy their claims against the debtor from the real estate.


A foreclosure clause is included in the notarized purchase agreement or upon registration of the mortgage. The buyer agrees to immediate foreclosure on all their assets if they fail to pay the agreed purchase price or if they fail to meet their monthly payment obligations.

Foreclosure Auction


Acquiring property through foreclosure auction can be a favorable opportunity, but it also involves considerable risks. The most attractive aspect is undoubtedly the possibility of purchasing the property below its assessed market value. However, a major disadvantage is that the buyer has no right to inspect the property beforehand; they are essentially buying "a pig in a poke."

Foreclosure auctions are generally conducted by the local court (Amtsgericht) within the respective jurisdiction. Auction dates can be obtained directly from the court. Local courts are also obligated to publish the dates in the daily press.


Foreclosure auctions are generally conducted by the district court (Amtsgericht) of the respective jurisdiction. The award of the bid is an official act; therefore, the successful bidder does not become the owner only upon registration in the land register, but immediately upon the award; he then submits an application to the local court to have the land register corrected in his favor.

Where can I find information about a foreclosure auction?

Internet:


Various online portals offer some very good information about upcoming auction dates.

You can also find all the information about foreclosure auctions at your local district court. They have developed a generally good online presence:

Search on Google: District Court + CITY, section Foreclosure Auctions

e.g., http://www.amtsgericht-delmenhorst.niedersachsen.de/master/C11292147_N11317393_L20_D0_I6359595.html and then follow the link.

Newspaper:


Under the heading "Public Notices," you will find the auction date, location, and time.

Directories:


Foreclosure auction directories, which list the auction dates, are usually available for a fee.

The Foreclosure Auction Process:


The auctions are always public. A court clerk presides over the proceedings, and a registrar takes minutes. The auction proceedings are divided into three sections:

  • Announcement Section
  • Bids Hour
  • Award of Sale


The proceedings begin with the announcement section, where the property to be auctioned is called. The exact property descriptions, debts, encumbrances, and dates of any attachment are announced. Since the bidder must assume the existing rights and encumbrances, the court clerk addresses these in detail.

Rights with a higher priority in the land register than the right from which the creditor is enforcing remain there even after the award of sale and must be assumed. Within a section of the land register, priority is determined by the order of registration. Rights in different sections are sorted according to their registration date.

Therefore, if a mortgage or land charge has priority, it must be serviced from the date of the award of sale onwards, according to the conditions recorded in the land register. For this purpose, banks often register a significantly higher interest rate than agreed upon; the negotiated interest rate does not apply to the successful bidder. Pay particular attention to rights listed in Section 2, especially rights of residence or usufruct. While these have value, they cannot necessarily be redeemed by monetary payments. You must negotiate these separately with the beneficiary and have no right to assignment of the right. Mortgages, land charges, and annuities listed in Section 3 can always be discharged by paying the outstanding balance.

Example:

The appraised market value is €185,000, the existing mortgage is €110,000, and the bidder values ​​the property at €140,000.

Market Value €185,000
"Economic Bid" €140,000
Remaining Mortgage €110,000
Actual Bid €30,000

Your bid is therefore €30,000. Adding the existing encumbrances of €110,000 results in an "economic bid" of €140,000, which is slightly over 75% of the market value.

Once the court has concluded the announcement phase, questions may be asked. The court clerk is a neutral party in these proceedings and will answer questions if they are able to do so. Of course, questions can also be clarified during the bidding period.


The bidding period begins and lasts until no further bids are submitted, but at least 30 minutes (formerly one hour – hence the name).

During the bidding phase, the court clerk immediately decides whether a bid is valid or invalid. The creditor bank also has the right to bid. The following bids are invalid:

  • Bids below the minimum cash bid
  • Bids lower than the highest bid
  • Bids without a security deposit (10% of the market value)

If you are not awarded the property, you will receive your security deposit back immediately at the end of the session.

Bidding may be submitted in the smallest unit of currency, but this is generally not practical, and increments should be based on the total value of the property. Submit your bids as clearly as possible. For your first bid, you must hand over the security deposit to the court clerk and show identification. After that, you can bid from your seat. Remember that all bids are binding for the respective bidder. Bids expire if they are outbid, the auction is refused, the deadline is cancelled, or the proceedings are terminated.

If an end is imminent, the last bid will be called three times, followed by a final call for bids. The bidding period ends only when this is explicitly announced. However, the highest bidder does not yet become the owner; ownership is transferred only upon the award of the bid, which is a separate stage of the process.

The Award of the Contract at a Foreclosure Auction

Following the bidding period, the award of the contract is negotiated; this is an official act. At this point, all parties present are given the opportunity to comment or submit a separate application, although the highest bidder is not involved in this process.

Until the award is granted, the creditor bank initiating the auction is in charge of the proceedings. It can still terminate the entire process at this stage (e.g., due to an insufficient bid).

Furthermore, the court examines whether the award must be denied for other reasons; however, it is usually granted. If the court denies the award, the highest bidder immediately receives their security deposit back.

If no grounds for denial exist, the highest bidder must be awarded the contract. Once awarded, the highest bidder immediately becomes the owner of the property and its appurtenances. The award takes effect immediately upon its announcement. The court is required to award the contract immediately during the hearing; a separate announcement hearing is rarely held.

The land register must be corrected accordingly, and the award of the bid reflects the actual status of the land register. The award of the bid serves as proof of ownership and simultaneously constitutes the eviction order against the previous owner. However, the land register can only be corrected once the winning bid, including interest, has been paid in full. The tax clearance certificate from the tax office (if applicable for payment of real estate transfer tax) must also be submitted to the land registry for the transfer of ownership to be recorded.

Upon the award of the bid, the successful bidder assumes all the rights and obligations of the owner, specifically in the case of condominium ownership, including all contracts unknown to them.

5/10 and 7/10 Limits

In the first auction, the statutory minimum bid limits still apply, both the 5/10 limit (50% of the market value) and the 7/10 limit (70% of the market value).

In the first auction, the property cannot be auctioned below 5/10 of its value by the local court, as this would be considered a sale at a loss. If the creditor bank agrees to a bid below 7/10, the property can be acquired below this threshold in the first auction.

This means:

  • The court clerk will refuse to award the property below 5/10 of its value in the first auction.
  • The creditor bank can (and usually does) refuse to award the property below 7/10 of its value, or even terminate the proceedings altogether if the bid is not high enough.

However, the property may only be refused once for failing to meet the respective value threshold. If the property was refused in the first auction for either of these reasons, it may not be refused again for the same reason in a subsequent auction.

If the value thresholds no longer apply, the property may potentially be acquired below 5/10 of its value, but even then, the creditors decide whether the property is awarded. The price at which the property can be acquired therefore depends mainly on the demands or the agreement of the creditors.

Preparing for the Auction

  • You must bring a photo ID to the auction.
  • 10% of the property's assessed value must be deposited as security in cash or by a bank check before submitting a bid.
  • Be sure to review the appraisal before the auction at the local court or the auctioning bank.
  • Attend a few foreclosure auctions beforehand to familiarize yourself with the process.

Property Inspection


Generally, you have no legal right to inspect the interior of the property. However, you should at least try to gather as much information as possible about the property from the outside. Sometimes neighbors know many details and are happy to share them. The court, and therefore the appraiser, also does not have the right to conduct an interior inspection. If the appraiser did not have access to the property, they must base their appraisal on the available documents (land register, land value guidelines, building plans, etc.). This must be noted in the appraisal, so read it very carefully to set a personal limit for the purchase price.

Behind a forced auction often lies a tragic story. Since the owner is forced to sell their property, they rarely have an interest in allowing viewings for potential buyers. With a bit of luck, however, a viewing is sometimes possible. Your chances are particularly good if the owner wants to achieve the highest possible price to avoid excessive debt. Especially with apartments, neighbors can provide very useful information about the property manager, utility costs, and any upcoming renovations. Try to gather as much information as possible to avoid potential surprises after the auction.

If you are unable to view the property, consider very carefully whether you want to take the risk. You run the risk of buying a property that is completely dilapidated and has significant defects. You may also have to evict the previous owner. This involves additional costs and stress.

A few years ago, the previous owner borrowed an excavator and deliberately caused considerable damage to his old house. Reason: The purchase price was too low for him, and he wanted to adjust the value.

Keep in mind that many of these people have nothing left to lose, as they are already bankrupt. This can lead to impulsive reactions and nervous breakdowns right before your eyes.

Financing before the auction date:

Clarify your financing for the specific property with your bank before the auction date. Set a limit for yourself at the auction that you do not intend to exceed.

Eviction by the debtor:

If the previous owner is still living in the auctioned property, they must vacate it. The award of the bid also serves as an enforceable title.

Since evictions are quite expensive, you should write to the debtor and give them a reasonable deadline (approximately 3 months) to vacate. Furthermore, you have the option of demanding compensation for use (not rent, as this could establish a tenancy agreement!). However, it is questionable whether the previous owner can pay this, given that he recently lost his property due to insolvency. Be sure to emphasize in your letter that the compensation for use does not establish a tenancy agreement. If the previous owner refuses to vacate, you can apply to the court for an enforceable copy of the foreclosure order, and the bailiff will be commissioned to carry out the eviction.

Eviction by the tenant


With the successful bid, the tenant is entitled to payment of the rent. As a general rule, even in the case of acquisition through foreclosure, the German Civil Code (BGB) states: "Purchase does not break lease."

If you can demonstrate a legitimate interest (e.g., personal use), you have the option of terminating the lease agreement with statutory notice.

The Appraisal – Market Value

The appraisal is prepared by an expert. The local courts are required – but not obligated – to select publicly appointed and sworn experts.

Experts include, in particular, architects, building surveyors, or certified appraisers (market value assessors). Due to their different training, they employ varying approaches.

Architects often tend to perform numerous, sometimes highly theoretical, calculations based on the square meters of living space or the cubic meters of enclosed space, which they then adjust to current construction costs using an index. Even building surveyors usually lack practical experience in real estate sales, and their calculations are based on similar priorities, which can have the disadvantage of becoming overly theoretical. Market value is often difficult to grasp and is subject to various, sometimes significant, fluctuations. Any surveyor who can accurately assess the current market situation, and perhaps also those who have previously worked as real estate agents, has an advantage. Generally, standard land values ​​are derived from the expert committees, which are based on evaluations of past property sales.

The survey report is therefore a good guide in any case; any potential defects should also be identified in the report.

The surveyor determines the market value using several parallel valuation methods:

Comparative value method


The surveyor consults a database of sales prices or compares the property to similar ones. Since the properties are often quite different, they individually assess deviations with premiums or discounts.

Asset Approach

The appraiser calculates the building's enclosed volume. Based on data from the Federal Statistical Office regarding construction costs, they determine the construction costs as of the current date. Deductions are made for age-related wear and tear and allowances for potential repairs. The difficulty lies in the fact that the real estate market does not necessarily offer the type of building the owner had constructed according to their individual specifications.

Income Approach


Based on the achievable rent or lease, the appraiser calculates the gross annual income. Operating and maintenance costs are deducted. The annual net rent is then multiplied to calculate the income value. The assumed rent does not necessarily have to be the same as the current actual rent. Generally, the achievable rent is based on the local rent index.

The appraiser decides on the relevance of the respective calculation method; other calculations are usually also performed to verify the calculated value.

Bidding Strategy

There isn't really a single "right" bidding strategy, but you should consider a few things:

  • Set a specific limit for your maximum bid beforehand. This can certainly be above the market value, for example, because you are familiar with the property.
  • Consider the value of the rights you are acquiring.
  • The market value appraisal certainly provides a basis for your own assessment, but it is non-binding, and you have no recourse against the appraiser.
  • Bid at irregular intervals, varying in time and value.
  • Banks and their employees, no matter how friendly, are economic adversaries. Creditors always have an interest in the highest possible bid, as they use the auction proceeds to satisfy their claims against the debtor.
  • The court clerk is neutral; their task is to sell the property to the highest bidder. He will, however, answer questions about the procedure and the object in detail, neutrally, and understandably, provided he is able to do so.
  • The court clerk may not and will not pass on tips, because the advantage one person gains from his help might be to the detriment of a third party, and the court clerk would be violating his duty of impartiality.
  • Please be punctual, as a lot of information will be announced at the beginning of the hearing.