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Foreclosure auctions: Purpose, procedure, and legalities

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Should you buy a house in foreclosure?

Properties that are foreclosed often make it possible to acquire residential property below the market price. However, comprehensive information about the properties sold at auction is not always available, so a certain risk must be taken into account. Nevertheless, the purchase of real estate at a foreclosure auction certainly has savings potential. If you pay attention to certain criteria and prepare well for the foreclosure auction dates, you have the chance to obtain real estate property at favorable prices.

Definition of foreclosure

If the occupant of a property is no longer able to pay the loan installments for the property and the creditor then decides to seize the property instead of the monetary claim, the property is foreclosed. The process is regulated by German law in § 20 ZVG (Compulsory Auction Act), further regulations can be found in §§ 23 ZVG, 30 ZVG, 55 ZVG and 90 ZVG. This form of real estate auction is carried out by a sovereign act of the state. This means that it is not the creditor himself who auctions the property, but the state via the district court. The proceeds go to the creditor after the auction to satisfy his claims. The creditor initiates the procedure by contacting the competent district court and filing an application. The court determines the market value of the property via an expert before subsequently setting the date for the compulsory auction. The time required for this can range from nine months to two years. The date of the housing auction is finally published in the court's official notices, together with the minimum bid. A special case is the partition auction, which aims to unify separated spouses and serves to transform indivisible property into divisible property.

Real estate that can be foreclosed upon

In principle, any form of real estate can be sold by judicial auction, provided that the purchase was made through a loan and the repayment of the installment is no longer guaranteed. There is a separate website for real estate auctions, which lists condominiums in various sizes, terraced houses, detached houses, semi-detached houses, and residential and commercial buildings as possible types of real estate and property. In addition, garages, parking spaces and other types of land can also be foreclosed. The type of use of the property is irrelevant here.

Since all objects are listed in an auction pool, bidders benefit from a high degree of transparency.

Advantages and risks

Forced sales offer interested parties the option of acquiring a property at a low purchase price. Anyone may participate in public auctions in accordance with the German Forced Auction Act (Zwangsversteigerungsgesetz). It is therefore sufficient to keep an eye on the dates, which can be viewed online via the auction calendar. Other places to look for dates are notices at the court, newspaper advertisements, and forced auction portals online. Since all properties to be auctioned are listed in an auction pool and in the compulsory auction catalog, you benefit from a high degree of transparency and can obtain information about the property in advance. Descriptions of the property and its location as well as the market value of the property are listed. However, there are also risks that need to be taken into account, because the information is not always detailed enough to really get a comprehensive picture. Sometimes construction plans or rental agreements are missing, and if the property is still inhabited, the occupant is also not obliged to grant the expert access, so that a complete appraisal cannot be prepared. It is therefore advisable to go to the auction prepared, ideally with an idea of the maximum price you are willing to pay.

Real estate auction: determining market value

Before a property is auctioned, the market value must be determined. This is the price the property would regularly fetch on the real estate market. The value is determined by a court-appointed appraiser, who obtains an overview of the condition and location of the property by means of inspections and examination of documents, and determines the market value on this basis. The value acts as the basis for the so-called 5/10 limit, which protects the owner from auctioning off the property at too low a price. This means that the property can only be knocked down at the first auction date if it is worth at least 50% of the market value. However, if the property is not auctioned off at the first date, the subsequently set foreclosure sale dates will take place without this limit, as it is assumed that the market value was set too high.

Frequently Asked Questions

Written by:

Stefanie Aust, Guest Writer

Stefanie loves to put complex topics from the real estate world into understandable and inspiring words. Whether it's about the right financing, choosing the right type of flat, or a successful property search: Stefanie is happy to inform you.

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