Real estate auctions: Application, procedure and costs
Real estate auction: definition and benefits
In the event of a dispute over a property, the partition auction is an option that comes into play if other attempts at a solution do not bear fruit. Particularly in the case of inheritance disputes or after a divorce, this special form of compulsory auction procedure is carried out if no agreement can be reached on the division of the property. For example, if two separating spouses are registered in the land register and one person wishes to remain living in the house while the other wishes to receive a payout of the property share, this form of auction serves as a solution option. Thus, the goal of the partial forced auction is to convert indivisible property into divisible property so that it can be divided among the parties. This may be done at a loss if the property is not auctioned off at a profit.
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Procedure of the partial auction
A partial auction can take a longer period of time and involve higher costs. Before the actual auction takes place, the procedure must be prepared. For this purpose, one of the disputing parties files an Application for Partition Auction. You apply for the partition auction at the local court. A judicial officer examines the application and, after approval, takes over the proceedings. As the applicant, you must prove that you are co-owners of the property by means of an extract from the land register that is not older than six months. Once the application for a partition auction has been approved and all parties involved have been informed of the proceedings, an expert is appointed to determine the value.
The appraisal forms the basis for initial bids at the auction. The partial auction is initiated by informing all parties involved via the district court. If the parties agree to the appraisal, the date for the auction is set by the district court, which also announces the date. As a rule, this is done for the following year. The auction is public, so that any person can bid. For this purpose, a so-called bidding hour takes place, which lasts 30 minutes. If the house has not been auctioned, the bidding hour is extended to a period of up to one hour. Bids of at least 50 percent of the market value will be accepted. Subsequently, the proceeds are distributed to the disputing parties after the partition auction. Discontinuation of the compulsory auction proceedings by the debtor is possible within two weeks after service of the decision.
Compulsory partition auctions in practice: example
The compulsory partition auction is used in various cases. Two typical cases of application are divorce proceedings on the one hand and joint inheritance matters on the other. In both cases, the forced auction takes place for the purpose of dissolving the community. In the case of a divorce, for example, it may be the case that both partners have jointly purchased a property and financed it 100%. For this purpose, they have a land charge in this amount entered in the land register in favor of the bank and repay the loan over several years. A small residual amount remains, but the full amount of the land charge remains in the land register. If the property is now sold at a partial foreclosure auction, the person who buys it at auction also acquires the land charge, because it does not expire as in a regular foreclosure auction.
It is therefore important for prospective buyers to check in advance whether encumbrances are entered in the land register. Land charges normally bear interest of at least 10%, so that the remaining land charges in the partition auction can quickly significantly exceed the purchase price. This significantly lowers the attractiveness of the property for the auction process and reduces the chances of a sale. To prevent this, the land charge should be cancelled prior to the auction procedure. If the partition auction was sought as a means of exerting pressure on one partner against the will of the other partner, the latter is nevertheless obliged to cooperate in the cancellation of the land charge.
Overview of costs of the proceedings
The costs of a compulsory partition auction are governed by the Court Costs Act and the List of Costs. The court costs in compulsory auction proceedings include the general costs of the proceedings, expenses for the auction date and for the acceptance of the bid. They depend on the market value of the property; as a rule, they amount to 10 to 15 percent of the value. In addition, there are the fees charged by a lawyer for partition auctions, as well as appraiser costs, application costs and announcement costs. The latter are incurred for the announcement of the proceedings. The lawyer's fees also depend on the market value of the property. Between 50 and 150 euros are charged for the application, and between 1,000 and 2,500 euros for the expert opinion. If the auction is successful, the procedural costs are offset against the proceeds before they are paid out to the owners.