How easy is it to buy foreclosures

How does a foreclosure auction work?

For years the number of real estate foreclosures increased in Germany. Even in big cities and metropolitan areas you could get one or the other bargain. However, those times are over. In 2010 there were around 69,000 foreclosures in Germany - the lowest number since 1999. In 2011 the number of foreclosures fell again. One reason: the general boom on the German real estate market.

In metropolitan areas in particular, no bargains are to be expected from foreclosures. What “goes under the hammer” there is considered “difficult” (e.g. real estate with significant construction defects, modernization backlog, etc.). If you go looking here, you should be particularly careful.

First take a look at it!

Basically, you should prepare well for a foreclosure auction and visit 2-3 auctions before bidding on a property yourself. It is particularly important to take a look at the excerpt from the land register, which is contained in the auction file at the competent court. This shows whether the property can be used without restrictions or whether other burdens, such as a lifelong right of residence, have to be assumed. The appraisal report prepared by a neutral expert is also at the court. It provides information on the state of construction, location and connections to public supply networks. You should pay attention to whether the appraiser has carried out an interior inspection.

Interior inspection ?!

An interior inspection of the property is always advisable, if possible accompanied by a construction specialist. Sensitivity is required, because residents who are forced to give up their homes are not obliged to let in prospective buyers (and are often unwilling to do so).

Thorough information in advance is important, because guarantees, warranties or withdrawal, for example due to construction defects, are not available when purchasing a foreclosure auction.

Less ancillary acquisition costs

The ancillary costs are comparatively moderate: there are no brokerage commission and notary fees in a foreclosure auction. This saves at least 2% notary fees plus the brokerage fee that is customary on site.

Auction start

A foreclosure auction is usually ordered at the request of a land debtor secured in the land register - usually a credit institute. There is also the so-called division auction. It is based on disputes between heirs and divorced spouses. If the parties cannot come to an agreement, the objects will be foreclosed. The brawlers then share the proceeds.

At the beginning of an auction, the Rechtspfleger first announces the essential content of the land register, the creditors with their claims and the established market value. It also points out the special features of the property such as tied apartments, monument protection or building loads and defines the auction conditions and the statutory minimum bid.

Don't forget your ID!

The auction conditions regulate the important question of whether the buyer has to assume the debt. Then the judicial officer asks those present to bid, and the actual bidding hour begins. Anyone wishing to bid must present a valid ID. If the obligee demands security, the bidder must already deposit ten percent of the market value with the court.

The security that a creditor can demand can be provided by the bidder with a bank guarantee or with a crossed check from a credit institution. (Cash is no longer accepted since February 2007!). The Rechtspfleger usually does not accept savings books, securities account statements, building society contracts, bank confirmations or normal checks. However, the amount can also be paid in advance to the court cashier by bank transfer (if the amount paid is higher than the required security deposit, the difference will be transferred back immediately; this also applies, of course, if you have not received the bid).

Limits to a foreclosure auction

If the highest bid on the so-called first appointment is over 70 percent of the market value determined by the court, the property goes to the highest bidder. If the bid is between 50% and 70%, the creditors can prevent the bid. If it is less than 50%, the Rechtspfleger must refuse to accept the bid. This is done to protect the debtor. If no result is achieved on this first date, a new auction date will be arranged, where there are no longer any limits.

Lowest bid, cash bid, etc.

It is not that easy to see through what amount you are actually bidding or have to bid. The amount that is offered in a foreclosure auction is the so-called cash offer. Additional charges / amounts may have to be added to this cash bid. Because this is difficult for a layperson to grasp at the beginning, you should be particularly careful here and find out more.

The bidding hour

In the case of a foreclosure auction, the bidding hour lasts at least 30 minutes. As soon as the judicial officer lifts the hammer for the third time at the end of the bidding hour, the seconds of the decision are there: Because hardly anyone knows, you can also place a bid during or even immediately after the third hammer blow. The bidding hour only ends when the Rechtspfleger officially announces the end. So many ownership structures can change at the last second. You are not the owner of the property until you have been awarded the contract, i.e. when the Rechtspfleger announces the transfer of ownership.

When the bid is accepted, the buyer is immediately the owner of the property (and not only when it is entered in the land register!). With the surcharge against all rights and obligations from the property / property to the new owner. The award decision is also a so-called eviction title. This means that the buyer can immediately evict the property. But: that only applies if the old owner used the property himself. If it is a rented property, an immediate eviction is not possible!
Six weeks after the auction, the buyer must have the financing of the property in place and pay the purchase price plus four percent interest (from the auction date) to the court. Only when all payments have been made on time does the buyer enter the land register as the new owner.

The auction file

The appraisal is part of the auction file and can be viewed in the local court. It contains information about the state of construction, the rental situation, location, connections to public supply networks, running costs such as ground rent, any special rights of use that may exist and the market value. The latter does not have to be up-to-date, because it can take up to two years for a house to go under the hammer.

It is important to take a look at the extract from the land register, which is also enclosed with the file. It provides information about possible burdens such as mortgages and land charges, right of way or permanent housing claims. If you intend to renovate or expand, you should also go to the building planning office.
In the case of condominiums, it is advisable to inspect the declaration of division, community regulations and minutes of the owners' meeting. You can find out from the caretaker how much housing benefit and the maintenance reserve are and whether there will be a special contribution for major repairs in the near future.

Financing of foreclosures

When financing real estate that is acquired in a foreclosure auction, there are a few special features to consider! You can get more information about this free of charge and without obligation from your local mortgage lending expert.