Considering the constantly rising real estate prices, more and more people are interested in the possibility of buying a property at a public auction organized by a private bailiff, the so-called “public sale”. The main reason is that the price (at least at first sight) is lower than that of similar properties sold directly by an owner/investor.
Undoubtedly, in some situations, buying a property from a private bailiff could be a money-saving deal. You should bear in mind, however, that participating and bidding in a public sale can be extremely risky if you are not well acquainted with the specifics of the procedure, on the one hand, and/or have not carried out the appropriate preliminary checks on the specific property, on the other hand.
What is a public sale of real estate?
In general, a public sale is a procedure for forced sale of properties of debtors who default on their obligations to their creditors.
The public sale is most often carried out by private bailiffs upon the express request of a claimant (creditor) and on the basis of a writ of execution or other enforceable act issued by the court.
What type of properties are put up for public sale?
All types of property can be put up for public sale – regulated/unregulated land plots, constructed or non-constructed, agricultural lands, residential buildings, offices, shops, apartments, studios, garages, etc.
Most often these are properties on which a foreclosure has been imposed in the course of enforcement proceedings. The latter constitutes an encumbrance in rem, a type of security measure which guarantees that the debtor’s property will not be transferred to a third party in the meantime, thereby harming the creditor.
What are the main stages in the procedure of public sale of a property?
After there is an imposed foreclosure on the property and an inventory of the latter is performed, an expert-appraiser prepares a market assessment. The starting price at which the property shall be offered at public sale shall be 80 % of the market value determined by the expert.
The private bailiff shall prepare a notice of sale, which contains basic information about the property and the public sale – description of the property, owner, encumbrances (including mortgages), existence of third party rights (right of use, rental agreements, etc.), starting price of the property, time limits for participation in the procedure, place and date of the sale.
IMPORTANT! In case you are interested in buying a property at a public sale, you can follow the announcements that are published daily basis on the website of the Chamber of Private Bailiffs, as well as on the websites of the district courts.
Candidates for participation in the respective auction shall pay a deposit of 10 % of the announced starting price of the property and shall make a written offer of the price they propose. The latter cannot be lower than the initial price of the property. If several candidates have offered the same highest price, the buyer shall be determined by drawing lots between them, unless on the day of announcement of the buyer, one of the candidates orally offers a higher price increased at least by the amount of one deposit.
The winning candidate must, within two weeks, pay the rest of the offered price, deducting the amount of the paid deposit. Once the price has been fully paid, the private bailiff issues a decree for assignment of the property, which acts as a notary deed (title) for the buyer.
What are the risks of buying a property on public sale?
Buying a property from a private bailiff could hide a number of potential risks.
In this regard, before you proceed to pay a deposit to participate in a public sale, it is highly recommended that a detailed analysis and tracking of the ownership, status and history of the foreclosed property in which you have an interest to be carried out in advance.
First of all, as mentioned above in the article, properties of defaulting debtors are put up for public sale, which in many cases are burdened with additional encumbrances. In this regard, it is mandatory to verify the total number of active foreclosures and/or mortgages on the property put up for public sale, including the time of their entry in the Real Estate Register.
In addition to the existence of encumbrances in rem, the property should be checked for other rights of third parties – right of usage, right of construction, right of passage, rental relations, etc. The existence of any of these circumstances directly affects the real value of the property and could involve further complications and costs for the new owner.
It is also important to check for the existence of certain circumstances which are directly relevant for carrying out a lawful public sale of the property, in particular: whether the property sold does not constitute a matrimonial property; whether the property sold does not appear to be a non-sequestrable asset of the debtor, etc. The latter circumstances should have been established and taken into account in the course of the enforcement proceedings, but it is nevertheless advisable to double check them as an additional guarantee.
Insofar as the public sale is a forced sale, another potential (and common) risk is that the previous owner (the debtor) or his tenant can refuse to leave the property voluntarily. Of course, there are legal defense mechanisms in such situations, but the latter are associated with additional costs and time.
Complications could also arise due to the fact that sometimes the same properties are sold simultaneously by several private bailiffs.
It should also be borne in mind that bank lending for the purchase of a property in the case of a standard public sale (outside electronic public auctions) is more difficult and would only be possible if the relevant loan granted to you is secured by a mortgage on another property of yours (in case you own one).
Depending on the specifics of the case, there may be other potentially diverse issues and risks that should be identified in advance so that you can make an informed decision about your participation in a particular public sale.
Taking into account the specifics of the procedure of acquiring a real estate on a public sale, in case you are interested in purchasing a property from a private bailiff, atty. Dilyan Kolev can provide you the necessary assistance in order to ensure maximum protection of your rights and legal interests and to minimize the potential risks.