Foreclosure auctions in Germany (Zwangsversteigerung)

How the procedure starts

The enforcement court orders the auction on application of a creditor (§ 15 ZVG). The court then sets a date and publishes it. The notice should state the land register sheet, the size and the market value (Verkehrswert) that the court has fixed (§ 38). The court may also make the valuation report public electronically. The date must be announced at least six weeks ahead, and the order and the notice must reach the debtor and the known parties four weeks ahead (§ 43). The court that runs the auction is the source for dates and papers: ask the local court (Amtsgericht) which documents it publishes, and read the valuation report first.

The hearing: lowest bid and cash bid

The rules for the hearing are in §§ 44 to 74:

• Only a bid is accepted that covers the rights ranking ahead of the applying creditor plus the costs of the procedure: the lowest bid (geringstes Gebot, § 44).
• Rights that fall within the lowest bid stay in place and are taken over by the buyer; the rest are extinguished (§ 52). They are announced at the hearing (§ 66).
• The part of the lowest bid for costs and the highest bid above the lowest bid make the cash bid (Bargebot) that the buyer pays to the court before the distribution date, with interest from the award (§ 49).
• Bidding must stay open for 30 minutes and goes on until no one bids (§ 73).

Read the announcement of surviving rights carefully. A right that survives, such as a ground-rent charge where the parties agreed that it stays (§ 52(2)), is a burden you take on even though you do not pay it to the court.

Security: 10%

An entitled party can demand security right after a bid (§ 67). The amount is one tenth of the market value stated in the notice, or fixed by the court (§ 68(1)). Cash is excluded (§ 69(1)). Accepted are transfers to the court’s account that are credited before the hearing, a bank cheque issued by a credit institution not earlier than the third working day before the hearing, or an unconditional, unlimited guarantee by a credit institution (§ 69). Calculation: for a property valued by the court at €300,000, security is €30,000. Plan this before you travel, because a bid without security that is demanded is rejected (§ 70(2)).

The 70% and 50% limits

The court may refuse the award if the highest bid, counting the capital value of surviving rights, stays below a share of the property’s value.

• Below 70%: a creditor whose claim would be covered at 70% but is not covered by the bid can apply for refusal; the applying creditor can object if refusal would cause disproportionate harm (§ 74a).
• Below 50%: the court must refuse by itself (§ 85a), unless the bid comes from a creditor and, together with the amount it would lose, reaches half.

If refused, a new date follows, normally three to six months later, and in that second hearing neither limit applies (§§ 74a(3), (4) and 85a(2)). Calculation: with a value of €300,000, 70% is €210,000 and 50% is €150,000. A low bid at the first date is therefore not yours until the court awards it, and a second date can go lower.

After the award

The award goes to the highest bidder (§ 81). On the award you become owner of the property and of what the auction covered (§ 90), unless an appeal sets it aside. From then on you carry the risk of accidental loss, enjoy the income and bear the charges, and no claim for defects exists (§ 56). The award decision is also a title for eviction of a possessor, unless that person holds a right that survives (§ 93(1)); you owe nothing for improvements made before the award (§ 93(2)).

Tenants stay under the rule that sale does not end a lease, but you may terminate with the statutory notice at the first date possible (§§ 57, 57a). If you miss the first date, the right to terminate is lost.

Which professional to consult

Get a property valuer to compare the court’s value with the market, an architect to read the condition, and a mortgage broker to ask whether a lender finances an auction purchase before the date, since the cash bid is due before the distribution date the court sets. A notary can explain the land register position.