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Practical advice for the successful bidder of a real estate auction

By March 21, 2022subasta

As we anticipated in our previous article “Practical advice to attend a real estate auction”, this time we intend to launch a series of practical tips for the successful bidder of a real estate property at auction.

That is to say, if you have bid in an auction and you have been the successful bidder, or if you intend to attend an auction to become one, these tips may be of interest.

First of all, it is essential to know the auction value of the property since, depending on the percentage of the winning bid, there will be different alternatives for the different parties involved in the procedure.

In any case, the highest bidder in the auction will be sent a certificate of the highest bid by e-mail at the end of the auction.

The option that provides the highest bidder with greater peace of mind is if his bid exceeds 70% of the value of the property for auction purposes since, in this case, the Court will issue a decree approving the auction in favor of the highest bidder.

Within 40 days of notification, the difference between the amount of the winning bid and the deposit previously made must be paid into the Court’s deposit and consignment account.

More uncertainty for the highest bidder arises in the event that the bid does not exceed 70% of the value of the property for auction purposes. In this case, the foreclosed party may present within 10 days a third party to improve the bid offered, provided that it is sufficient to cover the amount claimed by the foreclosing party.

If these 10 days elapse without the foreclosed party having presented a third party to improve the winning bid, the foreclosing party may be awarded the property under certain conditions:

  • If it is the family home of the foreclosed party.
    • The foreclosing party may request the award for 70% of the auction value.
    • He may request the adjudication for the total amount owed to him, provided that such amount is higher than 60% of the auction value and that he improves the amount of the highest bid.
  • If it is not the family home of the foreclosed party:
    • It may request the adjudication for 70% of the auction value.
    • The foreclosing party may request the award for the total amount owed, provided that it improves the amount of the highest bid.

If the executor also does not express his willingness to be awarded the property, it will be necessary to assess two scenarios for the approval of the auction.

  • If the highest bid is less than 50% of the auction value and is not sufficient to cover the amount for which execution has been ordered, the Court, after hearing the parties, will decide on the award.
  • – If the highest bid is between 50% and 70% or if it is not, it is sufficient to cover the amount for which execution has been ordered, the auction will be approved.

Therefore, it can be concluded that the only scenario that gives some peace of mind to the highest bidder is that his bid exceeds 70% of the value of the property for auction purposes.

Once the auction is approved, a long odyssey begins until the possession of the property is obtained (which may last several months).

The ultimate goal is to obtain a testimony of the decree of adjudication of the property and cancellation of charges (justifying to the Court the payment of the ITPyAJD Tax) as well as the transfer of the possession by means of the launching of the previous occupants (in case there are any).

With regard to the registration in the Land Registry it is important to take into account that they will require: testimony of the decree of adjudication, proof of payment of the ITPyAJD tax and proof of payment of the IIVTNU (municipal capital gains tax). In view of the fact that it will be practically impossible to provide this last proof (as the taxpayer is a person or company that has just been executed), it is possible to substitute the proof of the IIVTNU with a certificate issued by the Town Hall stating that the transfer of the property has been communicated in a timely manner.

In addition, two circumstances must be taken into account in the acquisition of real estate at public auction:

  • Regarding the community expenses, there is a real affection by which the auctioned property will be liable for the community fees of the year in which the acquisition takes place and of the three previous years (art. 9.1.e LPH). That is to say, the purchaser at auction will only be personally liable for the debt with the value of the property acquired, which means that it is highly advisable to pay these expenses in order to avoid further problems.
  • As far as the IBI is concerned, the successful bidder is subsidiarily liable (not jointly and severally) for the payment of the receipt of the last 4 years (without interest, surcharges and penalties). That is to say, the City Council will only be able to claim to the successful bidder in auction if after the beginning of the executive route against the main debtor and executed, he is declared insolvent. As in the previous case, in most of the cases it could be concluded that it is quite probable that the successful bidder will have to bear these IBI receipts.

By way of conclusion we can indicate that, in spite of the fact that the adjudication of a property in auction can be very attractive a priori, many factors must be taken into account such as the impossibility of requesting a previous mortgage loan, the probable delay in the transfer of the possession, the ignorance of the state in which the property will be found or the increase of the price motivated by the payment of the expenses of community and IBI in arrears.