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Houses Underneath the Hammer: 11 Factors You Ought to Know About Promoting a Foreclosures

More than 13,000 properties have recently been traded in Germany by way of foreclosure. Homes and apartments worth more than three billion euros are passed on – and buyers usually pay much less. For years, the number of foreclosures has decreased. In 2010 there were still 69,000 properties.

On the other hand, low interest rates and low inflation have ensured that the supply of foreclosure property is reduced and at the same time buyers can simply purchase the property in the normal way. Experts from rating agency Argetra expect the trend to reverse this year. First, mortgage interest rates are rising, and secondly, inflation is high. However, if you are considering buying a home through foreclosure, there are a few things you need to know.

1. When is property prohibited?

The apartment or house ends up in foreclosure if the owner can no longer pay his debts to the bank. The bank registered in the land registry has the right to sell the property to collect the money owed. However, more often than not, it is not only about the debt of the bank for a mortgage, but about the many creditors that will be released with the sale money. However, a foreclosure sale only occurs if the bank cannot sell the property on the open market beforehand. Argetra estimates that this only works in half the cases. For the other half, the auction date must be arranged in district court.

2. How can I find out which property is being auctioned?

Since foreclosures must be registered with the responsible county court, the list of available properties is public. The ZVG portal, which is operated by the ministries of justice of the federal states, is available nationwide for this purpose. Here you can use a detailed search mask to find things that interest you – including undersea cables and planes, by the way, if that interests you more than homes. Often times are predetermined. For example, you can already find auctions that won’t take place until November.

3. Can I see the house before the auction?

It depends on the previous owner. He may allow potential buyers into the home in advance, but is not obligated to do so. Since selling a foreclosure is too emotional for someone to lose their possessions, many owners refuse to preview. But that doesn’t mean you’re buying a house blindly. You will be notified in advance of the market value in the prospectus and receive an official assessment of the condition of the home. However: the owners also don’t have to let the appraiser into the house. Under certain circumstances, the report only indicates what a professional can see from the outside.

4. What should I take into consideration before a mortgage auction?

Before you can participate in the foreclosure sale, you must actually transfer the money. Creditors usually require a deposit of ten percent of the market value from all potential buyers. The money will be deducted directly from your bank account and returned if you do not bid on the property. Warning: This can be a really large amount. With a market value of €200,000, you have to transfer €20,000. Depending on the auction, you can also provide a guarantee in the form of a (bank) guarantee. Otherwise, it is only important that you bring your ID with you to the auction.

5. How does foreclosure sale work?

The auction is usually held in the responsible county court. A court-appointed judge first discloses all known information about a property. This includes all entries and details from the Land Registry – including whether there is a monument protection order – who the creditors are, how high their claims are, the market value of the property and any important details from the market value report.

Only then does the actual auction begin. On the first appointment, at least 50 percent of market value must be presented. If the highest bid is a maximum of 70 percent, creditors can refuse the sale, but above that they have to accept it. If there is no change of ownership on the first appointment, a second appointment will be scheduled. In this case, there are no lower limits. On both dates, the auction lasts at least 30 minutes, during which you can bid. Only then will the judge execute the famous three blows of the hammer. However, the property is not sold when the hammer falls for the third time, but when the judge officially announces the result. So you can increase your bid at the last second.

6. What do I have to pay for?

Once the judge gives you the bid, you are automatically the new owner of the property. Congratulation. However: The amount you are bidding in the auction is not the total purchase price. There are additional costs. First of all, court costs. This means, for example, that the appraiser who appraised the property up front must also pay. Costs can exceed 5,000 euros. As with any home purchase, you also have to pay an entry fee at the Land Registry, the necessary notary fee, and an estate transfer tax of 3.5 to 6.5 percent, depending on the federal state. However, compared to the average home purchase, there are no brokerage costs.

7. Do I have to take debts from the Land Registry?

Debts can be entered into the property cadastre, for example land charges. The survival of these things after purchase depends on the individual case. If it is also sold, you, as the new owner, must pay the land fee according to the terms set forth there. However, this usually lowers the auction price. Example: If a property worth €300,000 is sold at auction, the minimum bid on the first date will be €150,000 (50 percent). However, if there is a €50,000 land fee that the new owner has to assume, the minimum bid is reduced to €100,000.

8. How do I pay for the purchase?

Immediately after the successful auction, the court sets the distribution date. However, it may not be until months later. Six to eight weeks is usual. You must transfer the purchase price to court by this date. Ideally, you should therefore discuss financing with your bank beforehand.

The longer you wait, the more expensive it is, because your highest bid earns interest from the moment the auction starts – in North Rhine-Westphalia, for example, four percent per year. On the distribution date itself, the court then determines which creditors your money will be presented to and in what order. Therefore, the distribution date is considered the end of the auction process.

9. When can I move into my new home?

Since you are the new owner legally with the award – but at the latest with entry into the Land Registry – you can move in from then on. In practice, this only works if the previous owner has already moved in. In any case, you still have to make an appointment with them for the official handover of the apartment.

10. Do I always get a deal with a foreclosure sale?

Not buying a property through foreclosure comes with two catches. Firstly, you often do not have the opportunity to view the property yourself in advance. At best, you can see the new home from the outside. In the best case scenario, you only know what it looks like from the court-appointed expert opinion. Here a bad surprise can lie in the form of necessary renovations or renovations, which, in turn, also significantly increase the purchase price.

But even with real estate without such hooks, it can be expensive. Since the number of foreclosures has been steadily declining in recent years, there are few alternatives for interested buyers. This leads to higher prices at foreclosure auctions, sometimes above market value. In addition, the market value of foreclosure properties is increasing as property prices rise every year.

11. What should I consider when making the first mortgage sale?

Experts advise attending the first two to three cases of foreclosure without submitting actual bids on the property and without even bidding on it. Most importantly, learn about the procedures for selling a foreclosure. If you really want to bid on a particular item, you must first get as much information about it as possible. This is the only way to avoid the risk of unpleasant surprises after the auction. You should also be clear about your budget beforehand and not exceed it in the heat of the moment during the foreclosure sale. Otherwise, at worst, you’ll be the poor guy on the other side of the auction a little later, watching your house under the hammer.

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