Participation in an Auction - The 5 most common questions

Legal Insight

December 2021

George Psarakis LL.M. (mult.), PgCert

(republished from Euro2day.gr)

Summary: About two years ago we wrote an article (see here) in relation to the pitfalls and risks in buying property at a forced sale. We return with this article to provide answers to the 5 most common questions asked by prospective bidders.

Α. Can I see the interior of the property? How can I get an insight into any unauthorised constructions or any poor condition of the interior?

Under a provision introduced in 2015 but repealed in 2018, the bailiff could schedule visits by prospective bidders to the property and in particular to the interiors of the property. Indeed, the relevant explanatory memorandum of the then law provided the following: "This addition is necessary because, while the law expressly provides for the bailiff's right to enter the seized property in order to meet the obligation to visit the property on site, according to para. 2 of that article, in practice the implementation of those two provisions often proves impossible".

Currently, it is not possible for a prospective bidder to carry out an internal on-site inspection of the auctioned property. Only an external visual inspection is possible, which is already done by the bailiff during the seizure of the property, where he takes relevant photographs (which are then posted on the eauction.gr website). The bailiff, however, is allowed by law to enter the property to be seized, which would enable him to proceed with a description of the interior, but in practice this rarely happens for fear of friction.

And a few weeks ago a special provision was introduced in the Code of Civil Procedure giving the bailiff the right to check the planning file of the property to be seized. Therefore, from the beginning of 2022, the prospective bidder will have a more complete picture with regard to the urban planning status of the property, which until now was mainly provided through the valuation reports posted on euction.gr (which were also based on the file that, mainly, the credit institution had in its hands before the foreclosure). 

Therefore, the answer to the question is that the prospective bidder cannot currently have an accurate picture neither of the internal condition of the property nor of any arbitrary constructions/changes of use etc.

Β. What is the biggest risk I run when participating in an auction?

The main risk currently faced by a successful bidder in an auction is that the last owner of the property may seek legal remedies. In February 2020 we wrote: "At the same time, the debtor is likely to have already brought legal remedies against enforcement actions or even against the executory title itself. He may have already appealed against the payment order or the final judgment on the basis of which the auction was accelerated without, however, having succeeded in suspending the execution. In this case, the auction procedure is not hindered by the possible exercise of the above-mentioned legal remedies and it is therefore possible that after the auction, for example, the payment order will ultimately be annulled and, if appeals have been lodged against the seizure and award report, that this annulment will also invalidate the auction itself'". Of all the possible remedies, however, the most dangerous to overturn the auction is an opposition to the foreclosure report. If no such objection has taken place within the prescribed time limit (45 days from the service of the seizure report), then the risks of participation are minimised (an objection to the auction, if not based on the invalidity of the seizure report, etc., is rarely successful).

The problem with the whole process is that the objections to the foreclosure (and the declaration of continuation/substitution etc.) are not posted electronically so that they can be made known to the prospective bidders and evaluated by their legal representatives. Therefore, the lawyer of the prospective bidder must search for any legal remedies of the debtor in the relevant Magistrates' Courts/Primary Courts after obtaining information, usually from the lawyer of the enforcing lender, who has the complete file of the dispute (however, a check will always be required regardless of the information provided by the lender, as the latter has an interest in not highlighting any invalidities etc.). in order not to reduce the bidding interest).  

C. What if the property is rented?

We wrote in February 2020: 'It is also common for the auctioned property to be 'encumbered' with certain encumbrances, such as a lease. In this case, before the changes introduced by the legislator in 2015, it was logical that the property, due to the conditional commitment of the successful bidder-new owner from the already established lease contract, would lose part of its value. This is because the new owner could not operate the property commercially when it was already leased to a third party and that lease also bound him. Now, however, the legislator protects the new owner by giving him the right to terminate the lease of a property in which a business is carried on, whenever and for however long it was concluded (i.e. after 6 months from the auction as now provided for by the new law which comes into force on 1/1/2022).This, however, does not apply to leases of real estate where no business is carried out and the drawing up of which is evidenced by a document of certain date at a time prior to the seizure. In such cases the successful bidder cannot evict the lessee and is forced to wait for the normal expiry of the contract. As can therefore be understood, the risk to the successful tenderer, although reduced, is still present'. Recently, however, the legislature has come along and made this risk of having a civil lease a thing of the past as well: As the relevant explanatory memorandum of a recent legislative initiative states, "Further, in order to protect the successful bidder, who must acquire the property free of any encumbrance, so as to have an incentive to participate in the auction, the right to terminate the civil lease is granted to the successful bidder, subject, however, to the limitation of three years. Therefore, if at the time of the auction the three-year lease has already been completed, the successful bidder has the right to terminate the lease, and the consequences also come into effect in this case after six (6) months from the date of termination. If, however, the three-year period has not been completed, termination will be possible after the three-year period has been completed." So now the successful bidder can also terminate the civil lease if the 3-year period has elapsed since its conclusion. Of course there is a risk here of dummy civil leases just before foreclosure to make participation in the auction less tempting. Finally, it is worth noting that as of 1/1/2022 the bailiff will be able to obtain copies of the leases from the competent tax authorities in order to inform the prospective bidders accordingly via the extract of the seizure report posted electronically (currently the prospective bidder must either obtain a relevant prosecution order or try to find out about the existence of the lease from his own sources). 

D. How do I get the keys to the property after the auction?

Here we come to another big issue. I managed to get ownership of the property because I was the highest bidder. However, the property is occupied either by the debtor himself or by a third party tenant. In order to be able to move in, if the owner of the property does not leave voluntarily, I will have to start eviction proceedings with a bailiff. In other words, I would have to start a new enforcement procedure which could also be challenged by means of corresponding legal remedies (appeals). Here, however, the possibilities of the previous owner's defence are quite limited. However, it is still an issue, since the successful bidder will have to bear additional costs for the expulsion proceedings, and movable property located within the property will have to be kept for a period of 6 months, unless the owner removes it or an auction takes place.

Ε. Does the acquisition of the property include other costs in addition to the amount for which I will overpay?

When you overpay by paying, for example, the amount of the first offer of EUR 100 000, you may consider that this is the end of the charge. However, this is incorrect. The following costs should be included in the acquisition cost: notary's fees and transfer fees. The notary's fee consists of the fee for drawing up the auction report and the summary of the auction report. As regards the latter, it is accepted that half of it is payable by the successful bidder and the remainder is to be deducted from the auction proceeds (see Article 8(1)(b)). Circular No. 69/2016 of the Coordinating Committee of Notaries' Associations of Greece - unless there is a contrary clause in the extract of the foreclosure report, according to which the successful bidder bears the entire fee for the preparation of the summary). In addition, the successful bidder will also be charged the transcription fee for the abstract of the foreclosure report (which amounts to 5 or 6 %, depending on whether the transcription is made at a mortgage office or a land registry office respectively, plus VAT).  

However, the successful bidder will not be charged any additional costs for the transfer tax, which is ultimately deducted from the corresponding part of the bidding price and therefore included in it (cf. Supreme Court No 837/1994 - although according to the usual practice of notaries, this tax is not deducted from the auction proceeds but is charged to the successful bidder).