Investment Interest in the Real Estate Market by Auction

legal insight

October 2023

George Psarakis, LL.M., LL.M., PgCert

(republished from naftemporiki.gr)

Summary: It is a reality that in the last 2-3 years we have seen a sharp increase in interest from companies and individuals wishing to invest in the auction property sector. The initial reservations and fears, during the first years of operation of electronic auctions, have now been replaced by a strong interest in finding properties where either due to lack of interest of debtors to correct the first bid price, or due to the automatic reduction of the price after 2 fruitless attempts, the acquisition values are quite tempting. In this commentary, we provide some thoughts on this issue and highlight the checks that a prudent investor should perform.

It is a reality that over the last 2-3 years we have seen a sharp increase in interest from companies and individuals looking to invest in the auction property space. This is because one can identify properties with a fairly low first offer price compared to the commercial prices of the area concerned and this is what attracts the interest of investors. The initial reservations and fears, during the early years of e-auctions, have now been replaced by a keen interest in finding properties where either due to lack of interest of the debtors to correct the first offer price, or due to the automatic reduction of the price after 2 fruitless attempts, the acquisition values are quite tempting. It should be noted that official valuations, which determine the first offer price at an auction, are often made with incomplete data or an incorrect method (e.g. the comparables method, which is inappropriate for investment property that generates rents where the method of income capitalization with discounted cash flow analysis, etc. is preferred) or even without knowledge of the property's interior, resulting in a significant deviation from its market value. 

However, private participation for the purchase of property for owner-occupation is less common as the market for financing products for the acquisition of property at auction is not well developed. So what we usually see is participation of companies and various other investment schemes for the purpose of buying and operating the property (further sale/lease). 

Moreover, the main risk currently faced by the successful bidder is that the debtor will seek legal remedies. The debtor is likely to have already brought legal proceedings against enforcement acts or even against the enforceable title itself on the basis of which the auction is taking place. The auction process in this case is not hindered and it is therefore possible that after the auction, for example, the seizure report will ultimately be annulled and therefore that this annulment will also invalidate the auction itself. The problem with the whole procedure is that the objections to the seizure (and the continuation statement and so on) are not posted electronically so that they can be made known to the potential bidders and assessed by their legal representatives. Therefore, the lawyer of the prospective bidder must search for any legal remedies exercised by the debtor in the relevant Magistrates' Courts/Courts of First Instance.

It is also common for the auctioned property to be "encumbered" with certain rights, such as a lease. The legislator now protects the successful bidder by giving him the right to terminate the lease of a property in which a business is carried on, whenever and for however long the lease was concluded. This does not apply, however, to leases of property where no business is carried on (e.g. accounting/law offices etc.) and where the lease is evidenced by a document of definite date at a time prior to the seizure. In such cases, the successful bidder cannot evict the tenant and is forced to wait for the normal expiry of the contract. 

Furthermore, the prospective bidder must bear in mind that the transfer of property by forced sale does not constitute an original but a derivative way of acquiring the property. In other words, even if the auction held is valid, the latter is not capable of contributing to the transfer of ownership to the successful bidder, since the auctioned property did not belong to the debtor.

The steps that must therefore be taken in order to ensure that ownership of the property is safely transferred to the successful bidder are, in particular, as follows: (a) carrying out a check at the competent land registry office in order to obtain a full picture of the status of the property; (b) searching for any legal remedies that may have been brought by the debtor in the context of the enforcement proceedings and assessing their possible success; (c) checking for pre-auction invalidations that may affect the validity of the auction itself, (d) checking the urban planning file of the property under seizure; (d) checking lease issues prior to the seizure, which may affect the possibility of terminating the lease and therefore the direct exploitation of the property; (e) transcribing the summary of the award report to the competent land registry office in conjunction with the assignment of the use of the property through the procedure of expulsion of the former owner.