Forced Auction of a Property

Forced Auction of a Property

The forced auction of a property is a means of execution with which outstanding monetary claims are settled through the sale of immovable property. It is used when the debtor is the owner of a property but does not pay his debts. The aim of the forced auction is to publicly sell the immovable property and use the proceeds to pay off the debts.

The procedure is regulated in § 133 of the Enforcement Code (EO) and takes place in several steps. Even if the procedure takes some time, the forced auction is one of the most effective means of enforcing legitimate claims from immovable property.

Parties to the forced auction

In the forced auction procedure, the executing creditor and the obligor face each other. The executing creditor applies for the auction in order to receive his outstanding monetary claim from the proceeds of the immovable property. The obligor is the owner of the property that is being auctioned.

Procedural steps

The forced auction procedure follows a clearly regulated process that leads step by step from the application to the final payment of the auction proceeds. The central procedural steps are:

• Filing an execution application
• Approval of the execution application and annotation of the initiation of the auction procedure in the land register
• Appointment of an expert who prepares a valuation report and announces the estimated value
• Scheduling an auction date
• Holding the auction date
• Scheduling the session for the distribution of the highest bid

Special features

The enforcing party must enclose a copy of the execution title to the execution application, if necessary with confirmation of enforceability. This enclosure can only be waived if a lien already exists on the property.

The application must also be accompanied by a list of interested parties containing all persons who have rights in rem or registered pre-emptive or repurchase rights to the property. The competent court is the district court that keeps the land register.

If the application is approved, the court orders the forced auction of the property and notes the initiation of the procedure in the land register.

This land register annotation has the effect that the auction can also be enforced against subsequent owners or acquirers of rights to the property. At the same time, the creditor is obliged to pay an advance on costs, which is usually used for the valuation of the property, within a period set by the court. If no payment is made, the procedure will be discontinued.

Valuation

After the advance on costs has been paid, the property is valued by a court-appointed expert. The valuation is based on the Property Valuation Act (LBG). The expert must use recognised valuation methods that correspond to the current state of science. In practice, the following methods are mainly used:

• Comparative value method: The value is determined on the basis of similar properties that have recently been sold.
• Capitalized earnings value method: The value results from the sustainably achievable rental income.
• Real value method: Here, the building fabric is in the foreground. The value results from land and construction costs less depreciation.

Peter Harlander
Harlander & Partner Rechtsanwälte „The valuation according to the Property Valuation Act ensures that the market value of a property is determined on a comprehensible basis.“

Objections to the estimated value

When the report on the property is finished, the court informs all parties involved of the value that the expert has calculated for the property. Nevertheless, the parties involved have the opportunity to raise objections to the report. If someone believes that the determined value is incorrect or has been calculated incorrectly, they can inform the court.

If someone raises objections, the court will examine the case again. It can instruct the expert to supplement or improve the report.

Award

A forced auction is public and usually takes place in court. The judge calls for bids to be submitted. If no higher bid is submitted, the judge closes the auction and awards the contract to the highest bidder. This ends the bidding process and the award forms the basis for the acquisition of ownership. The buyer becomes the owner of the auctioned property including accessories directly through the award.

Distribution of the highest bid

If a property or an object is sold in the context of a forced auction, the enforcing creditor is primarily concerned with getting his outstanding claim paid. The proceeds of the sale are the so-called highest bid. When the buyer pays this, the court distributes the proceeds to those entitled.

As soon as the buyer has paid the entire purchase price, the court orders a hearing on the distribution of this highest bid ex officio. This so-called session for the distribution of the highest bid serves to determine who receives which share of the proceeds.

The following are invited to this hearing, among others:

• the obligated party
• the enforcing party
• all persons who, according to documents, have rights or encumbrances on the auctioned property
• the buyer himself can participate voluntarily

The court also makes the hearing publicly known. There must be a period of at least four weeks between the publication and the actual hearing.

Sebastian Riedlmair
Harlander & Partner Attorneys „The aim of every compulsory auction is to fully secure the justified claim of the client through the proceeds of the sale.“

Overbid

After a forced auction, not everything is always finally decided. If the purchase price achieved is less than three-quarters of the estimated value of the property, there is another option: the so-called overbid. This is to ensure that the property is not sold too cheaply and that creditors receive the highest possible proceeds.

An overbid is a new offer that someone can submit to the enforcement court within 14 days of the public announcement of the award. In order for the overbid to be valid, the offered price must be at least a quarter higher than the original highest bid. In addition, the overbidder must deposit a quarter of the offered purchase price as security with the court. Only then will the overbid become effective.

Receipt of several overbids

If there are several overbids, the amount of the offer decides. Whoever offers the highest price will be admitted. If two people offer the same amount, the one who submitted the overbid first counts.

Effect of the overbid

If the overbid is accepted by the court and the decision becomes legally binding, the original auction loses its validity. The court cancels the first award and grants the award to the new bidder. This decision is served in writing to the parties involved (overbidder, former buyer, creditor and obligated party) and is also published in the edict file.

As soon as the court has legally granted the award after accepting an overbid, no further overbid is permitted. This ends the procedure definitively and the new buyer becomes the owner of the property.

Your Benefits with Legal Assistance

A lawyer will accompany you through the entire forced auction procedure and ensure that your claim is fulfilled completely and in a legally secure manner. He checks all procedural steps, protects your deadlines and consistently enforces your claims.

A specialised law firm protects you from formal errors, assesses the chances of success and ensures that you receive the amount you are entitled to from the highest bid.

• Support during the entire execution procedure
• Support in enforcing your claims
• Protection of the interests of all parties involved

Frequently Asked Questions – FAQ