Compulsory auction: procedure, reasons, enforcement, requirements and risks

Foreclosure Procedure – Property owners, like any other person, have expenses and obligations that they must meet and pay. If a property owner is insolvent and cannot pay certain debts, it may happen that a foreclosure sale of a property takes place. Such a proceeding is initiated by the creditor in the appropriate county court. This is usually a very unpleasant situation for the person concerned. Potential real estate buyers, on the other hand, are happy about such opportunities, as many hope to be able to purchase a property cheaply through this circumstance.

Real estate foreclosure – meaning & procedure

A compulsory auction, as the name suggests, takes place out of compulsion, i.e. against the will of the owner. The forced sale of a property is an enforcement procedure. A creditor has the option of filing for foreclosure if the owner of a property cannot pay off a debt claim. This procedure is carried out in order for a creditor to get his right. Before a compulsory auction can take place, the general conditions for enforcement must be met.

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Procedure – Market value, bidding hour & bank guarantee

The procedure in 7 steps:


The process of a compulsory auction is subject to certain specifications. The local court first checks whether the conditions for enforcement are met. As soon as the decision has been made that the local court will accept the creditor’s claim and initiate a compulsory auction, the market value of the property must be determined. This market value is usually determined by the foreclosure court. The court appoints an independent specialist to prepare a valuation report. A so-called market value appraisal can be viewed by anyone who is involved in the proceedings and also by people who would like to bid for the property to be auctioned.

Auction date

Now we come to the auction date. This date is publicly announced in advance in the notices at the district court. Before the actual auction begins, those present are informed of the auction conditions, the market value and the building encumbrances, among other things. In addition, the lowest bid is determined and this represents the starting point of the auction.

Bidding time

After these actions, the bidding period begins, during which interested parties can place their bids. The bidding period must last at least half an hour, but can also last longer. During the whole time it is allowed to ask questions about the property. Only when no one is interested in bidding and the last bid has been repeated three times, the auction is closed.


Any person submitting a bid must be able to deposit a security amounting to 10 per cent of the market value. A creditor whose right would be affected by this bid may demand this security deposit. It must be possible to provide a security deposit immediately.


Once an offer has been accepted, the identity of the interested party is verified. This is usually done by means of an identity card or passport.

Market value

If the offer is below 70% of the market value, the creditor is entitled to demand a second auction date. If the offer is below 50% of the market value, the court will set a second auction date.

Surrender date at court

If the property has been successfully auctioned, the court will set a transfer date for the property for 6-8 weeks later.

The conditions for enforcement

There are certain conditions for a forced sale to take place. In order for a decision to be made as to whether or not a forced sale is justified, the creditor must file an application with the local court. The general enforcement requirements consist of three areas; the title, the clause and the service.

The most important prerequisite for a forced sale is that a creditor has a claim against a debtor. A compulsory auction first requires an enforcement title. This enforcement title is a document, a court judgment or enforcement order that determines the claim to be enforced. Furthermore, an enforcement clause is required. An enforcement clause is an official note of enforceability. In addition, service of the title is required, i.e. the title must have been served on the debtor before or at the commencement of enforcement. The service ensures that the debtor has the opportunity to prepare for the enforcement.

What happens if there is no bidder who offers the minimum bid?

The proceedings are discontinued. At this point, the creditor has the option of requesting a continuation of the proceedings. If the highest bid is below 70% of the market value, the creditor has the right to schedule a second auction date. If the bid is below 50% of the market value, the court will set a second auction date.

Risks of a forced sale

Most people who attend a foreclosure auction hope to get a bargain. However, this is not always guaranteed. There are risks involved in a foreclosure auction that you should be aware of. Here, we have compiled possible risks for you so that you can be prepared in the event of a foreclosure.

Personal viewing rarely possible

Before participating in a foreclosure auction for a property, it is important to obtain sufficient information beforehand. Unfortunately, it is rarely possible to inspect the interior of a property in advance, as the occupant does not have to allow any insight into the interior. For this reason, possible damage or defects often only appear in retrospect.

Existing tenancy must continue to exist

If you buy an already rented property at an auction, you automatically become the landlord and have no right to terminate the tenancy, unless you need the property for your own use. You are therefore bound to the tenants to a certain extent.

Bidder offers more than financially possible

At a foreclosure auction, there is always the risk of falling into a so-called “bidding frenzy”. If the desire to buy the property at auction is particularly great, the risk of getting into such a situation increases. The active bidders drive each other up and do not notice it sometime that they have already arrived at the limit fixed by themselves before. Through this happening it can happen that one drives oneself into a financial ruin. Once a foreclosure sale has been concluded, there is no longer any right of withdrawal.

No warranty on construction defects

If you have managed to buy a property at auction and subsequently notice construction defects, this is particularly annoying. The disadvantage of a forced auction is that there is no warranty on construction defects.

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Foreclosure is a dreaded scenario for any owner of a property that has not yet been paid off. For participating bidders, however, the court-ordered auction opens up attractive opportunities. The following article explains how a compulsory auction occurs and how it proceeds.

What events lead to foreclosure?

A loss of liquidity resulting from unemployment, long illness or other causes makes it impossible to service the real estate loan. The creditor sends the first reminder because the instalment has not been paid. If there is no reaction, a second reminder with a deadline is sent and the third reminder contains the threat of possible legal steps. If the debtor still does not react, the bank applies for a dunning order at the competent court in Coburg. The central dunning court does not check the legality of this and the debtor can object to the notice within a period of time. A default summons that is not objected to is followed by a writ of execution, which is executed by the local district court through a bailiff. The bailiff has the task of recovering the debt and looking for attachable items. An agreement to pay the outstanding debt in instalments would be possible as an alternative. If there are no attachable items and payment in instalments is impossible, the next step is an affidavit. The debtor must take the oath of disclosure to the bailiff, which is associated with a Schufa entry. Following the affidavit, the creditor applies to the competent local court for a compulsory auction. A court order is issued for the compulsory auction proceedings, which is served on all parties involved and publicly announced. For the homeowner, the forced auction is an absolute horror scenario, but for interested parties it is an attractive opportunity to purchase real estate at a reasonable price.

Things to know about foreclosure

You can participate in a forced sale auction as a bidder if you are at least 18 years old and legally competent within the meaning of the German Civil Code. In order to be able to place a bid, you must prove your identity with a valid identity card or passport. To bid on behalf of another person, you need a notarized power of attorney. The same applies if you are acting as a representative of a legal entity (company). You can also bid for an object together with another person. Provided that you are both present and inform the presiding judicial officer that it is a joint bid. You must give details of the shareholding, as you will be entered jointly in the land register if the bid is accepted.

How much time does a foreclosure sale take?

It is difficult to give an exact time, but you should usually expect an hour or a little more. In the first part of the proceedings, information relevant to the court is announced. The announcement part is followed by a bidding period lasting about 30 minutes. However, bids can still be submitted after this time, and the end of the bidding period is announced by the court. A compulsory auction can be considerably protracted if participants are eager to bid. As a rule, it ends when bids are not submitted, after several requests by the court. In a compulsory auction, every participant has an equal chance. The highest willingness to pay results in the acceptance of the bid, which is negotiated and decided on immediately or at a prompt date.

Important questions about foreclosure

All details of the property relating to the compulsory auction will be published in the conditions in the notice section of the appointment. As a bidding interested party, you have no right to inspect the land register. An inspection of the property in the run-up to the auction will not be carried out by the court. You can only inspect the property on your own initiative in exceptional cases because it is either vacant, rented or the owner refuses access. However, it is usually possible to inspect the property in person from the outside, and you can also inspect the unabridged version of the court-ordered valuation at the local court. Since there is no seller in the classical sense at a compulsory auction, no one is liable to the buyer. There are no guarantees or warranties of any kind in a compulsory auction. Only the expert opinion of the court-appointed expert offers you security. However, his work does not entitle you to derive any claims. It is also important to note that as a bidder you have no right to withdraw from your bid. The court considers every bid as a contract, which becomes legally valid and binding through the acceptance of the bid.

Security to be provided

Upon inspection of the appraisal, inquire whether the court requires you, the bidder, to post a security deposit. At a foreclosure auction, you may be ordered to deposit a sum that is 10 percent of the fair market value. You would have to transfer the amount to the court cashier before the auction and receive the money back if the property goes to someone else.

How does the payment work at the surcharge?

If you submit the highest bid, the security deposit remains with the court and you will be asked to pay the difference within six to eight weeks. Without a security deposit, the total amount will be due within this period.

What are the fees associated with a foreclosure sale?

From the day of the award until the receipt of the amount offered, interest will be due, the amount of which the district court must inform you of. In addition, the court charges a so-called surcharge fee. Furthermore, an amount is charged for the required land register entry and the local tax office sends a request for payment of land transfer tax, the amount of which depends on the federal state.

Basic considerations for foreclosure

The criteria for a judicial auction are the same as for a purchase on the real estate market. As a bidder, you should consider in advance what requirements the property must meet and how much it may cost at most. Provided there is no great demand, you can buy your dream home at a forced auction for far less than the market value. On the other hand, the non-existent warranty may result in undesirable additional costs.

Tips on foreclosure

In order to better understand the process, you should observe the action several times as a spectator and gain experience. If a property to be auctioned arouses your interest, try to get as much information as possible. Experts such as local lawyers and real estate agents would be possible contacts. If you are serious, the financing should be rock solid before the auction, because you could win the bid, and would have to fulfill the contract. Study in detail the relevant appraisal and also explore the surroundings of the property during the possible exterior inspection. Be sure to set a personal maximum bid before the foreclosure auction and do not exceed this limit.

You have set the maximum price at your leisure and with the help of various information. If other people’s bids exceed this, try your luck at another foreclosure auction.

When can you dispose of the auctioned object?

If the property is occupied, you as the new owner must ask the debtor to leave. The request must be made in writing and in compliance with legally stipulated deadlines. In the case of a rented property, you take over existing tenancy agreements with all rights and obligations.