I’ve been to several foreclosures in Berlin and I’ve learned six things.
The myth still persists that you can buy a property cheaply at foreclosure auctions.
You can read whether that’s true, what experiences I’ve had and what you should definitely know before a foreclosure auction.
foreclosures are associated with a certain drama. Whenever I’m at one, it reminds me of some kind of theatrical performance. Usually several dozen people meet in a district court, a judge conducts the hearing. But the auction is usually less sober than one would expect for a German one Focused introduces.
Bids are called into the room, the mood is heated and there can always be discussions between those present. And after about thirty minutes it’s all over and the room empties as quickly as it fills.
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Visiting a foreclosure sale is incredibly exciting. At the same time, they are considered the right place to get a property at a reasonable price. But is that really true? I’ve been in four foreclosures Berlin and learned six things in the process.
1. The market value is usually outbid
Before a foreclosure auction, an appraisal is always prepared in which the condition of the apartment is recorded and a market value is also determined. You can view the report free of charge in advance on the internet on foreclosure portals.
However, my experience shows that the market value is often outbid. In three out of four foreclosures, the market value was exceeded by several 10,000 euros. That said, a foreclosure sale isn’t necessarily the opportunity for bargains, as is always done.
2. You don’t always have to provide security – and then you can bid spontaneously
Before the dates of the foreclosure auctions, the courts always point out that security must be provided. This is ten percent of the market value from the report. If the market value were estimated at 200,000 euros, you would have to transfer 20,000 euros to the court’s account in advance as security. Alternatively, you can bring a guarantee from the bank with you.
A party to the process, such as the owner, can then apply for this security when you place a bid. If you have not provided the security, you are not allowed to bid.
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But there is an exception. Is not a party to the proceedings, owner or lender, present, no security deposit can be requested. Then everyone in the room can actually bid. All you need is an ID document.
3. Foreclosures are often canceled
It often happened that I had researched the property the day before a foreclosure sale, but the appointment was then canceled at short notice. Debtors often still fulfill their obligations in the last few days and thus forestall a foreclosure sale. This can only happen a few hours before the appointment. This is particularly annoying for those who had already prepared intensively for the purchase of the property and whose plans were then ruined.
By the way: The fact that the owner of the house or apartment has not yet found a new place to live is irrelevant to the court. A request to postpone the date for this reason will be rejected.
4. Foreclosures aren’t just used to pay off debts
It is often mistakenly assumed that in foreclosure sales a property always comes under the hammer where the owner has the Debts has not settled. But that’s not true. Often enough it is also about dissolving ownership, such as a community of heirs. If there are two children who inherit a house, they can agree to have the house foreclosed on. This is called a division auction.
5. Foreclosures pose a high risk for investors
At the beginning of June I visited a foreclosure sale in Berlin. It was about one studio apartment in Charlottenburg, which the debtor had rented. However, tenancies remain in place in the event of a foreclosure sale. In this case, the lease was several years old, the rent was never adjusted and was therefore low.
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In this case, an investor should not give notice to the current tenant and would have to live with low rental income for the time being before he can gradually increase the rent. The situation is different if the highest bidder wants to move in himself. Then he should register his own use and give notice to the current tenant.
6. Owners are allowed to bid and can drive prices up
In May, the foreclosure auction took place family home in a posh suburb of Berlin. This was a divisional auction. However, one heir was willing to push the price up the house further. He was present himself and kept bidding. In the end, the house was sold for almost 200,000 euros above market value.