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ΚΙΝΔΥΝΟΙ ΑΠΟ ΤΗΝ ΑΠΟΚΤΗΣΗ ΑΚΙΝΗΤΟΥ ΣΕ ΠΛΕΙΣΤΗΡΙΑΣΜΟ

RISKS OF ACQUIRING REAL ESTATE THROUGH AUCTION

Purchasing real estate at auction can be an opportunity to acquire property at a low price, but it also carries risks.

What are the steps for acquiring real estate at auction?

1. Finding the Property:

The majority of auctions are now conducted electronically through the e-auction.gr platform. You can browse the available properties, filtering by criteria such as area, type of property, starting bid price, etc.

2. Property Due Diligence:

  • Information from the auction registry record: The registry record contains detailed information about the property, such as the address, surface area, encumbrances, any mortgages, etc.
  • Personal visit: It is important to visit the property in person to ascertain its condition.
  • Legal due diligence: A legal review by a lawyer is essential to ensure the legality of the procedure and to identify any legal issues.

3. Participation in the Auction:

  • Registration on the e-auction platform: To participate in an electronic auction, you will need to register on the e-auction.gr platform.
  • Deposit of security: Before the auction, you must deposit security equal to 10% of the starting bid price.
  • Declaration of participation: The declaration of participation is submitted electronically through the e-auction platform.

4. Auction Procedure:

  • Electronic auction: The auction is conducted electronically through the e-auction.gr platform.
  • Bidding: Interested parties may submit bids until the close of the auction.
  • Award: The property is awarded to the highest bidder.

5. Payment of the Price:

  • Settlement: The successful bidder must pay the auction price within 30 days of the award.
  • Taxes and expenses: In addition to the price, the buyer must also pay the auction costs, 24% VAT, and any other fees.

6. Acquisition of Ownership:

  • Registration with the land registry: Once the price has been fully paid, the buyer may register the property in his name with the national land registry (kτηματολόγιο).
  • Eviction of any tenants: If the property is leased to a business, the buyer may file a lawsuit.

What are the risks of acquiring real estate at auction?

1. Defects in the enforcement procedure

First of all, in the procedure for the compulsory enforcement of real property, the major issue is not whether the property being auctioned bears encumbrances or not — since it is quite likely that it does, given that the matter has reached the auction stage — but rather whether the enforcement procedure has been carried out lawfully, so as to exclude any serious likelihood of an opposition (ανακοπή) seeking the annulment of enforcement acts. In other words, where the procedure has not been carried out as required by law, the final award of the property is at risk of annulment following an opposition by the debtor-former owner. Even after the conclusion of the auction and payment of the auction proceeds, the auction may be annulled, with the result that ownership of the property is lost and the successful bidder is forced into a multi-year court battle to recover the capital paid. A vivid example of the formality of the procedure is a recent ruling (Athens Single-Member Court of First Instance 1057/2019), in which the court annulled the seizure report, with the result that the auction itself was rendered annullable, because the auction date had been set before the seven-month period had elapsed from the day of the seizure. The defects that may creep into an auction are numerous.

2. Pending litigation

At the same time, the debtor may have already filed legal remedies against acts of enforcement or even against the enforceable title itself. He may have already challenged the payment order or the final judgment on the basis of which the auction was initiated, without, however, having obtained a suspension of enforcement. The auction procedure in such a case is not impeded by the filing of the above legal remedies, and therefore it is possible that, after the auction, the payment order may ultimately be annulled and, where oppositions have been filed against the seizure report and the award, that nullity may drag the auction itself into nullity. The legislator, of course, in 2015 took precautions and provided that the judgment on an opposition for any defects in the seizure must be published before the auction, so that prospective bidders may be assured that the procedure is not at risk. However, at the Athens Court of First Instance this is generally not observed (due to the workload), and the judgment on the opposition may be issued long after the auction.

3. Unknown Court Decisions

It is also possible that, before the auction, a court ruling may have been issued which prevents the continuation of the enforcement procedure and of which the successful bidder has not been made aware. Indicatively, I would mention that if the owner of the auctioned property has filed an application for the reversal of the seizure before the competent magistrate’s court (Article 1019 of the Code of Civil Procedure (KPolD) — reversal is ordered owing to the lapse of a long period of time from the seizure without an auction having taken place) and a relevant ruling is issued granting his application, the seizure is reversed as of the date of issuance of the ruling, and any auction subsequently held may be annulled (by means of an opposition). The dangerous point is, on the one hand, that the reversal is deemed to have taken effect from the date of publication of the ruling of the magistrate’s court and not from its registration in the public records (land registries and cadastral offices), and, on the other hand, that in most cases the ruling is not registered in the public records immediately, but only after several months. Therefore, only after a check at the competent magistrate’s court can a prospective bidder be certain of the non-existence of such a ruling.

4. Real rights of third parties

Furthermore, the prospective bidder must bear in mind that the transfer of real property by way of compulsory auction does not constitute an original but a derivative mode of acquiring ownership. In other words, even if the auction held is valid, it is not capable of effecting the transfer of ownership to the successful bidder if the auctioned property did not belong to the debtor — that is, if the latter lacked the power of disposal. In such a case, the actual owner may bring an action for recovery of the property within five years from the registration of the summary of the award report, with the possible result that the successful bidder ultimately loses ownership. Moreover, other real rights of third parties — apart from mortgages and prenotations of mortgage — for example, real servitudes such as, principally, the servitude of habitation, are not extinguished by the auction and therefore continue to encumber the property. To this extent, ultimately, a legal title review of the auctioned property is also indispensable.

5. Private agreements with third parties

It is also a frequent phenomenon for the auctioned property to be “encumbered” with certain personal rights, such as, for example, lease rights. In such a case, before the changes introduced by the legislator in 2015, it was reasonable for the property — owing to the conditional binding effect of the existing lease agreement on the successful bidder-new owner — to lose part of its value. This was because the new owner could not commercially exploit the property when it was already leased to a third party and that lease bound him as well. 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 conducted, regardless of when and for how long it was concluded. This, however, does not apply to leases of properties where no business is conducted and whose conclusion is evidenced by a document of certain date prior to the seizure. In such cases, the successful bidder cannot evict the tenant and is obliged to await the natural expiration of the contract. The course of the lease after the auction depends on a multitude of factors, the most important of which are whether a “business” is conducted on the leased premises or whether it is a residential lease, as well as the time of signing of the lease, especially whether it is prior to or subsequent to the seizure.

More specifically, it has been held that the following do not constitute a business within the meaning of the law: lawyers’ offices, individual medical practices, dental and veterinary practices, individual offices of qualified engineers and sub-engineers, notaries’ offices, bailiffs’ offices and unsalaried land registrars’ offices, as well as recognised charitable institutions. In these cases, therefore, the successful bidder of the property compulsorily takes over the existing lease and is bound by its terms. Conversely, where the properties are leased for the conduct of a business, the law provides that “the successful bidder has the right to terminate the lease, in which case it is dissolved after the lapse of six (6) months from the termination notice”. In the case of a lease concluded after the imposition of the seizure, whether it is a lease for the conduct of a business or a residential lease, the law provides that the successful bidder may terminate the lease within two months from the registration of the summary of the award report. In this case, the lease is dissolved after the lapse of two months from service of the termination notice, whereupon the successful bidder may then evict the tenant from the property.

6. Taxes, Water Bills and Common-Area Expenses

Significant, too, is the burden that may arise from the so-called “hidden encumbrances” of the auctioned property, which follow the property and ultimately fall upon the new owner. Indicatively, I cite the debts arising from real estate transfer tax (under Article 5 § 3 of Law 1587/1950, “for five years from the day of signing of the final deed, every holder in any way of the transferred property asset is jointly and severally liable, together with the buyer, for the transfer tax and the surcharges”), which constitute encumbrances that, without an appropriate review, are not easily detected, since they are not recorded in the public records but, nevertheless, “attach” to the property and ultimately fall upon the new owners, who are now themselves liable for their settlement. Similar non-apparent encumbrances are also provided for in other provisions (see, e.g., Article 9 § 6 of Law 2744/1999: “The universal or particular successors of owners of real properties for which debts of any nature have been certified in favour of the Athens Water Supply and Sewerage Company (E.YD.A.P. S.A.) shall be jointly and severally liable in full, together with their predecessors, for the full repayment of the debts owed by the property to ‘E.YD.A.P. S.A.'”). Specifically with regard to inheritance tax, however, it has been held by Areios Pagos (AP 12/1990) that successful bidders and holders of inherited properties are not jointly liable with the heirs and legatees for payment of the tax that burdens those properties. As regards unpaid common-area expense bills, case law has not clarified whether they fall upon the successful bidder.

FREQUENTLY ASKED QUESTIONS ON THE RISKS OF ACQUIRING REAL ESTATE AT AUCTION

1. What risks do I face if I purchase real estate at auction?

Purchase through auction does not constitute an original but a derivative mode of acquiring ownership. This means that if the property did not actually belong to the debtor, the true owner may bring an action for recovery within five years from registration. In addition, the auction is at risk of annulment if the enforcement procedure is procedurally defective (e.g., miscalculation of time limits), if oppositions against the payment order or the seizure are pending, or if a ruling for the reversal of the seizure has been issued. In all such cases, the successful bidder risks losing ownership and becoming entangled in a multi-year court battle for the return of the price paid.

2. What checks should I carry out before participating in the auction?

A complete legal title review at the competent land registry or cadastral office is required, in order to confirm that the debtor was indeed the owner and to identify any real servitudes (e.g., habitation) that are not extinguished by the auction. Separately, the legality of the enforcement procedure is examined: enforceable title, service of the order to pay, seizure report, observance of the time limits up to the date of the auction. In parallel, an investigation is carried out for pending oppositions, applications for reversal of the seizure, and existing leases of certain date. Finally, an on-site inspection and technical review by an engineer are performed to identify unauthorized constructions and the actual condition of the property.

3. What happens if there is a tenant on the property after the award?

The outcome depends on the type of lease and the time of its conclusion. If a business is conducted on the property, the successful bidder has the right to terminate the lease, which is dissolved six months after the termination notice. If it is a residential lease or a lease of premises not regarded as a “business” under the law (e.g., lawyers’ offices, individual medical practices, notaries’ offices), and the contract is evidenced by a document of certain date prior to the seizure, the new owner is bound and must await the natural expiration. For leases concluded after the seizure, a short termination period of two months from the registration of the summary of the award report applies.

4. What hidden encumbrances may burden the property after purchase?

Beyond mortgages and prenotations of mortgage, which are extinguished by the auction, there are non-apparent encumbrances that do not appear in the public records but “follow” the property. Notable examples are uncollected real estate property taxes for the last five years, for which the new holder is jointly and severally liable, as well as debts to EYDAP from previous owners. As to unpaid common-area expense bills, case law has not been fully clarified. By contrast, the inheritance tax of the previous owner does not burden the successful bidder, according to settled case law of Areios Pagos. Identifying these encumbrances in advance requires specialised checks at the tax office and at public utility organisations.

5. How long does the entire procedure take until ownership is acquired?

From the moment of the award, the successful bidder must pay the auction proceeds within thirty days. There follows the drafting of the summary of the award report and its registration with the national land registry, a procedure that is usually completed within a few weeks. If eviction of an occupant or tenant is required, court proceedings follow, which may last several months. However, legal “tranquillity” comes only after the lapse of the time limits for the filing of oppositions (usually ninety days) and the issuance of any pending judgments on oppositions. True security of ownership exists after the lapse of five years from registration, at which point the action for recovery by a third-party owner is also extinguished.

6. What role does a lawyer play in the procedure of purchase by auction?

The Law Firm ZIAMPARAS D. & Associates undertakes a full legal review prior to participation in the auction: it examines title deeds, investigates servitudes and real rights of third parties, checks the procedural validity of the enforcement procedure, and identifies pending oppositions and applications for reversal of seizure. At the same time, it ascertains the existence of leases that bind the successful bidder and searches for non-apparent encumbrances at the tax office and at public utility organisations. Following the award, it undertakes the registration of the summary, the eviction of any occupant or tenant where required, and the rebuttal of any oppositions filed. In this way, the risk of capital loss in an otherwise favourable investment endeavour is minimised.


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