Purchase of real estate at public auction – in the enforcement procedure

In the previous article, we wrote about paying attention when buying real estate in bankruptcy proceedings. This time, we will bring attention to possible pitfalls in buying real estate in enforcement proceedings.

As explained in the previous article, in principle, real estate is sold at public auctions at lower than market prices, so buyers often think that such a purchase will save a good amount of money. This may be true, but only if buyers really know what they are buying, so what is the actual and legal condition of the property.

The law determines which rights and encumbrances registered on the property shall be deleted upon sale in enforcement proceedings. With the finality of the decision on the delivery of immovable property to the buyer, pledged liens and land debts on the real estate ceases. However, personal easements, encumbrances, and building rights entered before the pledgee’s right or the creditor who proposed enforcement do not cease. The sale extinguishes other personal easements, encumbrances, and building rights unless the holders of these rights agree otherwise with the buyer.

Therefore, it should be noted that the court only determines by a decision on the allocation of immovable property to the buyer which rights and encumbrances registered on the real estate are deleted. This means that if buyers want to avoid losing the security with certainty if they do not decide to purchase the property, they are obliged to check the property’s condition before paying the security. Therefore, if the buyer does not decide to buy because he finds out in the decision on the allocation of immovable property to the buyer that the property’s condition is different than he thought, he loses the security.

After issuing the decision on the allocation and after paying the purchase price, the court issues a decision that the property is handed over to the buyer, and the property right is registered on it. The court determines the deadline when the debtor needs to move out of the family house or apartment with the same decision. Such a decision is an enforceable title for the vacating and handing over of the property. However, beware, a debtor (as the owner) that lives in a sold family house or apartment, in some cases has the right to live in that house as a tenant for another three years counting from the date of sale. The debtor must submit such a proposal within 60 days of receiving the decision on enforcement or at the latest until the auction hearing. He is obliged to pay the rent for the for-profit apartment throughout the lease.

However, the sale of real estate does not affect the rental or lease relationship related to the sold property. The buyer thus “steps in the shoes” of the previous owner (the debtor) as the landlord or lessor. Suppose the lease or rental relationship arose after acquiring the creditor’s lien or land debt on the real estate. In that case, the buyer could terminate such a contract with a one-month notice period, regardless of the legal or contractual deadlines.

It is crucial to be attentive and careful, and consulting an expert will certainly save many grey hair.

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