Real Estate Sale Through an Auction Assignment
In recent years, a new form of sale in the real estate sector, which has gained popularity, especially in the context of large transactions involving assets acquired by investment funds. This approach is known as auction sale, and it is being used by companies that manage real estate assets purchased from banks, which are seeking to clean up their balance sheets by selling hard-to-collect properties or toxic assets.
The Context of Auction Sales in Today's Market
Since the 2008 economic crisis, banks have accumulated a large number of properties as a result of foreclosures. These properties, which are often difficult to sell, were acquired by large private equity funds at very low prices. Today, the process for selling these properties has evolved, and the traditional practice of direct sales has been replaced by the credit assignment and the auction sale. This new strategy provides greater flexibility to investors, who can acquire assets even before the legal proceedings have been fully concluded.
Previously, foreclosed properties were sold only after the legal proceedings had concluded. However, the auction sale It allows creditors to proceed with the sale to third parties before the final award of the asset is issued. This provides a significant advantage to financial institutions that wish to remove assets from their balance sheets without having to wait for the proceedings to be fully concluded.
What is a foreclosure transfer, and how does it work?
The auction sale It is a tool used in foreclosure proceedings. It is a contract through which the creditor who initiated the foreclosure proceedings assigns to a third party its right to receive the auctioned property. This mechanism is governed by Article 647.3 of the Civil Procedure Act (LEC), which allows the creditor to assign its position in the auction to a third party once the auction has been approved in its favor, but before the Award Decree is issued.
Benefits of Auction Assignment
One of the main benefits of this mechanism is that the creditor can avoid the direct award of the property by transferring the auction to a investor interested party. This ensures that the creditor initiating the foreclosure proceedings has the opportunity to find a buyer before assuming the costs and responsibilities associated with the transfer of ownership of the property, such as registration fees with the Property Registry, payment of taxes such as the IBI, or homeowners’ association dues.
In addition, the assignment of the auction proceeds allows the assignee investor purchase the property at a price that is generally below its actual market value, making this transaction an attractive option for those seeking investment opportunities in the real estate market. This is especially relevant in cases where the property may have liens, squatters, or difficult-to-resolve issues—factors that influence the final price.
Legal Requirements for the Transfer of Auction Proceeds
The auction sale must be carried out in compliance with the legal requirements established by the Civil Procedure Act. According to Article 647.3, only the enforcing creditor or the subsequent creditors They have the authority to bid at the auction, while reserving the right to transfer the winning bid to a third party. This transfer is formalized before the Court Clerk, in the presence of the transferee—who must accept the transfer—and prior to or simultaneously with the payment or deposit of the auction price.
It is important to note that the assignment must be notified to the court and ratified before or at the same time as payment of the auction price. The deadline for completing this assignment is 40 days, as established in Article 670.1 of the LEC.
The price at the auction
The price of the auction sale does not necessarily match the auction price. The parties are free to agree on a different price, depending on the condition of the property and the negotiations between the creditor and the investor. This provides flexibility to the transferee, who can conduct a detailed analysis of the encumbrances, debts, taxes, and potential squatters associated with the property before making a final offer.
Differences Between Assignment of Auction Proceeds and Assignment of a Receivable
It is essential not to confuse the auction sale with the credit transfer. In the latter case, what is transferred is the right to collect a debt. Unlike an assignment of auction proceeds, the assignment of a claim does not necessarily involve the transfer of ownership of the auctioned property, but rather refers to the Assignment of a Receivable, which allows the new creditor to assume the position of the previous creditor in legal proceedings.
The Civil Code governs the credit transfer in various articles, such as Articles 1112, 1198, 1526, 1528, 1529, and 1530. These articles establish that the new borrower It assumes the rights of the original creditor, including the right to pursue legal proceedings to collect the debt.
Credit Transfer in Legal Proceedings
Once the assignment of the claim has been completed, the assignee must notify the court of its new status in the proceedings. From that point on, the new creditor will take the place of the original creditor and may continue the legal proceedings from where they left off. It is important that this transfer be carried out properly to avoid any complications or delays in the process.
Lawyers Specializing in Auction Assignment in Alicante
In the Carlos Baño Law Firm, we have extensive experience in real estate law and in the handling of foreclosure sales and credit assignments. If you need legal advice regarding these procedures, please don’t hesitate to contact us. Our team is ready to provide you with the best service and guidance throughout every stage of your real estate transaction.
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