What are “auction houses”?
The question that arises when approaching the purchase of a property at auction is: where do these homes come from? Who owns them? Are they of good quality? Why do they cost less? How can you buy homes at auction? The homes put up for auction are the result of bankruptcies, defaulted mortgages, or unpaid loans, for which the lender, usually a bank, requests a public sale to recover at least part of the amount spent. Then there are real estate auctions called securitizations : in these cases, the properties are put up for sale by the state or other public entities.
These are therefore properties that can be in good or poor condition; the fact that they were put up for auction does not at all mean that they are in poor condition.
To assess whether the property is suitable for our needs, in addition to the information above, it is extremely important to carefully read the appraisal, which was drawn up by an expert appointed by the Court.
This appraisal is usually very thorough and evaluates the property as a whole, from its location to its exterior condition, the state of its systems and finishes, and the brightness and exposure of the rooms. One of the weaknesses of purchasing properties through judicial auctions is that the homes are often inaccessible; sometimes, not even the appraiser is allowed inside. In such cases, the risk of what you might find inside an apartment is considerable: you should expect anything.
The advice is to avoid properties of this type.
The Ordinances indicate the name of the so-called Custodian: ask him to visit the property, so you can personally assess the state of things (first of all, whether you can enter!), especially because the appraisals were often drawn up many years ago and the condition of the house may have changed significantly in the meantime.
When starting prices of houses at auction are very low
When starting prices are extraordinarily low, you should be wary. First, the starting price may be so low because there are tenants in the property who, despite not having the right to live there, are effectively occupying the apartment and will be difficult to evict, even by law. Or, there may be tenants, but they are renting. In this case, the property’s annual income is also indicated, and the tenants cannot be evicted unless the lease expires.
Second, it’s possible that appraisals are conducted well in advance of the actual auction, resulting in absurdly low starting prices. In this case, auctions with low prices will be the most crowded: it’s therefore possible that during the auction itself, prices will skyrocket, far exceeding the starting price.
If you find yourself with two similar properties, but with very different starting prices, go for the one with the higher starting price: at the end of the auction, you will win it for less than the one with the lower starting price, since the bidders will be small and consequently the increases will also be smaller.
Bureaucracy in buying houses at auction
Once you’ve found the auction you’d like to participate in, you need to proceed with the first bureaucratic step. First, you need to prepare the application form: you can fill it out on plain paper or download it online (for example, from this link), then attach a €14.62 revenue stamp.
The following must be specified in the application:
- general information
- Tax ID code
- name and procedure number
- indication of the lot or lots in which you wish to participate
- property regime
- intention to take advantage of the tax breaks for the first home
The application must be sent to the Delegated Judge , whose address you will find on the information sheet for the chosen auction.
Cashier’s checks before the auction
To participate in an auction, you must present your cards along with two cashier’s checks, usually no later than 12 noon on the day before the auction.
You should budget 25% of the starting price for these checks:
- The first check is equal to 10% of the starting price (or of your offer if it is a sale without an auction) and constitutes the deposit.
- second check can be variable (up to 15%) and represents a deposit for the Expense Fund
If you win the auction, the two checks will be deposited in the bankruptcy proceeding books. The Expense Fund check will be used to pay for the transfer order registration, while the deposit will be deducted from the winning bid. If you fail to pay the winning bid within the deadline set by the Sale Order, the entire deposit will be forfeited. If you do not win the auction, the two checks will be immediately returned by the notary or the competent court office.
Home mortgage at auction
The advice is to arrive on auction day knowing that the bank will finance your mortgage. The courts have agreements with a number of lenders that offer mortgages up to 80% of the hammer price. Contact one of them at least a month before the auction date, submitting the property appraisal and the mortgage application documents.
If you win the auction, you must pay the purchase price within 60 days. At that point, the judge will issue a decree assigning the property, otherwise you will lose not only the property but also the deposit. If you don’t win the auction, the bank will cancel the mortgage at no cost, thanks to the so-called “dissolution clause.”
Relying on a real estate agency to buy a house at auction
If you don’t feel like dealing with the bureaucracy and commitments of a real estate auction, or you’re buying in a city other than your home, you can rely on a real estate agency, preferably one that also specializes in judicial auctions.
This way, you can avoid a whole host of tasks; the agency offers several services:
- – monitoring of the auction market with reporting of the best opportunities
- – compilation and submission of documents
- – visit and evaluation of the foreclosed property
- – assistance in mortgage pre-approval
- – advice or delegating participation during the hearing
- – monitoring compliance with the property transfer decree
- – possible supervision of the house clearance
However, this solution will obviously impact the overall cost: the costs for these services are generally medium-high.
Before the real estate auction
It’s advisable to attend other hearings to understand how real estate auctions work and ensure you’re prepared for the day of your chosen auction. Decide whether to attend in person or delegate someone you trust to represent you during the auction. You can delegate a real estate agent, a lawyer, or a friend: the important thing is that they have a valid power of attorney and are confident. Every offer made by the holder of the power of attorney is binding and is made in your name. So, be careful when choosing.
Websites
There are portals on the internet dedicated solely to real estate auctions.
- www.astegiudiziarie.it
- www.astagiudiziaria.com
- www.portaleaste.com
They contain all the Orders of Sale issued by the judges and all the available information on the property put up for sale: address, place and date of the auction, starting price, whether the property is vacant or occupied and under what conditions; sometimes floor plans and photographs of the property.
Real estate auction with and without auction
Without enchantment
This is an auction in which participants submit purchase offers in sealed envelopes at the Registry. These offers include the price, payment terms and conditions, and other information that may be helpful in evaluating the bid. The envelopes are then opened at the auction, and the highest bid is raised. If the final price does not exceed the starting price by at least 20% and the creditor does not approve, the property is put back up for auction.
With enchantment
Once at the Courthouse, after verifying the validity of the bids, the auction proceeds with the bidding and the increases. To ensure an increase is not submitted late, it must be made within 3 minutes of the last bid; otherwise, the lot is awarded to the last bidder.
At auctions, winning a property isn’t an immediate relief; there’s a procedure called “the fifth price increase”: if within ten days of the hearing, someone submits a bid at least 20% higher than the hammer price, the judge cancels the sale and calls a new auction. All participants from the first auction, plus any new bidders, are eligible to bid, and the new starting bid will be the new, final bid.
Securitizations
When the State or other public entities securitise properties, they hold periodic auctions, an updated list of which is available at http://www.mef.gov.it/searchmef/results.asp?text=aste%20immobili. The key difference from regular judicial auctions is that the securitised properties are always available and available immediately. Another difference is the deposit, which amounts to only 10% of the starting price (compared to 25% for judicial auctions); however, if the auction is won, another 10% must be paid within 7 days.
Furthermore, the final balance must be paid within 40 days of the award, not 60. Sometimes, securitizations also include bare ownership, which costs little but the homes cannot be moved into immediately; in fact, there’s the uncertainty of not knowing when this will be possible.
Auction cancellation
If the debtor notifies the creditor of their intention to settle the outstanding balance, either by making an initial payment or submitting a debt repayment plan, the creditor is required to evaluate the proposals, which results in the property being withdrawn from the auction. Sometimes the cancellation is announced on websites a few days before the hearing. Other times, in the worst-case scenario, the announcement occurs on the morning of the hearing.
Auction failed
If no one shows up at the auction, the judge can choose between:
- – a new auction, which is the most common choice and puts the property up for auction again at a starting price that is ¼ lower than the previous one
- – the assignment to creditors
- – the judicial administration of the property
After winning the auction
First, you must pay the hammer price within 60 days of the hearing date. Then you must pay the purchase, registration, mortgage, and land registry taxes, ranging from a minimum of 4% for a primary residence to a maximum of 10% for non-luxury homes. A few dozen euros will be spent on copying and deleting the registration documents. When the judge issues the transfer decree, which is equivalent to the notarial deed in a private sale, you will effectively take possession of your new home.
Furthermore, with the transfer decree, the judge orders the debtor and/or any unauthorized occupants to vacate the property. The decree cannot be contested, but if it is not complied with (as happens in most cases), the owners can demand that they vacate the property by a certain date. If the vacancy still doesn’t occur, as unfortunately often happens, they can request the intervention of the police. This is a delicate phase, usually taking 6 to 8 months if all goes well, and it is advisable to seek legal assistance.
Renouncing the property awarded at auction
If after a few days you realize you’ve made a risky choice, or personal complications of any kind arise, you can withdraw from the auction, which will be put back up for auction within a few months. In this case, however, the Court will retain the entire deposit paid with the bid.
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