Surely at some point we have heard or read “acquisition of property for less than its price through the assignment of the auction” and we have not delved into it because it sounds very complex, relating it to the financial or real estate world. In the following article we will try to break it down and we will see that it is something very simple and may even be of interest to us.
As a consequence of the various economic crises throughout history, the health crisis and those that experts constantly predict, the banking sector together with the real estate sector play a fundamental role in these situations, since as a result of this, thousands of eviction procedures are produced due to the growth of delinquency and lack of payments on mortgage loans, As a result, the banks themselves have a large portfolio of properties, which, due to the amount of properties and their need for maintenance and management, they try to get rid of them in the short term. This means that small and large investors see an ideal opportunity to acquire properties at very favourable prices below the normal market value, and with these premises this legal business is born.
THE ASSIGNMENT OF AUCTIONS?
As a general concept, it is nothing less than one of the many ways of acquiring a property or estate through the execution of a bank or credit institution. It is therefore a contract in which the bank, as the successful bidder of a property belonging to it in a judicial auction procedure for non-payment of a mortgage, assigns by sale to another person before the adjudication is finalised.
For a better understanding, let us look at the following example:
Bank A”, which is the creditor (assignor) of a property in an auction, assigns this right (the auction) to a third party.
Third party B acquires the property (assignee) by paying the agreed price to the bank beforehand, thus becoming the new owner of the right.
As it is a legal contract, it needs a specific regulation and this is found in the Law 1/2000 of Civil Procedure in its article 647.3 “Only the executor or the subsequent creditors may make a bid, reserving the right to assign the auction to a third party. The assignee, who must accept it, and all this prior to or simultaneously with the payment or consignment of the auction price, which must be documented”.
It should be mentioned that the legal regulation of this figure is practically non-existent or is reduced only to the judicial procedures of auctions found in the same law of civil procedure, this is due to the fact that it is the jurisprudence itself by the different sentences that has directed and polished this figure.
FUNDAMENTAL ASPECTS OF THE ASSIGNMENT OF THE AUCTION
As we can see, its regulation is clearly scarce and at the same time complex, which is why we will proceed to develop some conclusions that can be drawn from the concept itself;
- This method is only used when it is the bank or credit institution itself that has initiated the foreclosure procedure.
- It is essential that the bank is the successful bidder of the property because it is the highest bidder or the only bidder in the auction, otherwise the assignment of the auction cannot be carried out. It cannot take place if it is another successful bidder, thus avoiding sub-auctioneers.
- This legal transaction is carried out before the Lawyer of the Administration of Justice as indicated in art. 647.3 of the Civil Procedure Act “The assignment will be verified by appearance before the Lawyer of the Administration of Justice responsible for the execution”. Both the bank and the assignee must appear, the latter will accredit the payment document, the previous contract and with all this, the Legal Advisor of the Administration of Justice will issue the adjudication order.
- The time limit for the transfer of the auction is determined by the Legal Advisor of the Administration of Justice which, although not fixed by law, must be carried out within the time limits of articles 670 and 671 of the Law of Civil Procedure in relation to auctions in general. This business is carried out before the adjudication of the property in favour of the bank and before the adjudication becomes final.
PURCHASE PRICE OF THE PROPERTY
As with any other type of legal transaction, the price of the assignment is fixed by the will of the parties in relation to the rules of the free market and may be higher or lower than the adjudication price. This price below the adjudication price is supported by the RDGRN provision of 19 October 2017 which makes distinctions between:
Auction price; being the amount of the highest bid in case there are other bidders.
Auction price; this is the amount that the bank acquires if there are no bidders.
Auction assignment price; this corresponds to the amount paid by the assignee to the bank.
For this reason, the Civil Procedure Act itself in art. 647.3 “assignee, who must accept it, and all this prior to or simultaneously with the payment or consignment of the auction price” enables the price to be by auction assignment, i.e. the price agreed between the bank and the assignee, which may be higher or lower than the adjudication. With this, the DGRN only establishes that for the purposes of payment of the debt, the amount of the adjudication will be taken into account, discounting what is owed by the debtor.
ADVANTAGES OF THE ASSIGNMENT OF THE AUCTION TO BE TAKEN INTO ACCOUNT
After seeing this legal business in depth, we cannot ignore the advantages to be taken into account in order to decline, highlighting that the cost, time and risk involved if we opt for other different ways is totally eliminated, as the buyer only has to wait and negotiate the possession of the property and register it in his name in the land registry.
Another advantage, and a more appealing one, is the tax advantage, since, as there are two almost simultaneous transfers, we will only pay the final adjudication, paying only the VAT, ITP and the registration in the registry, as stated in Article 20 of the Regulation of the Law on Transfer Tax, which is why many developers, property investors, estate agents …. They opt for this acquisition method.
With all that we have seen, we can predict, based on the current rates and together with other great experts in financial and real estate matters, that in the coming years, this way of acquiring property will be on the rise.
And for this reason we believe that it is a unique and ideal opportunity for small and large investors to acquire new properties at prices well below the market and to obtain a subsequent profitability.
At QUIKPROKUO we offer to advise you and process all types of property acquisitions, both in the form of auctions as well as other different methods of the same nature.