Is it worth buying property from an enforcement procedure? (Part 1)
Advantages, risks, and practical advice for purchases through enforcement
A few years ago, I had the opportunity to review a service agreement and participate in a personal consultation. I thought I would share the experiences. They are not without their lessons.
The legal background and process of property auctions
How can one acquire property from an enforcement procedure? For instance, there are companies that tempt prospective clients with the promise that they can “purchase” property for the client well below market price. For the sake of the discerning reader: the quotation marks are justified by the fact that, in a legal sense, an auction is not a purchase and sale. In such cases, we do not buy the property, but rather acquire it through an official auction.
The shadow of foreign currency loans: How does a dream home become an auction item?
We are, of course, talking about properties that are under enforcement proceedings and subject to auction. How can such a situation arise? The most typical examples from the recent period can be illustrated by foreign currency loan contracts. Thanks to the dilettantism and negligence of state bodies and legal regulation, the greed of banks, and the lack of information and excessive optimism of citizens, these contracts led to a problem of social proportions.
Aladár and Béla (for conservative readers: Beáta) decide to build a family nest among the rolling hills of Outer Somogy. Together, they purchase the porch-fronted peasant house of their dreams from Cecília and Dénes (for readers in rainbow colors: Diána) for exactly 10 million gold forints. The bank contributes 8 million gold forints to the nest-building in the form of a loan, naturally with CHF accounting.
The path of debt collection from civil litigation to enforcement
A&B live their lives happily among the hills, paying the installments. Suddenly, lightning strikes; the franc exchange rate skyrockets. Everyone knows the rest. The installment rises to the heavens; A&B cannot pay. The bank terminates the contract; the loan and interest will become due in a single sum. The bank demands, let’s say, 28 million gold forints.
A&B, understandably, still cannot pay. The bank therefore initiates debt collection, which begins with a civil lawsuit. The bank asks the Honorable Court to order A&B to pay the 28 million gold forints. The bank wins the lawsuit easily, and then the judgment becomes final and binding. The bank initiates enforcement proceedings.
Since A&B have no other substantial assets, the property is placed under enforcement. The competent enforcement agent puts the property up for auction. If someone buys the property at the auction, the enforcement agent receives their share from the proceeds, and the rest is paid to the bank. If the value of the property is higher than the bank’s claim, the enforcement agent pays the amount received above the claim to A&B.
A throwback: When black sunglasses decided the bid
Earlier, these auctions did not take place in an online space. The enforcement agent announced the auction for Monday morning at 8:00 AM at 8 Kapucinus Street. The interested parties appeared and settled in comfortably.
The reader with some life experience may already suspect that at 8 Kapucinus Street on Monday morning at 8:00 AM, the density of black-souled gentlemen in black suits, wearing black sunglasses, possessing black German-branded cars, and having chests that put a wardrobe to shame, was much higher than average.
If Felméri Kázmér happened to wander in to conduct the real estate deal of his life, then following his bid, one of the aforementioned gentlemen discreetly placed a hand on Kázmér’s shoulder and, with a meaningful glance even from behind his black sunglasses, indicated his intent. As an intelligent man, Kázmér got the message and no longer wanted to acquire property quite so cheaply. The system, therefore, could not exactly be called optimal.
Online auction system: Secure bidding
Fortunately, as the years passed, the wise parliament realized that some reform should be implemented, and the currently valid situation arose. Nowadays, auctions take place through the online system of the Chamber of Judicial Officers (https://arveres.mbvk.hu/) through a fully transparent process. Any citizen can register in the system and bid on the property (or chattel) of their dreams, regardless of the unpleasant glares of gentlemen in black sunglasses, without their identity being revealed to the other bidders.
In the next part, I will continue with what follows from the above, and we will look at what main risks can be expected.