Buying an apartment through an auction, at auction: risks

An electronic auction is a new but already widespread sales tool in Russia, with which you can buy an apartment or house. We explain how... Finance

Three types of real estate are included in the auctions - municipal property (for example, housing that belongs to the city, but the authorities do not know how to use it), property of bankrupt companies and bank apartments as collateral.

Starting prices at auctions are almost always lower than market prices, since it is important to sell real estate quickly. In Moscow you can find lots starting from 3.8 million rubles per apartment and from 514 thousand per room.

In most cases, the apartment was sold without finishing, just a box.

This option was not suitable for me and I decided to look for something with a finish, but not completely miserable, as some developers like - when the walls are falling apart and the wiring is on fire. 

I wanted to buy an apartment on the primary market.

A former colleague said that they bought an apartment through auction. The seller is the city of Moscow represented by the Civil Construction Department and the Mosrealstroy company. It is for this reason that the sale is carried out through auction; property is written off from the city’s balance sheet only in this way.

I issued an electronic key, arrived at one of the certification centers with a standard package of documents, registered and passed accreditation on the website (for this you need to provide scans of documents). I submitted an application for the property, made a deposit of 100,000 rubles and began to wait for the auction.

In total, six people took part in the auction, including me; there were three active players. Someone raises the price and others have an hour to beat it.

Many play with the tactic of attrition - they beat the price a few seconds before the end of the hour, sometimes trading lasts for 96 hours.

My auction lasted 23 hours, I bought the apartment the first time, but was close to my limit; together with the registration, which took three weeks, it came out 500 thousand to 1 million rubles below the market.”

How to participate in the auction?

Any Russian who has an INN, SNILS and a passport can participate in the auction.

To do this, you need to obtain and issue a digital signature that is valid for a year, register at the site where the auction will be held, make a deposit (about 100-200 thousand rubles; if you win, it will be used to pay for the property, if you lose, it will be returned to you). The one who offers the highest price within a given period wins the auction.

How does he work?

In most cases, trading on the “secondary” market takes place in three stages. First, this is an auction with a price increase of 5-10% of the starting price of the object.

If the buyer is not found, the price of the lot is reduced by approximately 10% and new auctions begin, in some cases the buyer appears; if not, the price decreases again and a new round of trading begins - for example, with an increase in increments of 10 thousand rubles.  

Electronic auctions on the “primary” market are similar, but the developer is interested in making a profit, and not in the speed of sale, and you should not count on a serious discount. Experts say that developers rarely hold auctions; it is easier for them to sell housing under a standard sales contract.

How often do these auctions take place?

The law on public auctions says nothing about frequency; they are announced as needed.

Then where can you find out about them?

In official sources - the Kommersant newspaper, the Federal Register of Bankruptcy Information; Aggregators also collect information about loans-for-shares auctions.  

Browse the sites where auctions are organized. Please note that bids usually close five days before the auction starts.

How to find these sites?

The most common are the Russian Auction House, the Unified Electronic Trading Platform, MosTenderGroup, the Electronic Property Trading System, the Interregional Electronic Trading System, Utender.ruUtender.ru, B2B Center, Auctions of Siberia, Auction Tender Center, RUSSIA Online.

What are the pitfalls?

There are several unpleasant factors. Before the auction starts, it is impossible to understand whether this will be a profitable deal - it all depends on the number of participants and their interest in the property, so it is worth choosing in advance the limit up to which you will compete for housing.

Another common problem is that if the documents are completed incorrectly, the auction will be considered invalid. In addition, speed is important: at the stage of price reduction, it is important to be the first to submit an application; sometimes special people are hired for this.

So not everyone does it on their own?

No, there are professional buyers, sometimes with automated programs - auction robots, where the user only needs to decide what price will suit him.

What could go wrong with me - is there any real example?

Kirill Sevryugin, programmer: “I moved to Moscow two years ago and immediately decided to buy my own home. I heard that it can now be bought at auction, but did not go into details.

These details turned out to be quite simple - I chose a one-room apartment in the Izmailovo district, it was removed from the housing stock. I quickly looked for information - it was rented out, but now there was nothing there, apparently, it was unprofitable to open an office or store.

Before the auction, I was shown the apartment itself; the documents could be viewed before the auction.

As far as I understand, if the initial cost of real estate is low, then this is attracting attention; it will still rise to the market value. True, a lot depends on luck, suddenly there will be few applicants for it.”

Is there a mortgage for this type of housing?

Yes, but the bank must approve not only the loan (loan approval is valid for different periods in different banks, for example, in DeltaCredit - about 3 months), but also the apartment itself. 

If the housing is standard, the assessment is done quickly.

It is better to obtain pre-approval from the bank for a loan before the start of bidding, for an amount “with a reserve”, because the starting price for an apartment is always lower than the market.

For example, if the starting price is 5 million, then it is worth assuming that at auction it can increase by 20% and will cost 6 million.

That is, for a down payment you need to have at least 20% or 1.2 million on hand, and the mortgage must be issued for at least 4.8 million rubles.

Mikhail Kostromskoy, employee of K-Real Estate: “It seems that the auction mechanism is designed in such a way that you can get a large amount for an item. But even in this case, at auction you can buy housing cheaper than the market and the point is not in the low starting price, but in the motivation to sell quickly.

Everything else depends on what happens at the auction itself. In my experience, there is no rush among ordinary buyers; rather, professional buyers are becoming more active.

Public auctions are often sluggish, and information about them sometimes does not reach potential buyers. Sometimes information about them is only available in small-circulation publications.

Buying an apartment through electronic trading or at auction: features, procedure, risks

Today, almost everything can be bought without leaving home. Real estate in this case is no exception. One of the ways to buy an apartment is to participate in bidding or auctions.

Features of electronic trading as a method of purchasing real estate

There are three types of apartments available for electronic auctions:

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• municipal property (which local authorities sell to increase budget revenue);
• property that was on the balance sheet of liquidated companies;
• apartments that were pledged by the bank for mortgage lending (one for which banks issued mortgage loans, but the borrower for some reason stopped fulfilling its financial obligations);
• real estate auctions, when realtors put an apartment up for sale and conduct an auction between several interested parties.

The starting price for the sale of real estate put up for auction is an order of magnitude cheaper than on the free market. So, here you can find an apartment in Moscow at a price starting from 3.5 million rubles.

Apartments on the secondary market are mainly sold through auctions; developers rarely use this sales scheme, preferring direct sales contracts.

Trading usually takes place in three stages:

1. At the first stage, the apartment is offered at market value with increments of 5-10% of the property value.
2. If it was not possible to sell the apartment at the first stage, a second stage is assigned, at which the initial price of the lot is reduced by 10%.
3. At the third stage, the price decreases even more, and the increase step drops to 5-10 thousand rubles.

The procedure for purchasing an apartment through bidding or auction

If you want to purchase real estate at auction, you must adhere to the following plan:

1. Collect the necessary amount to buy an apartment.
2. Find electronic platforms where auctions for the sale of real estate take place and register on them. You can find out about upcoming auctions in official sources - the Kommersant newspaper or the Federal Register, on the aggregators’ website.
3. Study the offers of real estate sites. These include the Russian Auction House, MosTenderGroup, Unified Electronic Trading Platform, Electronic Property Trading System, B2B Center, Auction Tender Center, RUSSIA Online, etc.
4. Obtain an electronic signature, which is required to participate in the auction.
5. Register as a bidder for the lots for the apartments you like.
6. Introduce a security measure for participation in the auction in the form of a deposit. Its size is determined at the discretion of the auction organizers; by law it should not exceed 20% of the cost of the apartment.
7. On the appointed day, take part in the auction: offer your price for the apartment that meets the financial capabilities of the party.
8. If you win the auction, you must pay the entire amount for the apartment within the established time frame. If the participant loses, the deposit is returned to him.

List of required documents for participation in the auction

In order to take part in electronic trading, a minimum set of documents is required. Thus, it is mandatory to obtain an EDS (electronic digital signature) in one of the certified centers. Such a signature has a limited validity period (about 1 year) and is made at the request of the applicant for a fee (its cost is about 1,500 rubles).

If you want to find out how to solve your particular problem, please contact us through the online consultant form or call :

• Moscow: +7 (499) 110-33-98.
• St. Petersburg: +7 (812) 407-22-74.

To participate in the auction, a person will need:

• Russian passport;
• TIN;
• SNILS.

Do not forget that already at the stage of submitting an application for participation, a citizen will be required to submit interim measures. The amount of the deposit when buying an apartment is usually 100-200 thousand rubles.

Risks when buying an apartment at auction

The main incentive for many to buy an apartment at auction is the attractive price of the real estate presented here. But you shouldn’t always focus solely on a low price, because buying at auction always involves increased risks. Among them:

1. Risk of overvaluation of real estate. The real market value of the apartment you like should be clarified in advance, since there is a high risk that during the bidding process with a large number of participants, the price may increase significantly. Often, according to the results of trading, deviations from the market value can reach 100-150%.
2. Risks of buying an apartment in critical condition, requiring considerable investment. When participating in electronic auctions, interested parties do not have the opportunity to inspect the apartment in person. They have to focus only on the characteristics indicated in the lot (footage, number of floors of the house, number of rooms, etc.). Such apartments are often sold with huge debts for utilities and are even disconnected from electricity, gas, etc.
3. Risks of delay in transferring the apartment for use. They usually arise due to the reluctance of the former owners to check out. The buyer needs to go to court, and this is a lengthy procedure.
4. Risks of challenging auction results. Often former owners whose apartment was sold through auction do not agree with this and try to challenge the results of the auction. Often they manage to get the results of the auction reversed.

Purchasing an apartment through auction 44-FZ

Typically, real estate sellers have a choice of which method is preferable for purchasing an apartment. They may use auctions or other forms of sale. But if we are talking about the sale of apartments from the state or municipal fund, then there is a requirement for the mandatory sale of the apartment in electronic format.

This is necessary to increase the openness of sales of municipal property and prevent abuse by officials. Such a transaction must meet the requirements of 44-FZ “On the contract system in the field of procurement of goods, works, services to meet state and municipal needs.” This law quite strictly defines the rules for conducting auctions.

According to the norms of 44-FZ, apartments are purchased for municipal employees, judges, heads of municipal organizations, orphans resettled from dilapidated and emergency housing, migrants from the Far North and other categories of citizens.

The administration of the Moscow Region posts information about the purchase of an apartment on a specialized resource. If the purchase cost is less than 3 million rubles. The application is placed at least 7 days before the end of participation in the auction. With a property value of more than 3 million rubles. – at least 15 days in advance.

If for some reason the customer decides to refuse the auction, then he must post his decision no later than 5 days before the deadline for submitting applications.

After the auction, a protocol about this is posted within 30 minutes. It displays all bids and actions of bidders. The protocol is required to be posted even if the auction is declared invalid.

The draft contract (purchase and sale agreement) must be posted on the site within 5 days after the winner is determined. The citizen who wins the auction must familiarize himself with it and put his signature within a period of up to a month.

Thus, before deciding to participate in the auction, you need to weigh the pros and cons of buying an apartment in this way. With a competent approach to the auction, you can buy an apartment at an attractive price.

But the “payment” for the low price will be additional risks, which the buyer must be prepared for in the form of additional encumbrances, litigation based on the results of the auction, and the reluctance of the former owners to move out of the living space.

Dear readers, the information in this article may be out of date. If you want to find out how to solve your particular problem, call :

• Moscow: +7 (499) 110-33-98.
• St. Petersburg: +7 (812) 407-22-74.

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Buying an apartment at public auction: pitfalls - Pravo.ru news

During a crisis, it is customary to save. This is especially true for large purchases, and the purchase of an apartment can undoubtedly be classified as such. Russians are accustomed to mortgages, but in recent years our citizens have begun to show interest in buying housing at public auctions - the markdown can be significant, but it is not without risks. How mortgaged apartments get put up for auction and how not to get burned when buying and selling such objects is discussed by Pravo. Ru".

Diving Statistics

In modern Russian conditions, housing with a mortgage is often the only possible option for purchasing an apartment for many.

True, back in the middle of last year, banks considered mortgage borrowers to be reliable clients: credit institutions were expanding their portfolios, and in some cases the money itself for purchasing a home could be obtained with a minimum package of documents - sometimes even without a 2-NDFL certificate.

But in the last quarter of 2014, the macroeconomic situation in Russia deteriorated sharply, and the reaction of the mortgage lending market did not have to wait long: the volume of issued loans began to fall, and debts on already issued loans began to grow.

According to the Agency for Housing Mortgage Lending (AHML), over the past six months, 228,230 mortgage loans were issued for a total amount of 372.7 billion rubles, which is lower than the level of the same period in 2014 by 38% in quantity and by 41% in in monetary terms.

 At the same time, “delays,” on the contrary, are increasing - today the debt in the mortgage segment has already reached 50.9 billion rubles. Since the beginning of 2015, the growth of mortgage loans that have not been paid for 90 days or more has been 33%.

But in recent months, the debt on those loans that are overdue for six months or more has increased most strongly - by 10.6 billion rubles, that is, by almost 12%.

Due to the weakening of the ruble, long-suffering foreign currency borrowers are also making a significant contribution to the increase in overdue payments - now in the mortgage debt portfolio, overdue loans issued in foreign currency account for 41%. In general, debts are growing. But what happens when the mortgage borrower can no longer repay the loan?

Auction or bidding?

In this case, two major troubles await him. The first is fines and penalties for late payments, with the help of which banks try to influence a negligent client. In practice, three main forms of fines are used: as a fixed amount, as an increased percentage of overdue debt, and as a percentage of the total remaining debt.  

There has not yet been a uniform judicial practice regarding the legality of their accrual. In 2011, the now liquidated Supreme Arbitration Court dealt with this issue, but did not achieve uniformity: in some disputes, fines for late payments were recognized as legal, in others – not. But if the borrower stops making mandatory payments, he still cannot avoid sanctions from the bank.

If this method of maintaining financial discipline does not work, then a second problem appears on the horizon - the defaulter risks losing the property for which he took out the loan. After all, a mortgage presupposes the pledge of real estate purchased by the borrower, and if the debtor does not fulfill his part of the obligations, the bank has the right to sell the subject of the agreement in order to return the money. There are two ways of such implementation - sale at public auction and sale at auction, they are regulated by Articles 56, 57 of the Federal Law “On Mortgage (Pledge of Real Estate)” and Art. 447-449 Civil Code of the Russian Federation. Of course, it is easier for both the borrower and the bank not to bring the matter to court and try to resolve the issue amicably - for example, the parties can enter into an agreement on the sale of real estate out of court, under which the debtor sells the mortgaged property and fully repays the loan. In this case, we are talking about an auction and its organizer acts on the basis of an agreement with the bank. The property receives an expert assessment, which will determine the initial selling price. Then, 1-2 weeks before the auction, the organizer submits a special announcement about its holding - it must be published at the location of the property in a printed publication - the official information resource of the executive authority. Persons wishing to participate in the auction are required to make a deposit of no more than 5% of the initial price of the lot. The winner is the one who offers the highest price. Next, the winner signs a protocol with the organizer on the results of the auction, after which he undertakes to pay the remaining difference between the deposit amount and the sale price within 5 banking days. And all those who lost the auction receive their deposit back within the same 5 banking days. Also, money is returned if the auction does not take place. After the auction winner pays for the apartment in full, he gets another 5 days to sign a purchase and sale agreement with the auction organizer, and after state registration the housing becomes his property. But much more often, the borrower does not pay the loan and does not contact the lender - in such cases, the bank sends him an official notice of mandatory early repayment of the debt, and if this is not fulfilled, then the property, by court decision, is sent to look for a new owner at a public auction. After the court makes a decision to sell the pledged property at auction, it is time for the bailiffs to work. Their task is to describe the property located in the apartment, evict the debtor and send the property for sale. The notice period for bidders is different - no earlier than 30 days, but no later than 10 days before the start of the event; in other respects, the bidding mechanism is almost similar to an auction.

In the still waters...

Of course, a cautious buyer will try to check as much as possible the “cleanliness” of the apartment being purchased. For this purpose, there is Rosreestr, in the territorial departments of which you can take an extract from the Unified State Register of Rights to Real Estate and Transactions with It, where the list of owners of the object will be indicated. You can also ask the seller to provide an archival extract from the house register - it reflects the history of the apartment’s residents from the moment it was “put into operation.” You can obtain this document from housing maintenance organizations at the location of the apartment. However, the Unified State Register contains only information that has been included there since the founding of the registration service, that is, since 1998. And the seller may refuse to provide an extract from the archive, despite the fact that the housing office will not give it to the buyer himself.

And the risk that if a property is purchased at auction, the buyer may not know that he purchased an apartment “with a surprise” remains. For example, it may turn out that family members of the former owner legally live in the apartment and it is their only home.

Previously, the law directly prohibited the eviction of such tenants, but this year the situation was changed by the case of Adam Bogatyrev, a bona fide buyer of an apartment seized from a debtor who had failed to pay his mortgage.

In 2012, Bogatyrev bought a three-room apartment at a public auction, and after the purchase he unexpectedly discovered that the family of the previous owner continued to legally reside in it.

Bogatyrev reached the Constitutional Court, believing that his property rights were violated due to a paradox: the law, while preserving the right to live in an apartment for those who do not own it, protects their rights to a greater extent than the interests of a bona fide buyer, and also negates the importance of real estate pledge as a legal institution.

And the Constitutional Court agreed with him (more >>>). On March 24 of this year, the court explained that in similar situations the rules that prohibit foreclosure on residential premises should not be applied if it is the only one for the debtor citizen and members of his family.

In relation to housing, which is the subject of a mortgage, such a restriction does not apply, since, according to Art.

 78 of the Law on Mortgage, when foreclosure on real estate, all rights to use it are terminated, and then it is sold at public auction, explained the chairman of the Constitutional Court, Valery Zorkin.

After considering Bogatyrev’s case, the legislator received an order to carry out a number of reforms - to regulate the legal status of family members of the previous owner of the property, as well as to make information about the rights of third parties to alienated residential premises as transparent as possible. And until these innovations are implemented, the courts will have to deal with the consequences of transferring rights to “problem” apartments - after all, the discount when buying housing at auction can be very significant, and today Russian citizens are unlikely to refuse the opportunity to save. But the legislator is still solving a related and more pressing problem - in March, the Federation Council prepared a bill banning the collection of mortgage debts. True, so far only in currency terms. The essence of the proposal was not to take away apartments from borrowers and not to charge fines and penalties for late payments. It was proposed to establish a moratorium until July 1, 2016. However, the Ministry of Economic Development, the Ministry of Finance, the Ministry of Justice, the Ministry of Construction and the Central Bank of the Russian Federation prepared a negative review of the bill, Interfax reports, citing a source familiar with the text of the review. The government considered that the measures proposed by the document neutralize the principle of equality of borrowers, since they establish privileges for those who took out a mortgage in foreign currency. In addition, the prohibition on the assignment of rights of claims specified in the text of the document will not allow borrowers to use government support mechanisms.

The courts are also still skeptical - on June 29 of this year, the Moscow Regional Court overturned the decision of the Pushkin City Court, which obliged VTB 24 Bank to make changes to the foreign currency mortgage agreement and recalculate the amount of its payment at the rate at the time of conclusion of the agreement - 23.51 rubles. per dollar (case No. 2-878/2015) (more details >>>).

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Dirty tricks of realtors. Technique No. 30. Auctions on the secondary market - a scam for money

A technique that is taught by many real estate gurus today. And if you listen to the adherents of this system, any apartment is sold through auctions in a couple of weeks.

But in practice, the auction method increasingly turns out to be one big scam of the “sucker” buyer for more money than the apartment is actually worth.

Act 1

You want to move to a new home. While searching for options, you come across an interesting advertisement - an apartment at a very attractive price. The description states that the property is being sold by auction.

You dial a number from an advertisement.

At the other end of the line, the seller's agent tells you about the method:

1. The apartment will be shown only for one day. All interested buyers will arrive on this day.

2. After inspecting the apartment, the auction itself will begin.

3. Starting price – indicated in the advertisement. Whichever potential buyer sets a higher price will get the apartment.

Everything seems to be simple and clear. You sign up for the show.

Act 2

On the agreed day, you come to the showing and look at the apartment. Several other people move through the rooms with you. You carefully study every centimeter of the apartment, ask a lot of questions.

In principle, you are satisfied with the apartment. The most important question remains – the selling price.

The seller's realtor, who spent the entire showing answering questions from potential buyers, encourages everyone who wants to participate in the auction to go to the largest room of the apartment.

Act 3

There are three more people like you in the room. One young couple, one man in a business suit and an older woman.

The seller’s realtor once again thanks everyone who remained for coming to the apartment showing and quickly reminds the rules

1. The starting price of the apartment is the one indicated in the advertisement.

2. The bid step at the auction is X thousand rubles.

3. The one who offers the highest price wins.

4. Advance amount – Z thousand rubles. Much more than you expected, but it's okay - you have this amount with you.

5. The advance payment agreement is signed immediately after the end of the auction.

6. If the buyer who wins the auction does not conclude an advance payment agreement within 1 hour after the end of the auction, then the right to buy the apartment passes to the buyer who offered the second highest amount.

And so on.

You agree to all rules. The bargaining begins

Act 4

Since this approach to buying an apartment is new to you, you begin your game with curiosity.

You have in mind the maximum price you are willing to offer. Therefore, you are in no hurry to place bets.

While the auction is going on, you are offered coffee and cake. They are also allowed to walk around the apartment again for 5 minutes.

The auction resumes and you are now more active in bidding. Gradually, the offer price approached your maximum threshold.

And so you offer your highest bid. You wait with bated breath and exhale in disappointment.

The woman to your right offered more. And then the auction ends.

Act 5

You are upset. But the seller’s realtor apparently sympathized with you. And he suggests not to rush to leave. The fact is that the auction winner, according to the agent, “went to look for money for an advance.”

And if she doesn’t come in half an hour, then you become the winner of the auction. And you will be able to buy an apartment at the same rate as you did.

With another cup of coffee, you sit down on a comfortable sofa in a large room and wait for the outcome.

The auction winner did not come after 30 or 40 minutes. The seller's realtor called the woman and congratulated you. You have won the auction! Hooray!

The realtor offers to sign an advance payment agreement for the apartment, if, of course, you have Z thousand rubles with you.

Of course you have an advance amount! You're not the chicken who comes to an apartment auction and doesn't have cash on you!

You happily sign the advance payment agreement and almost leave your property in the best mood.

What is the deception?

You have been scammed like a simple “sucker.” You were literally forced to buy an apartment that could take months or even years to sell.

Moreover, you paid quite the market price or even more.

All of your auction rivals are dummies from the seller's realtor. So that you don’t suspect anything was wrong, the woman who won the auction was a decoy, not you. Also, the rest of the participants cleverly played out the disappointment after your “victory.”

And while she was allegedly “running after the money,” your desire to buy an apartment grew exponentially. And logic quickly gave way to emotions and passion.

When the seller's realtor announces that you have won the auction, you are happy and satisfied, eager to quickly formalize your victory. You enter into an advance agreement and give Z thousand rubles to the seller’s agency.

You were guided by professional scammers. From the telephone conversation to the advance payment and the transaction, you have been and will be in the hands of experienced guys .

You buy an apartment, it will be yours. Everything is fair here. But you overpaid. Maybe a little, maybe a lot.

And so that you don’t change your mind, they took a serious advance amount Z from you. Such an amount that you don’t want to lose.

What is the reception based on?

Easy involvement in gambling. The desire to win. An enhanced feeling of victory after seemingly losing. At this moment you are acting emotionally, not rationally. You are a winner who lost.

By the way, all of the above in this section fits perfectly with the description of the job... of a casino. Think about why this is a non-random coincidence.

Reception limit

To receive it you need "Loch". Finding it when there are few calls for an advertisement is not so easy. After all, he should be without an agent. And if there is no “classic sucker”, you will have to negotiate with the buyer’s realtor that he will “let down” his client. In this case, the profitability of admission drops sharply.

• Secondly, if it is not possible to promote a sucker for an impressive advance amount, then this buyer can simply refuse the deal, losing the amount of the advance.
• And thirdly, the maximum amount that the victim of the reception is willing to pay for an apartment may be less than expected.
• If the “auction” does not end as planned, then the entire “theater troupe” disperses before the bell rings to advertise the next “sucker.”

How to detect deception

The simplest thing is not to participate in an auction for the sale of apartments on the secondary market. The risk of becoming a victim of realtors is quite high.

If you decide to participate in the auction, then break the rules. After you "win", offer a smaller down payment on the apartment than originally expected. If the entire auction was not staged, a reasonable real estate agent will make concessions to you.

The next step when signing an advance agreement is to reduce the sales price. And this is where competing apartments will come in handy. You simply show the seller's realtor what options you have for purchasing besides this apartment.

https://www.youtube.com/watch?v=6TdLGzdi64s

There is a danger here that the seller will refuse to reduce the price to the level you want, simply withdrawing from negotiations and offering the apartment to the auction participant who gave a little less than you. Naturally, all this is provided that the auction was “fair”

Results

The auction method is a good way to sell an apartment at a higher price. And a suitable way to buy an apartment with an overpayment thanks to a proven scheme used by scammers at many auctions around the world.

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Buying an apartment from a bank or through a bankruptcy auction: buyer’s risks

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During a crisis, making bargain purchases is doubly pleasant. This especially applies to large acquisitions - real estate, for example.

Many Russian citizens buy housing with borrowed funds, but recently the population has become more interested in purchasing living space at auctions, since the amount of savings is quite large.

But such a deal means the presence of certain risks. This procedure and possible consequences are described in more detail below.

The essence of a bankruptcy auction

Bidding where real estate owned by a bankrupt person (individual or legal) is put up for sale is called a bankruptcy auction. The funds received from the sale of property are transferred to the creditor to repay the debt.

Note: For the borrower, such transactions are extremely unprofitable, but they allow you to cover the debt to the credit institution.

Trading is carried out in three main steps:

1. Primary for promotion. This stage means that the property first goes to auction at the average market value. The price gradually increases, but if no buyer is found, the lot is moved to the next stage.
2. Repeated. During this procedure, the value of the property is reduced by 10-20%, after which the second round of increases begins. But if at this stage no one can find anyone willing to buy the property, then the premises move to the final stage.
3. Public. For potential buyers, this phase is the most attractive. According to the terms of such an auction, the lot is sold with a certain price reduction step.

The risks of buying an apartment through bankruptcy auctions are listed below.

Who is the seller

There are several types of persons who sell bankrupt property. These include:

• government agencies;
• credit and financial organizations;
• commercial companies and enterprises.

Government agencies

For real estate departments of regions and settlements, this option for selling city and municipal premises is the only legal way. For example, you can consider Moscow.

City auctions are held regularly. The list of objects put up for auction and their prices can be found on the web page of the Moscow real estate department.

Moreover, premises from a variety of segments are participating in the auction:

• from luxury housing to the most economical option;
• escheated apartments (when the owner of the property dies and the living space is transferred to his own municipality due to the absence of heirs);
• residential premises for which there is no demand due to their remote location.

Such real estate cannot be considered as housing for citizens who are in line to improve their living conditions (mainly based on technical characteristics). Therefore, such apartments are sold through an auction.

State Unitary Enterprise "Mossotsgarantiya" also sells real estate on the secondary market through auctions. This institution sells real estate that is purchased from elderly citizens in exchange for providing financial support from the state. In this situation, an agreement is concluded for living with a dependent until the end of a person’s life or for living in a social house.

Credit and financial organizations

A huge number of real estate properties are offered for sale by banks. Such auctions are held independently of government authorities. For example, the borrower refuses to repay the loan and does not want to sell the home to pay off the debt. Then the creditor initiates the procedure for declaring the client bankrupt by filing a lawsuit and puts the premises up for sale.

Useful: It does not matter why the apartment is considered collateral: a mortgage or a targeted loan. Selling real estate in this way is a last resort for debtors.

Commercial companies and enterprises

Residential real estate of commercial organizations declared bankrupt is also subject to auction. But the share of invasions from bankrupt organizations relative to government agencies and banks is relatively small.

Price

The auction type of sale means that the prices offered are significantly lower than market prices, but the seller cannot provide such a guarantee. The new owner will be the buyer whose offer will be more profitable, that is, with the highest cost.

Fact: Based on the analysis of statistical data, it was revealed that prices for apartments purchased at open auctions are approximately 5-10% lower than the market average.

The most profitable lots with prices much lower than the market price are sold at closed auction sales, where only a limited number of participants are allowed. As a rule, illiquid housing is put up for public auction, i.e. problem areas of the secondary market.

And at auction, real estate is mainly purchased by investors, who then resell it for a profit.

  Selling an apartment after inheritance

The buyer's risks when purchasing a mortgaged apartment are very significant. Particular attention should be paid to the purity of the transaction from the legal side.

If a home is put up for auction, this does not mean that it has passed the documentation check. From a legal point of view, the method of purchasing a home does not matter.

Therefore, it is better to seek help from a qualified specialist who will advise on all necessary issues and conduct the transaction.

Interesting: In a regular purchase and sale, there are two parties involved in the transaction - the seller and the buyer. If the housing is sold at auction, then a third participant is added - the auction organizer. If violations of the auction sale are detected, it is possible to invalidate the transaction.

Advantages

Despite the fact that the risks of buying an apartment secured by a bank are quite high, there are also significant advantages to such a transaction:

1. Purchasing living space at auction completely frees the seller from the possibility of bankruptcy. In this situation, the bankruptcy trustee cannot appeal the purchase or sale due to the undervalued value of the property. In a normal transaction, this scenario is quite possible.
2. Lower cost compared to the market.

There are many more disadvantages to this housing purchase option. Therefore, before buying living space at auction, you should take into account the likelihood of problematic situations arising. The disadvantages of purchasing an apartment at auction include the following cases.

Legal proceedings by the previous owner

Buying an apartment as collateral from a bank may result in litigation from the previous owner.

In fact, the buyer purchased a vacant home, but the previous owner may not agree with his losses and wants to return his living space by filing an application in court and appealing the auction sale. The court's decision cannot be predicted - it depends on the circumstances of each specific case.

Debt for housing and communal services

An important disadvantage of buying housing at auction is the possibility of receiving a large debt for utilities along with the apartment.

For example, the former owners did not pay for housing and communal services, and service organizations turned off electricity, gas, heating, etc.

For old debts to be written off, the new owner will need a lot of time to deal with management companies or go to court.

  Consequences of a void real estate transaction

Registered residents

Very often there are situations when there are registered persons in the purchased apartment. In this case, the only way to proceed is through the courts. But if among the registered residents there are minors, then it is impossible to discharge them.

Purchase of municipal premises

Purchasing housing from the municipality is also risky. In this case, there may be a person present who refused to privatize the premises. For example, the living space was privatized in a timely manner.

But one of the registered residents, for certain reasons, did not want to accept the right of privatization. That is, he does not have the right to conduct transactions with the apartment, but can live in it and use it.

This right remains unchanged even when ownership is transferred.

Hidden encumbrance

Another risk of buying an apartment at auction is the possibility of discovering a hidden encumbrance when the living space is purchased from a bankrupt enterprise.

For example, an organization provided housing to its employees under a social tenancy agreement, but after bankruptcy the enterprise is completely liquidated and its property is put up for auction.

In this case, it is necessary to keep in mind that those tenants who were put on a waiting list for improved housing conditions or who received official living space before the Housing Code of the Russian Federation was introduced cannot be evicted without providing them with other premises.

Condition of the premises

It is usually not possible to inspect a property before an auction, meaning potential buyers cannot assess its condition before purchasing. Subsequently, it may be discovered that the apartment does not have doors, plumbing, stoves, there is mold and other defects.

Thus, the potential risks of the buyer when purchasing an apartment from a bank, municipality or commercial organization are considered. This option of purchasing a home can entail many consequences, the possibility of which should be thought about in advance.

A cheap apartment for a bankrupt - a profitable investment or an unjustified risk? — Mortgage and finance

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21.03.2022 | 08:00 3019

To save on buying a home, you can look at apartments encumbered with a mortgage, or monitor auctions of collateral and catch your luck there.

Indeed, in this way you can become the happy owner of square meters with a discount of 15, or even 25%.

But you need to understand that transactions related to someone else’s financial insolvency will remain at high risk for a long time.

A seller who has already accumulated a bunch of debts and whose financial health leaves much to be desired, according to Russian legislation on bankruptcy of individuals, can be declared bankrupt with all the ensuing consequences. In particular, the transaction for the sale of an apartment may be protested.

The number of bankruptcies of individuals is steadily growing. In 2018, arbitration courts of the Russian Federation considered 35 thousand bankruptcy cases. 32.4 thousand ordinary citizens and 2.6 thousand individual entrepreneurs became bankrupt.

We still live in a situation where the likelihood of meeting a bankrupt in person is quite low.

But, warns the notary of the Notary Chamber of St. Petersburg, Anna Tavolzhanskaya, one case - however, not about an apartment, but about a land plot - has already been heard in our city. And this is just the first sign.

The bankruptcy law is also harsh on citizens purchasing an apartment from a potential bankrupt. Even if default occurs in two or three years, you can still lose the purchased housing.

If an arbitration manager, as part of a bankruptcy case, requests that the transaction be declared invalid, the buyer will certainly be involved as an interested party. But the court may agree with the manager and declare the deal invalid, then they will take the apartment, and then demand money from the seller until the end of time.

Of course, not all legal proceedings have to end badly for the buyer. But the court will begin to suspiciously check at what price the transaction was carried out, what is the time gap between the sale and bankruptcy, whether the buyer is a distant relative or a good friend, whether the buyer could have known about the impending bankruptcy... There is little pleasure.

It is more advisable to search among assistant managers or arbitration managers who have no obstacles to acting as a representative in the case by proxy - that is, not affiliated and not working on this case.

Bankrupts hold the line

The debtor’s apartment turns into a tempting target for potential buyers after official bankruptcy. But it is tempting only at first glance.

Let us remind you that after a court decision, the court issues a writ of execution: “To collect such and such an amount under the loan agreement... To foreclose on the mortgaged apartment at such and such an address by selling it at auction with a set starting price of such and such.”

If the debtor does not find the money, the property is seized. The sale of seized property is no longer handled by the bailiff service, but by the Federal Property Management Agency. However, mortgaged apartments can also be sold on other, mainly electronic platforms.

So, the mortgaged apartment is sent to auction, at which a third of the properties are usually sold the first time. If the apartment does not sell at the first auction, the price is reduced by 15% and the property is re-listed. And in some cases, auctions are held more than once.

If no buyers are found at all, the property is offered to the claimant for acceptance on the balance sheet - at a cost 25% lower than the original one.

In most cases, we are talking about mortgaged apartments, and the creditor is the bank. Accordingly, on the website of almost every mortgage bank there is a list of 10-50 apartments sold from the balance sheet.

At the same time, offers are being posted to sell apartments against collateral, which debtors are willing to part with voluntarily, as part of a pre-trial settlement.

Naturally, also with a certain discount from the market price.

But at the same time, you need to be prepared that the bankrupt family continues to use the apartment and they can only be evicted with the ruthless use of force. And then it turns out that this family has not paid their housing and communal services bills for a year and a half, and they will have to go to court so that the utility companies stop demanding this debt from the new copyright holder.

In general, all possible risks of subsequent problems in such a transaction due to imperfect legislation primarily fall on the buyer, and not on the seller or the bank.

Be ready to trade

Nevertheless, there are individual private investors and even legal entities that monitor trading and catch “diamonds” from the general mass of illiquid assets. However, a beginner needs to understand that profitable options do not come across at every auction, and the competition is fierce.

To participate in electronic trading, the buyer will need an electronic signature. The bidding increment ranges from 0.5 to 5.0% of the initial cost of the object.

And regardless of whether they take place on an online or offline platform, you will have to make a deposit - up to 20% of the starting price of the object. If the lot goes to another buyer, the deposit will be returned within five days.

But if the bidder wins the auction and the lot is not purchased, the deposit will be lost.

And finally: experts advise to patrol apartments for sale in advance and not buy the product “blindly,” no matter how low the price may seem. And one of the main risks is possible errors in the documentation for the apartment being sold. And finally, don't forget about taxes.

BN Help

Federal Law No. 476, which received the unofficial name “On Bankruptcy of Individuals,” came into force on October 1, 2015. The first consideration of applications took place in arbitration courts at the beginning of 2016. And since then the law has been regularly patched up. The last document in this line is Resolution of the Plenum of the Supreme Court dated December 25, 2018 No. 48.

The document specifies which housing the bankrupt loses and which one remains.

If the debtor owns several apartments, the court has the right to determine which apartment to leave to the bankrupt. But at the same time, the judge must remember to respect the rights of the debtor’s dependents.

The Plenum also explained that a transaction should not always be recognized as invalid if the debtor has transferred the apartment to relatives. Despite the loss of ownership rights in the alienated housing, at the time of consideration of the dispute, the bankrupt and his family members live in the apartment, and this is the only housing that they have.

The following clarification concerns the property of the bankrupt spouse. In principle, jointly acquired property is also subject to sale to cover debts. But the spouse can apply to the court for the division of common property. In this case, all creditors will have the right to take part in the consideration of the case as third parties.

So far, the current procedure for bankruptcy of citizens is still far from perfect and, according to the assurances of high-ranking officials, will be amended in the future.

Text: Igor Chubakha Photo: pixabay.com