Features and risks of buying a seized apartment at auction and from a bank

Confiscated real estate: what is it?

When it comes to purchasing repossessed housing, most often the term “confiscated apartments” refers to two types of real estate:

1. Residential premises managed by banks or other financial institutions, which are actually mortgagees, but not owners.
2. Residential properties seized by territorial divisions of the FSSP and at the disposal of owners or creditors in enforcement proceedings.

In the first case, apartments are collateral for banks. It becomes such when citizens purchase apartments with a mortgage or pledge their existing housing as security for their obligations under a loan agreement.

As a result, if borrowers are unable to repay their obligations, lenders have the right to seize the collateral from them. This is done in two ways:

• peaceful settlement of the issue and transfer of property by the borrowers themselves;
• Foreclosing on the subject of collateral forcibly through the court.

The sale of apartments seized by the FSSP is the sale of debtors’ property. It is carried out by a specialized trading organization under the control of bailiffs in execution of court decisions.

As a rule, real estate is not actually confiscated, that is, it is at the disposal of the owners, although in both cases they are debtors.

A certain specificity of operations with such an object arises: if the residents are not interested in the sale, they can hinder the inspection of the apartment and the possible move-in of new owners.

Why are apartments seized?

All real estate that is put up for sale under the control of the FSSP is seized real estate. The arrest is imposed by bailiffs in the process of executing court decisions to collect debts from the owners of the specified housing.

The encumbrance is formalized by a resolution of a FSSP employee and is displayed in the real estate register (EGRN) in order to prevent the owner from alienating the housing in favor of third parties.

Bailiffs impose seizure of housing not only in favor of banks for overdue loans. These could also be:

• utility debts;
• private loans;
• compensation for material damage.

Moreover, the law allows the debtor’s home to be seized as security for the fulfillment of his obligations, and sometimes this happens even at the stage of legal proceedings.

Not in every case the seized property is put up for auction. The very fact that a home has been seized does not mean that it will be foreclosed on, unless it is a mortgage. To do this, the debt must be commensurate with the value of the property, and the debtor must have other housing to which he can move.

Read more about the reasons for arrests in the article “In what cases is an apartment seized.”

Debts, arrears and buying a home

The buyer's main fear is responsibility for other people's debts. What happens if the previous owner was behind on mortgage payments, had fines and other problems? The law is on your side in this case. The obligations of the previous owners do not transfer to the new ones. Essentially, these are the bank's problems.

Also, the sale of a mortgaged apartment is not always associated with some kind of conflicts. Sometimes people simply move and sell housing that they have not yet managed to fully pay for. This is normal practice in our country.

Advantages and disadvantages of purchasing repossessed housing

Regardless of who puts the seized property up for sale, the main advantage of purchasing it is the price. As a rule, the reduction in value compared to the market price ranges from 10 to 40%, depending on:

• features of the object;
• stages of its implementation;
• the body that sells it - a bank or the FSSP.

The price reduction is primarily due to the peculiarities of the assessment. Before sale, any apartment, especially if its sale is carried out under the control of the FSSP, is subject to an assessment. But since the sale is not carried out under market conditions, and its terms are shortened as much as possible, the estimated value of the property turns out to be lower than the market value.

In addition, the sale of seized housing, like the sale of collateral real estate by banks, is carried out in several stages. If the property does not sell the first time, a revaluation is made. For example, as part of enforcement proceedings, the initial cost of sales may be reduced by 15%.

There are also a number of tangible disadvantages that the buyer may encounter:

1. No loans are issued for the purchase of such housing. Not counting the deposit paid in advance, the funds for which the apartment was purchased must be transferred as quickly as possible.
2. It is impossible to inspect such an apartment - you can only assess its condition from the photo in the assessment report. The buyer can only find out the address and technical characteristics of the object.
3. The owners' disagreement with the sale will lead to litigation, refusal to vacate the purchased apartment, and other problems.
4. Documentation may take a long time. Confiscated housing is under an encumbrance, the removal of which will have to be done by the buyer. This takes time and additional costs.

Pros and cons of buying a foreclosed apartment

Buying a seized apartment is attractive because it has a fairly low price compared to the current market price, since the most important thing when selling is to pay off all debts, and not to profit from this operation. Many are tempted by the price, as well as the “transparency” of the history of the apartment if it is seized for mortgage debts. After all, before approving a mortgage loan, the bank carefully checked everything. But is everything really that smooth?

The disadvantages of purchasing seized real estate include:

1. It is not possible to view the apartment before purchasing. This service is not provided by banks or other mortgage holders, much less bailiffs. You can be content with only the address, floor, number of meters and rooms. You have to evaluate an apartment only by external signs - you can look at the house (what material it is made of, what year it was built, etc.), the condition of the entrance, talk with the neighbors. But it’s impossible to see what the atmosphere is like inside, what kind of repairs there are, the condition of the sewage system, etc. On the other hand, most often, apartments are put up for auction for non-payment of mortgages, and mortgages in most cases are given for new buildings.
2. Trouble created by former residents who may not agree with the court's decision. And therefore they can knock on the threshold of this apartment, threaten, etc. Needless to say, the very aura in the apartment from which people were evicted (no matter for what reason) is not the most pleasant. The worst thing is that the debtor can appeal to higher authorities against the decision made by the court, and the result may be positive for him. This means there will be new trials.
3. Additional difficulties with apartment decoration. As a rule, the buyer will be responsible for removing the encumbrance from the acquired property. This means time, inconvenience, and additional costs.

Risks of the buyer of confiscated housing

As follows from the above arguments, confiscated real estate can create additional difficulties for the new owner:

1. In case of arrest, the law guarantees the preservation of housing in the condition in which it was transferred to the current owner for storage. But since there is no procedure for monitoring the safety of the property, it cannot be guaranteed that the purchaser will receive decent housing.
2. If the owners are against selling their home and transferring it to third parties, they will have to evict them through the courts. If this is their only home, the court may cancel the sale.
3. Other creditors may also have claims against the debtors, whose interests were not taken into account during the bidding. If this is the case, interested parties will initiate the cancellation of the sale in court.

These are not all the buyer's risks. For example, it cannot be guaranteed that there are no other encumbrances on the apartment, such as the right of lifelong residence or lease. There is also no guarantee that there will be no debt on utility bills. Although all this does not scare off most potential buyers.

Buying an apartment under arrest from a bank

Many banks sell collateralized real estate with the only possible encumbrance - a mortgage. But seized bank apartments put up for sale are already the prerogative of the FSSP and specialized trade organizations.

Consequently, banks sell collateral rather than seized property. And for the buyer this is even better, because:

• the property is sold by agreement of all parties, without claims from the previous owners;
• there are no other encumbrances on it in the form of arrests, leases, rights of lifelong residence, and so on.

There are several common options for selling collateral:

1. The owners independently sell the mortgaged apartment, having agreed on the process and price with the bank. In this case, the procedure is similar to buying an apartment on the market, with the only difference being that the bank must agree to the sale. The scheme is also beneficial for debtors, because it allows you to sell an apartment in market conditions and get the maximum price.
2. The apartment is sold by the bank through its own resources. On the website of each institution there is a section “Collateral Property”, where advertisements for the sale of apartments are posted. A few examples: Bank St. Petersburg, Rosselkhozbank, Rosbank.
3. Sale of property at auction held by a specialized organization. There are many cases described on the Internet when a bank entrusted the sale of residential real estate to intermediaries. Among them are the Russian Auction House, iTender, RTS-Tender and so on. The bank in this situation acts as a property manager.

A similar scheme is used during the sale of housing seized by bailiffs. The FSSP also attracts trading organizations for sale. Let's take a closer look at how to buy a seized apartment from bailiffs.

Purchasing a seized apartment at auction

The sale of the seized apartment must be carried out at an open auction, where the buyer is chosen by the one who names the highest price. Such auctions are carried out only by a specialized institution; bailiffs do not organize such events. The sale of an apartment in this way must be carried out within 2 months, starting from the date of arrest.

The list of seized property can be found on the website of the Federal Bailiff Service , by region. The address of the specific object and some of its characteristics will be indicated there - square footage, number of rooms, floor, etc. Following the law, the bailiff department sets the initial price at which a specific apartment is sold. The basis for setting the initial price is the value indicated in the writ of execution or in the court decision. Moreover, the starting price and the real market value, as a rule, are far from each other.

Bidding will take place if more than 2 potential buyers participate in it and their offers include a premium to the original cost. Otherwise, the auction is declared invalid. They can be re-assigned, but with the starting price already reduced by 15%, which the mortgagee asks the court to do, which sets a new price. At the second auction there is just a chance to buy an apartment very cheaply.

Buying a home at auction

The sale of seized housing is carried out at open auction by a specialized trading organization. Anyone who meets the requirements for bidders can participate in them:

• adulthood,
• legal capacity
• ability to pay bail and so on.

This process is regulated by the provisions of Federal Law No. 229 of October 2, 2007 “On Enforcement Proceedings.” The purchase of debtors' property at auction is available to the highest bidder, so the final cost may be higher than the original.

Information about the auction must be open, so it is published on the Official Website of the Russian Federation to post information about the auction. Here you can find information about all procedures for the sale of debtors’ property, as well as:

• object location data;
• name of the trading organization;
• original price and so on.

Information about the auction can also be found on the websites of regional representative offices of the FSSP.

The bailiffs themselves do not participate in the selection of trading organizations. In accordance with the Agreement between the FSSP and the Federal Property Management Agency No. 0001/13/01-12/65 dated April 30, 2015, the sale is supervised by the Federal Property Management Agency through specialized companies attracted by it.

Considering the possibility of revaluation, buying a mortgaged apartment at auction is a real chance to save money. Therefore, let’s take a closer look at the process of participating in them.

How an apartment comes under arrest

The seizure of property occurs for the debts of the owner to one or another institution, upon the latter’s appeal to the courts. As for apartments, the debt most often arises for an outstanding mortgage loan to the bank. But there are other cases of debt. When arresting, a mandatory condition is that the apartment is pledged. And when debts are systematically not paid, but only grow and grow, multiplying with interest, penalties and penalties, the creditor turns to the courts. And after the court decision, the bailiffs describe the debtor’s property, and then this property is seized for the purpose of further sale.

How to take part in the auction

A citizen cannot spontaneously participate in auctions for the sale of seized real estate - he must be recognized as a participant. To do this he will need:

• find information about a specialized trading organization that sells the object of interest;
• submit an application to participate in the auction;
• conclude a pledge agreement and deposit the required amount (5 – 10% depending on the object);
• submit other documents required by the trading organization;
• submit a sealed envelope offer at a price higher than the starting price.

The decision on admission is made on the day when the auction of collateral is held. If all conditions are met, the applicant receives a positive response and becomes a bidder.

Denial of admission may be due, for example, to the lack of necessary documents or failure to receive a deposit into the account.

Package of necessary documents

To participate in the auction, a potential participant provides a package of documents, including:

• application in the prescribed form;
• a receipt confirming payment of the deposit in accordance with the agreement;
• power of attorney, if a representative of an interested party participates in the auction;
• envelope with price offer;
• identification;
• TIN certificate;
• permission of the spouse to conduct a transaction or other documents confirming the right to participate without the permission of the spouse.

Auction procedure

On the day on which the auction is scheduled, all applicants gather at the auction site. As follows from the above, the procedure for conducting auctions of seized real estate does not imply an increase in the rate during the auction process.

The envelopes are opened in the presence of all participants. The winner is the one whose envelope contains the highest price.

Based on the results of the auction, the winner is given a protocol. After signing this document within the period established by the terms of the auction (10 days, 1 month, and so on), the buyer is obliged to pay the full amount declared at the auction. After this, he can register ownership.