Buying an apartment at auction: procedure, buyer’s risks, at bankruptcy auction

Last modified: January 2021

The desire to purchase housing below market value and a low starting price in order to create excitement attract promising buyers to the auction. Buying an apartment at auction, in addition to possible savings, is fraught with the risks of the existence of “eternal” tenants, hidden encumbrances and a number of unpleasant surprises associated with the disconnection of communications due to a huge debt to utility services or the property being in disrepair.

The essence of the auction and conditions of participation

The system of purchasing real estate at auction is a procedure permitted by law, the form of which is determined by the owner of the value being sold or the holder of property rights (Clause 4 of Article 447 of the Civil Code of the Russian Federation). The organizers of the auction can be both government agencies and structures, and private commercial companies by posting information about the sale of apartments at auction on specialized resources and print media. Any adult citizen of the country who has fulfilled the requirements of a specific trading platform can become a participant. To be able to buy an apartment at auction you should:

Register in the prescribed manner. The process may include:
filling out a form;
provision of a passport and bank account statement.

Deposit collateral in the amount determined at the apartment auction and amounting to about 100-200 thousand rubles. Deposited funds
are returned to the participant within five banking days if the auction is lost or declared invalid.

Wait for the commission to sum up the results and document the results in a protocol. After purchasing an apartment at auction you should:
make the final payment;
register property rights in Rosreestr.

There are no restrictions on participants for purchasing real estate. However, an ordinary citizen cannot sell an apartment through an auction, since “promoted” electronic platforms do not provide this opportunity to everyone. To sell an apartment at auction, an individual must look for organizers who use the recently introduced auction method.

Apartment “assortment” at auction

The sale of apartments through auction is used primarily by government authorities, commercial banks or organizations that cannot sell real estate in any other way. The apartment auction makes it possible to purchase the following range of real estate:

State or municipal apartments. In accordance with Law No. 44-FZ, which controls the sphere of procurement for the needs of the municipality, regional authorities do not have the right to sell real estate in any way other than through auctions for the sale of apartments. The auction presents apartments that are not suitable in terms of parameters or technical condition for citizens standing in queues or for transfer to social rent for vulnerable categories:
escheated apartments transferred to the state due to the absence of heirs;
unclaimed housing that is in disrepair and requires major repairs, reconstruction or modernization.

Housing for pensioners. Elderly single people deliberately transfer their residential premises to the ownership of city authorities. Purchasing an apartment through an auction from the city may provide for the transferor’s lifelong right of residence in the absence of an agreement to stay in one of the social residential buildings.
Mortgaged property. If the borrower cannot repay loan obligations and does not want to sell the property on his own, then the commercial organization initiates bankruptcy and, by decision of the justice authority, puts the apartment up for auction to pay off the debt. Housing can be:
registered as collateral for obtaining a consumer loan on more favorable terms compared to the absence of collateral.

Apartments from intermediaries. Taking advantage of the inability of an individual to independently sell an apartment through an auction, realtors and real estate agencies take on the role of intermediaries, deliberately offering housing at a reduced price and artificially raising the price above the market rate at auction.
Housing from developers. A long, unsuccessful search for buyers on the primary market is forcing construction organizations to resort to selling apartments at auction. In 90% of cases, the reason lies in the discrepancy between price and quality.

Government and financial institutions are turning to the sale of apartments through auction due to a legislative ban on sale in any other way, developers in order to sell illiquid construction projects, or intermediaries eager to profit in the heat of the excitement of promising buyers.

Advantages of cooperation with Mossotsgaranty

State Unitary Enterprise Mossotsgarantiya is the only state enterprise working towards concluding lifelong maintenance agreements with dependents. Although private and commercial structures are not prohibited from engaging in such activities.

It is important to distinguish between lifelong maintenance agreements and lifelong rent of an apartment. In the second case, the pensioner receives only cash allowance, without food and the necessary set of household services. The Mossotsgarantiya works precisely in the direction of monetary and in-kind support for the recipient of the rent. Other benefits:

A one-time payment of 3% of the market value of the residential premises.
The ability to choose types of household and social services, as well as individuals and legal entities to provide these services.
Increasing the salary taking into account the growth of the cost of living in Moscow.
Full transparency of the transaction - falsification on the part of the state enterprise is excluded.
Possibility of choosing the form and details for transferring the monthly amount of cash.

Non-state companies often offer more attractive conditions. But by collaborating with them, older people put themselves at great risk. The likelihood of finding scammers, especially in the capital, is always extremely high. Mossotsgarantiya covers all costs for completing the transaction, which is another significant advantage.

Scheme for purchasing housing at auction

A citizen who decides to visit and participate in public auctions must develop his own scheme for how to buy an apartment at an auction, setting price limits and not allowing the excitement to go beyond acceptable limits. The implementation procedure differs from the standard algorithm, requires unusual actions from the participant and depends on the trading platform itself and the organizers of the process.

Algorithm of actions

After reading the requirements of a specific site in print media or on Internet sites, in order to buy an apartment through an auction, you should:

Register in accordance with the requirements of the site and make a deposit. The registration process begins in most cases five days before the event. If the organizers allow “remote” participation, then you must obtain an electronic key valid for a year.
Be present at the auction for the sale of apartments in person or remotely using software, provided that the selected site does not require a mandatory personal visit.
Decide on the tactics and strategy for participating in the auction. It is recommended to set an upper price limit, beyond which you should not go. The process includes increasing the price for a lot (apartment) with a certain step established by the manager. For example, if the step is 20 thousand rubles, then the subsequent participant cannot offer an increase in the previous price by 15 thousand, but can freely raise the price by any amount exceeding 20 thousand rubles.

If you win, receive the documents, pay the remaining cost and register the property in the prescribed manner.

Documents and deadlines

Any adult citizen who has submitted the following documents can buy an apartment at auction:

internal passport proving identity;
bank account statement indicating the availability of funds.

A number of financial institutions provide loans for the purchase of an apartment at auction. Then, instead of a personal account statement, it is allowed to provide a document confirming the bank’s consent to provide financing within the agreed amount if the client wins.

On average, the preparation and process times are:

1 day – registration and receipt of an electronic key with a subsequent validity period of up to a year;
5 days – the period no later than which you must register to participate in a specific auction;
an interval from several hours to several days is the time of the actual event, depending on the activity of the applicants.

The search period for a suitable apartment and the list of participants is unlimited. However, if less than two potential buyers participate in the auction or not a single premium is made during the sale of the apartment at auction against the starting price of the pledged property, then the auction is declared invalid (Article 58 of Law No. 102-FZ).

Risks of purchasing housing at auction

Despite the possibility of a profitable acquisition due to a quick assessment of the situation, instantaneous adoption of a constructive decision and the confusion of competitors after a successful “move,” buying an apartment at auction is fraught with the risk of acquiring problematic real estate, starting from residents and ending with litigation regarding the legality of selling housing in this way.

Problem tenants

Housing that is not new buildings has its own “history” regarding registered and temporarily deregistered persons. The buyer of collateral risks buying an apartment at auction simultaneously with the former owner and additional members of his family.

The problem lies in the registered residents, since the acquirer may encounter difficulties when registering and evicting citizens belonging to various categories:

Adults. Citizens registered in residential premises can be forcibly deregistered only by a court decision. Litigation can drag on for years, depriving a citizen of the need to look for new housing when it is possible to live in the old living space.
Minor children. In this situation, it is impossible to discharge children, since permission from the guardianship authorities is required, and the guardianship council will give it only if the child is provided with another living space in return, which in technical parameters is not inferior to the specific apartment sold at auction.
Persons who refused to participate in privatization. These citizens do not have the right to take significant legal actions in relation to the object, but can reside for life.
Temporarily deregistered persons. Among the previously registered persons may be citizens serving sentences in prison or declared missing by a court decision with the restoration of registration and preservation of the right to housing in the future.

An important point that is reported before selling an apartment at auction is those who are unable to care for themselves due to old age or disability and have no relatives. Elderly people transfer residential premises subject to the preservation of the right to lifelong residence and care by the new owner. The condition of the dependent will be monitored by the guardianship council, which, if insufficient care is suspected, may apply to have the transaction declared invalid.

Debt on utility bills

Theoretically, debts to public utilities are recorded in relation to the citizen, and not the property. However, having received a huge overdue debt as a legacy and found himself cut off from communications, the new owner, when contacting the management company, is often faced with a refusal to restore gas supply, water supply and electrification.

Resetting meters and searching for the former owner is unprofitable for utility services, and buying an apartment at auction forces the new owner to file claims and participate in proceedings, despite positive judicial practice that takes the side of buyers.

Unauthorized redevelopment

Selling an apartment through an auction with an illegal redevelopment is not difficult, but upon further sale, the citizen will be faced with the need to bring documents and housing into compliance, which implies two options:

legitimation “retroactively”;
return to original state.

If “forbidden repairs” have been made that violate construction, fire or sanitary standards, then the buyer is deprived of the right to choose and receives an obligation to bring the home to its original condition at his own expense.

Challenging a court decision

If the housing was listed as part of the collateral of a financial organization, then the sale of the apartment at auction is allowed only by decision of the court. Previous owners can challenge the decision, depriving the buyer of the purchased property.

The money will be returned by the financial institution, but instead of saving time by quickly purchasing an apartment at auction, the buyer must start the process of finding suitable housing from scratch.

Artificially inflating costs

The initial price of the object being sold will be lower than the market indicator, but at an auction there is a basic rule - a systematic increase in value with each step. Organizers have real estate figures based on reports from appraisal companies, setting a small gap at the start.

During the process of holding an event, it is difficult for a participant who does not have sufficient experience to resist the general excitement, not to get excited and stop without going beyond the established limit. The result of the acquisition may be an unreasonably inflated cost that is not subject to further revision.

Comments: 2

Your comment (question) If you have questions about this article, you can tell us. Our team consists of only experienced experts and specialists with specialized education. We will try to help you in this topic:

Author of the article Irina Rusanova

Consultant, author Popovich Anna

Financial author Olga Pikhotskaya

Tatiana
01/11/2021 at 23:43 Could there be fraud on the part of the Mossotsgarantiya? First, poison the person who entered into the annuity agreement and can I invite my notary whom I know?
Reply ↓ Anna Popovich
01/12/2021 at 15:16
Dear Tatyana, the auction is held by the Moscow City Department and it is not possible to invite a third-party notary.
Reply ↓