As a consequence of the real estate crisis that we have all been suffering in recent years, there have been thousands of evictions due to non-payment of mortgage loans, which has caused banks to accumulate a huge amount of real estate, whose sole purpose is to sell them, because their business does not consist in accumulating patrimony, but in something very different, which, as defined by law, is receiving deposits or other reimbursable funds from the public and granting credits on their own account.
This situation can be analyzed from very different points of view, be they ethical, economic, legal... which could lead to very interesting conclusions, separately. However, in this entry I intend to make an economic-legal analysis of the investment opportunities that this portfolio of real estate existing in credit institutions may entail and whose sole purpose, as we have indicated, is its sale in the shortest possible time, with the possibility of obtaining some type of profit or of not accumulating expenses, since they would be a source of future losses.
In advance, I would like to point out, for the purposes of a better understanding of the matter, that although we are referring to the Bank, the same references would be possible for any other creditor.
There are three fundamental ways to structure the possible acquisition of the properties that the Banks have acquired due to non-payment of mortgage loans:
a.- That the Bank assigns the mortgage loan and the purchaser initiates or is subrogated in the foreclosure process.
In this case, when acquiring the credit, the acquirer or assignee acquires the position of the bank, and it must be the acquirer or assignee who initiates or continues the foreclosure, but that could end with the award to a third party that participates in the auction. , because in accordance with article 670 LEC, if the best bid was equal to or greater than 70 percent of the value for which the property was put up for auction, the court clerk responsible for the execution, by decree, on the same day or the day following, will approve the auction in favor of the highest bidder.
It is a difficult possibility for it to occur in practice, because today, there are usually no bids in auctions, due to the situation that the real estate market is going through, but it should be evaluated before making a decision, on the use this way to acquire a property.
In this case of the operation, the global cost of the operation would be broken down, in the cost of the assignment of the credit that would include the granting of the deed, the payment of the tax of legal acts documented by the same basis as the constitution of the mortgage , and the registration of the assignment of the credit in the Property Registry; and subsequently the tax corresponding to the adjudication would have to be paid, (normally in operations subject to and exempt from VAT the 10% of Patrimonial Transfer Tax) for the value of the adjudication and the inscription in the Property Registry, without having to pay deed, since the judicial document is directly registrable.
b.- That the Bank agree with a third party to transfer the property once it has been acquired.
In this case, we are dealing with a normal sale, in which a property is purchased from the bank, which has previously been awarded the property in a legal proceeding. There are few problems with this route, compared to an ordinary sale, except for the absolute convenience of checking the physical situation of the property and its situation in the IBI and community expenses, since it is very frequent that such expenses have been paid to us in a long time. . The truth is that in deeds of this type, banks usually assume the payment of expenses that may be pending until the sale, and simultaneously the buyer waives any type of sanitation due to defects, since the bank is not responsible for the situation. of the property.
c.- That the Bank agrees with the third party a price for the assignment of the auction.
Compared to the two previous positions, the transfer of the auction is a third way to acquire a flat from the banks, which presents a greater technical complexity, but which can be very favorable, since it is the most economical formula, from the fiscal point of view and to her we are going to refer a little more in depth.
The assignment of the auction is a contract by virtue of which the Bank, which is awarded a property in a foreclosure procedure, before the adjudication is final, agrees with a third party, who is the one who keeps the property. In this way, the Bank does not get to put the mortgaged property in its name, but the award is made in favor of the assignee of the auction, who pays the amount of the award, and charged to the amount delivered by the assignee, the bank collects from your credit. Through this transfer of the auction, it is as if the bank sold the farm, before putting it in your name.
The transfer of the auction is more fiscally attractive than the two aforementioned positions, because despite the fact that there are two transmissions in the fund, taxes are only paid for the acquisition of the final winner of the property, that is, for the one that remains as owner. of the farm, which will have to pay in the case of operations subject to and exempt from VAT, the property transfer tax (10%) for the adjudication value and the registration in the Property Registry, in the same way that the bank, but the creditor bank does not pay any tax for this assignment, as long as the assignment of the auction is verified under the terms of article 20 of the Regulations of the Property Transfer Tax Law, that is, this power must have been reserved in the act of the auction, which on the other hand is what the procedural legislation requires.
The doubts raised by the acquisition of a property by transfer of the sale of the auction derive from its scant regulation, and from the fact that it is not clear enough, which is why correct advice is essential.
The specific regulation of the assignment of the auction is found in the Civil Procedure Law, specifically in article 647.3. which literally says “Only the performer may make a position, reserving the right to cede the auction to a third party. The assignment will be verified by an appearance before the court clerk responsible for the execution, with the assistance of the assignee, who must accept it, and all this prior to or simultaneously with the payment of the auction price, which must be documented. The same faculty will have the executor in the cases in which the adjudication of the seized assets is requested in accordance with the provisions of this law.”
Reading this precept can be a real puzzle for a person not very trained in enforcement procedures.
The particularities presented by the transfer of the auction would be the following:
1.- This route can only be used when the Bank has initiated the foreclosure procedure.
2.- It is necessary for the Bank to be awarded the property, either because it is the highest bidder in the auction or because of a lack of bids in the auction, request the award of the property, within the minimums established by the Civil Procedure Law. It cannot be used in the case of any other successful bidder, as happened in other times. This modification that derives from the urgent procedural reform of 1992 was justified in order to avoid auctioneers.
3.- The transfer of the auction must be carried out within the period determined by the court clerk, which is not established by law. For this reason, the most reasonable thing is that the assignment of the auction must be carried out within the terms established in article 670 LEC for the payment of the auction price, or within the terms established to request the award due to lack of bids, provided for in the article 671 LEC.
4.- Formally, it is carried out before the court clerk, before whom the creditor and the assignee who accepts the assignment must appear, after which an award order will be issued in favor of the assignee, who will remain the owner of the property. Although the law does not say anything about the appearance of the transferor, it will normally be verified through the attorney.
In this appearance, the payment of the price to the Bank must be documented, since it is the final recipient of the money.
In any case, it is normal for there to be a prior contract between the creditor and the assignee in which they determine all those agreements that are convenient, including the price of the assignment to which we refer in the following section.
5.- As in any other business, the price of the sale of the auction is set by the parties based on the rules of the free market and could be higher or lower than the award price.
However, judicial practice, at least in the city of Lleida, since I understand that it is not uniform throughout Spain, requires that in the act of transferring the remainder, it must be carried out strictly for the amount for which the claim has been dispatched. execution. For example, if the performer is going to be awarded a property with an appraisal value equal to 100, for 50% of the appraisal value when the auction is deserted, that is, for 50, some courts require proof that the assignment of the auction is has done for 50.
But the reality is that it is possible to negotiate with the bank that the value of the transfer is greater or less than the value of the award, either because there is a great interest of the assignee in acquiring that property, or because the bank is aware of that it is very difficult to obtain in the market an amount similar to the value for which the floor has to be awarded.
These circumstances must be recorded in a private or public document, but if the indicated judicial practice is followed, they most likely will not generate more than some opacity of the money, received and delivered, which could give rise to unwanted tax consequences.
Fortunately, the RDGRN of October 19, 2017, has clarified this issue, admitting that possible the assignment of the auction for an amount less than the adjudication price. Differentiate this resolution between ehe auction sale price and the auction or execution price.
(Yo) He auction price It is the amount of the best bid in the event that there are bidders in the auction;
(ii) he award price It is the amount for which the executing creditor acquires the property in the absence of bidders;
(iii) he auction sale price It is the amount received by the performer who transfers the auction from the assignee for the transfer of the property that has been auctioned off or awarded in favor of the former.
This resolution allows the assignment for an amount greater or less than that offered by the performer, provided that the award is made for the amount of the auction. In the decree, therefore, the adjudication price must be maintained, which is the one initially offered by the performer and which will be deducted from the amount claimed; and then it will be declared that the successful bidder has satisfied the performer for the assignment a smaller amount, identifying it. This payment will also have to be documented.
6.- Finally, to avoid the problem that the person interested in acquiring a property through the auction assignment procedure does not have sufficient funds to make the amount of the assignment effective, the Mortgage Law allows for the constitution of a mortgage on the right of the auctioneer on the properties auctioned in a legal proceeding. Once the auction price is paid and the domain is registered in favor of the auctioneer, the mortgage will subsist, falling directly on the awarded assets.
In this case, normally the bank that initiated the foreclosure procedure advances the necessary funds to verify the assignment of the auction, which is formalized through a public deed, with the guarantee that the mortgage that initially falls on a right, it ends up becoming a mortgage on the farm.
To constitute the mortgage, the Court Clerk shall immediately issue testimony of the decree approving the auction, even before the price has been paid, stating the purpose for which it is issued. The application will suspend the term to pay the auction price, which will resume once the testimony has been delivered to the applicant.
Updated this entry in Lleida on November 23, 2017.