This entry is a development of another published in this same blog a few years ago, titled Formulas to acquire a flat from the Banks. The transfer of the auction., and that they can consult by clicking here.
The origin of that entry is a query that an employee and friend of a financial institution made me, to whom his legal counsel did not give the go-ahead to finance the acquisition of a farm that was going to be carried out through the transfer of the auction.
Before joining the destination where I provide my services, I was asked about the possibility of making a mortgage on the auction right. To heal myself, since I only do it in very exceptional cases, I consulted the Property Registry in which the mortgage had to be registered, and when everything was in agreement with the Registrar, the operation did not materialize either, due to the reluctance of the Bank's legal counsel.
In that period of tests and consultations, I did not know of anyone who, linked to the world of mortgage credit, had seen a mortgage on the auction right, and came to suspect that if one of these mortgages was signed in my notary, it is possible that it was, I do not know if it was the first or the only one, but one of the few that had been granted in Spain.
There are many inquiries that I receive in my office about real estate acquisitions through the transfer of the auction right, but always after explaining how the procedure works, I warn you to be very careful with the private documents that are signed (they are not mere "earnest money"), since banks are usually reluctant to these operations, and there is a risk of losing the money delivered, if there is not enough liquidity or financing is not obtained through other means.
However, I have received news that there is an entity based in Castilla la Mancha that is making mortgages of this type.
After this introduction, and with an attempt to remove caution from banks and encourage the use of the figure, I write these lines.
The possibility of mortgaging the auction right is included in article 107.12 of the Mortgage Law, which tells us that
"They may also mortgage: (...) Twelfth. The right of the auctioneer over 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.
This precept was introduced by final provision 9.3 of Law 1/2000, of January 7, on Civil Procedure, with the legislator's desire to facilitate access to credit to finance the acquisition of an auctioned property, but as we can intuit from what has been written so far, and as happens with many other laws, the wishes of the explanatory reasons do not always become certainties of daily use.
It is true that the reluctance with this figure derives from the scarce existing regulation, which is specified in what we will say below, always on the hypothesis that there is a winner of the auction other than the executing creditor.
In the first place, article 670.1 LEC, declares that once the auction is over, the court clerk responsible for the execution, by decree, on the same day or the day after the closing of the auction, will approve the auction in favor of the highest bidder.
Within forty days, the auctioneer must deposit in the Deposit and Consignment Account the difference between the amount deposited and the total price of the auction.
Let's imagine that a farm is awarded at auction for the amount of 150,000 euros. Since in order to participate in the auction it was necessary to deposit 5% of the auction rate, for example 7,500 euros, in order to be the successful bidder you must pay 142,500 euros, within 40 days.
In this situation, if the 142,500 euros are not available and they want to obtain a mortgage on the property that is going to be acquired by auction, we would have the following phases:
a.- THE TESTIMONY OF THE DECREE APPROVING THE AUCTION,
If the winning bidder needs financing to pay the difference, between what was deposited to participate in the auction and the total price of the auction, You can request the court clerk to 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.
That is, the 40-day term is extended by the time the court clerk takes to issue the testimony, from the time it was requested.
b.- THE MORTGAGE DEED.
To carry out the mortgage, the notary must present the testimony of the decree approving the auction referred to in section a) above, which documents a right that is not property, and which is qualified by the most authoritative doctrine, as a "ius ad rem".
Once the deed is granted, it must be communicated to the Court and it can be registered in the Property Registry, in the open page of the property on which the execution falls.
c.- PAYMENT and FINAL REGISTRATION.
Once the price has been paid by the executor, and in accordance with article 673 LEC, the court clerk issues a new testimony, of the award decree, comprehensive of the resolution approving the auction, of the award to the creditor or of the transfer by realization agreement or by a specialized person or entity, and in which it is expressed, where appropriate, that the price has been consigned, as well as the other circumstances necessary for registration in accordance with mortgage legislation.
The testimony will express, where appropriate, that the auctioneer has obtained credit to pay the auction price and, where appropriate, the previous deposit, indicating the amounts financed and the entity that has granted the loan, for the purposes provided in article 134 of the Mortgage Law.
This testimony, together with the order ordering the cancellation of the annotation or registration of the encumbrance that caused the auction or adjudication and of all subsequent inscriptions and annotations, is sent to the Registry, and once the domain is registered in favor of the auctioneer, the mortgage will subsist, falling directly on the adjudicated assets, with the priority of the mortgage over the auction right.
THE RETICENCE OF THE BANKS.
The procedure is somewhat more complex, since there is a double degree, notarial and judicial.
I believe that the most relevant issues for the scarce application of the mortgage on the auction right, and that in essence are a lack of legal certainty, are the following:
a.- The first is the short existing term (40 days) to carry out the mortgage. If you do not deal with highly specialized departments, until the positions are actually defined, a significant period of time may have been consumed.
b.- The lack of a notarial title. On a day-to-day basis, a deed has much more guarantees than a judicial document, which is also provisional. And the mistrust between the communications between the court and the property registry.
It is worth making reference here to the enormous service that notaries and registrars provide through our technological platforms.
c.- The feeling of jumping into the void on the part of the entity that lends the mortgage, since the successful bidder must accept the subsistence of the previous charges (although it is normal for a charge with a first class rank to be executed) and although subsequent charges are canceled as a result of the foreclosure procedure itself, at the time the auction price is paid they are in the Registry.
d.- And finally, due to the risk that the foreclosure procedure may be nullified, before the mortgage is registered, which would thus remain in the air, but with the money delivered by the Bank.
From what has been said, if you are not very familiar with these procedures, they are not really operations that seem clear.
THE SPECIALTIES IN CASE OF ASSIGNMENT OF THE AUCTION.
This process, apparently, is complicated in the case of assignment of the auction, since the assignment is verified, according to article 647.3 LEC, by means of 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 or consignment of the auction price, which must be documented.
As we have said before, the mortgage on the auction right is designed for the assumption of financing a bidder.
Personally, I do not have statistics for recent years, but from what I perceive, I believe that in most of the foreclosure procedures carried out in recent years, the executor himself has been the successful bidder for the property, who has simultaneously transferred the auction to companies in which they have an interest, such as SOCIMIs, which had no financing problems.
But when the assignment has been intended to be made in favor of individuals, the problem is that the assignment can only be made if payment is verified by the assignee, and for this reason, in principle, it is not possible to establish a mortgage on that provisional right provided for in article 670 LEC, since as such it does not exist, since the law does not regulate the possibility of issuing a testimony of the auction approval decree, even before the price has been paid, in favor of the assignee.
It is a question of a technical-procedural nature that I obviously do not master, and for this reason I prefer to write with some prudence. But if any specialized reader could give us some light on the possibility, in accordance with the civil procedure law, of granting the same rights to the assignee of the auction as to the executor himself, and that a testimony of the auction approval decree could be issued, even before the price has been paid, in favor of the assignee, so that he can establish a mortgage, let them know that this blog is open to all kinds of opinions.
THE ADVANTAGES OF THE OUT OF COURT PROCEDURE.
The previous obstacles are to a certain extent circumvented when the execution procedure is extrajudicial and is processed before a Notary. This is so because the assignment of the auction and the deed of sale, in favor of the assignee, they are verified in unity of act.
In this way, what is mortgaged is not the right to the adjudication, but directly the property right over the property.
For this reason, an operation of this type is not very different from an ordinary mortgage, with the only exception, that the sensation of jumping into the void continues to exist, since subsequent charges are canceled as a consequence of the foreclosure procedure itself, since at the time the auction price is paid and the money is disbursed by the Bank, the charges that must be canceled are still in the Registry.
In Leganés on April 8, two thousand and nineteen.