Foreclosure by sale of the property is a very crucial step that should only be taken as a last resort if other foreclosure options have failed. Which properties may be affected by foreclosure and under what circumstances may it affect the debtor’s own home in which he or she lives?
The Civil Procedure Code provides for a certain sequence of procedures when ordering execution. In principle, execution by sale of real estate is the last resort, which occurs when money cannot be obtained from the debtor in any other way – for example, by attachment of an account, deductions from wages, or sale of movable property. However, there may also be a combination of several methods of enforcement. Foreclosure by sale of the property is also offered if a higher amount is recovered that other methods of foreclosure cannot cover or if other options would take a disproportionately long time. It is also appropriate if the property is the debtor’s only asset.
No method of foreclosure is pleasant, but foreclosure by sale of property arouses the most emotion. You can read how the foreclosure sale and auction of movable property works in our next article.
Any property registered in the Land Registry may be subject to execution. It can be flats, houses, or it can also be execution on land, both building and non-building. However, real estate that is not registered in the cadastre may also be subject to execution.
The property in which the debtor and his family live has special protection – such property should be sold last. In addition, execution by sale of real estate is limited by law to the amount of the claim for which the real estate is to be sold. If the debtor has a permanent residence in the property, then the bailiff is obliged to refrain from ordering the auction, or the court stops the enforcement of the judgment if the amount of the creditors’ claims without accessories does not reach CZK 100,000. However, this does not apply when maintenance or compensation for injury caused by personal injury or crime is being recovered, as this would be contrary to good morals.
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The first stage is the issuance of an enforcement order, which must include the designation of the property or the co-ownership interest in it. The debtor is required not to make any further changes to the property and to notify any defects in the property within 15 days of the date of service of the execution order. The order is served on the creditor (i.e. the creditor), the debtor (i.e. the debtor), the debtor’s spouse, the land registry office, the tax office and the municipal authority in whose district the immovable property is located and in whose district the debtor resides. The bailiff must also serve it on other persons who have any rights over the property – such as pre-emption rights, rights in rem, reservation of repurchase, etc.
If there are several simultaneous foreclosures on the same property, the one ordered first is executed first and the other proceedings are suspended during this period.
Another type of execution is execution by deductions from wages and other income. What income other than wages or salary can be affected? What is the minimum amount that the debtor will be left with and what is the procedure in case of multiple executions? Read our article.
Once there is a writ of execution ordering the sale of the property, a valuer is appointed toassess the price. This is a major difference from the sale of chattels, where the bailiff’s estimate is usually sufficient to determine the price. The valuer prepares a report establishing the so-called normal price of the property, i.e. the price at which it could be offered on the market.
If necessary, the bailiff will inspect the property. In doing so, the debtor must provide the bailiff and the valuer with assistance, or the bailiff may gain access, for example with the help of the police. The bailiff then issues an order in which he decides on the normal value of the property and determines its accessories. The order for the sale of the property is entered in the Land Registry so that third parties can be warned if the debtor tries to sell the property.
The auction itself can still be averted at this point if the debtor pays the amount due or presents other enforceable assets. We have discussed in detail what other options are available to defend against a foreclosure order in our article.
The execution relates to the immovable property with all its parts and accessories. Thus, if the apartment includes a kitchen counter, built-in wardrobes, bathroom cabinets, the execution applies to them as well.
The moment the bailiff determines the price of the property, he can issue an auction decree to sell the property. In it, he or she sets the time and place of the auction, the designation of the property to be auctioned and its fixtures, the resulting price, the lowest bid and other facts relevant to the conduct of the auction. The auction notice shall be served on the same circle of persons as the execution order and on the other circle of legal persons specified in the law.
Bailiffs and their employees, the debtor and his/her spouse may not participate in the auction.
The auction may take place, for example, at the seat of the municipal authority in whose district the immovable asset is located, or electronically. The starting price is then two thirds of the estimated price. The winner is the highest bidder. After the property has been auctioned, a so-called “order of attachment” is issued, which is also delivered to the debtor.
A special legal institution is the so-called pre-auction, the main purpose of which is to obtain as much money as possible for the property being sold and to allow other bidders to offer a higher amount. After the highest bidder has already been awarded the auction, anyone can offer in writing to the bailiff within 15 days that they wish to acquire the property for a quarter more than the highest bid. The auctioneer is then invited to match the amount, i.e. to offer the same amount. In the context of the pre-auction order, the bailiff cancels the pre-auction order and decides who is the pre-auction bidder and at what price the property will be acquired.
The debtor and now former owner must leave the property. Should the debtor refuse to leave the property, he can also be evicted.
Are you on the other side of the barricade and tempted to buy a cheap property at a foreclosure auction, but don’t know how to go about it? Read our article – How to buy a cheap property at auction.
A mere accession is not sufficient to transfer the ownership right to the auctioned item (which is also evident from the mention of the pre-auction institute). According to the law, several conditions must be met for the transfer alone:
Subsequently, the registration of the title can also be carried out, but this may still delay the lodging of an appeal against the order of pre-emption or pre-auction.
A considerably milder option than the actual sale of the property may be the creation of a bailiff’s lien. This does not serve to satisfy the claim directly, but will secure it and additionally put pressure on the debtor to try to raise money and repay the debt. The debtor can continue to use the property, but the lien is visibly registered in the land register. If the debtor repays the debt and the enforcement proceedings are terminated, the lien is deleted from the land register.
If you are interested in buying a property but find a mention of foreclosure in the land registry, read our guide on how to proceed in such a situation.
Foreclosure by sale of real estate is a last resort method of debt recovery that is only resorted to when other options such as garnishment, wage garnishment or sale of movable property have failed. It is mainly used for high debts or when the property is the debtor’s only asset. Any property can be subject to execution, including those not registered in the land register, but the debtor’s home has special protection – for debts below CZK 100,000, such property cannot be sold unless it is, for example, for maintenance or personal injury.
Execution begins with the issuance of an enforcement order, which is served on all persons and authorities concerned. This is followed by an expert’s report of the usual price, on the basis of which an auction order is issued. The auction may be physical or electronic and the highest bid wins. After the bidding, someone can still bid a quarter higher within 15 days (the so-called pre-auction). Only after payment and expiry of the legal time limits will the transfer of ownership take place. The borrower must vacate the property or be evicted. A milder alternative is the creation of a bailiff’s lien, which serves to secure the debt without having to sell the property.
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