How is the foreclosure sale and auction of movable property conducted?

Chapters of the article

• How does foreclosure in an apartment work in practice?
• Execution order
• Other inventory
• Estimation and auction preparation
• The auction process

There are several methods of execution and bailiffs have a prescribed order in which they may proceed. Execution by sale of assets may be the only effective way in some cases, especially if the debtor is not working or earning at the minimum wage. This form of execution can also have a motivational function in a way, whereby it will induce debtors to find the money, as it is highly disadvantageous to sell off assets which they have bought at a much higher price and are likely to find at a higher price over time in a similar form.

The essence of the execution by sale of movable property is the arrival of the bailiff and his staff at the debtor’s place of residence (possibly also at another place where there is a high probability that the debtor will have his property there), the inventory of the property and its identification (possibly also its removal to the bailiff’s warehouse) and the subsequent sale. This step is preceded first by a summons from the creditor, then from the court and, on the spot, by a verbal summons from the bailiff for the debtor to pay the debt recovered.

Items excluded from foreclosure:

• Assets that are strictly necessary for business or professional activities (this does not apply if they are subject to a lien in favour of the creditor) – here it is necessary to assess which assets are necessary for business at least to a minimum extent. If, for example, an activity can be carried out manually, albeit with more effort, the bailiff may take a device that facilitates the same activity.
• Items acquired by the debtor in the course of criminal activity,
• children’s toys, school books and school supplies,
• medicines, medical aids or supplies that are currently used to cure an illness or injury,
• cash equal to twice the minimum subsistence level,
• live animals (unless they are animals kept for economic gain – i.e. not only livestock, but also, for example, kennel dogs),
• personal effects such as wedding rings, photographs, etc,
• the usual household goods that the debtor needs.

Things that are typically subject to foreclosure:

• furniture – sofas, wardrobes, bedside tables (although these are common household furnishings, they are not strictly necessary),
• electronics – television, computer, tablets, speakers,
• large and small appliances and various tools and devices – dryer, coffee maker, food processor, drill, mower, etc.,
• valuables – coin collections, jewellery except personal jewellery such as an engagement ring.

If no itemscan be found in the debtor’s home or any other place known to the court, the court shall notify the creditor and invite him to indicate where the items to be sold may be located. If this does not lead to success, the court shall stop the enforcement of the judgment.

How does foreclosure in an apartment work in practice?

The bailiff will primarily try to ensure the presence and cooperation of the debtor. However, it is important to know that he/she may enter the house or apartment without the bailiff being present. If the debtor does not cooperate, he may, for example, use a locksmith or otherwise break the lock on the door. He may also request the assistance of the Police of the Czech Republic. A video recording must be made of the entire foreclosure.

He then takes an inventory of the property. In doing so, he shall list the items which it is reasonable to assume belong to the debtor. If another person claims otherwise, he or she must prove it. Mere assertion is not sufficient. The items shall be listed individually under serial numbers and briefly described so that they cannot be confused. They are then allowed to take them to their warehouse (if there are concerns about damage or loss) or leave them in place with a ‘seized by execution’ label. For items where this is technically possible, the bailiff may dismantle key components necessary for their operation. The debtor may not then dispose of any items so marked.

Enforcement order

The execution order for the sale of movable property must contain an identification of the items to be sold. In it, the executor shall prohibit the debtor from continuing to dispose of the items included in the inventory. The execution order shall also require the debtor to prove whether he has acquired the asset in question as a substitute asset. This is essentially a situation where property is acquired in the settlement of an inheritance for the sole purpose of administering it for a subsequent heir. In practice, this could be a situation where a grandparent bequeaths his precious coin collection to his grandson, but the grandchild’s mother receives it as a substitute asset until the grandchild comes of age. The mother can therefore dispose of it, but she is not the owner, so she cannot, for example, sell it. Property that is substitute property may not be subject to execution.

Other inventory

The so-called other inventory is another step by which the law allows the executor to list items in the debtor’s estate that are known to exist on the basis of public registers. In practice, this option classically concerns a car. An essential part of this step is to mark the item in the register with an inventory entry. While this will not prevent the owner from using the asset (i.e. the car), it will not allow him to sell it. If the bailiff subsequently gets physical access to the vehicle, which is not always easy, he can secure it.

Estimation and auction preparation

Unlike the sale of real estate, the sale of movable property does not necessarily require the presence of an expert. In view of the numerous sales executors carry out, and the fact that they are usually of the same or similar type, the price estimate of the executor at the time of the inventory may be sufficient. However, for some items, such as securities in particular, the price must be ascertained and an estimate is not sufficient.

Perishable items are taken from the debtor by the court and sold outside the auction immediately after they have been inventoried. For these items, however, the bailiff or his staff must find a person willing to buy the items outside the auction. If such a person cannot be found, the items must be returned to the debtor.

Thetime and place of the auction are set by the so-called auction decree. It may take place at the bailiff’s office or at the municipal or town hall. Recently, it has more often moved online in the form of electronic foreclosure auctions. For example, at www.portaldrazeb.cz. Along with the electronic auction, the place and time where the item can be viewed can be announced.

In addition to the date and place of the auction, the auction notice itself also contains the designation of the items, the lowest bid, the method of payment and other necessary details. The auction notice is then served on the debtor, his spouse, the creditor and the authority of the municipality in whose district the debtor resides and in whose district the auction will take place.

If the inventory includes important works of art or monuments, manuscripts of particularly important literary works, or various personal memorabilia and correspondence of particularly important writers and cultural figures, or objects of greater cultural and historical value and collections thereof, they shall be offered for purchase primarily to museums, galleries or other institutions which have custody of the monuments in question. Only after the institution in question has failed to take up the offer within 30 days may the items be resold in the usual way.

In the case of items whose price exceeds the equivalent of EUR 45 000, the obligation to lodge a security is regulated. The amount shall be determined by the court. This is a financial guarantee which ensures that only serious bidders take part in the auction.

Auction process

If you wish to participate in the auction as a bidder, you must prove your identity, which will be recorded by the court, together with your place of residence and date of birth. Judges, court staff, the debtor and his/her spouse are not allowed to bid.

The lowest bid is one third of the reserve price. The bidders shall be bound by their bids unless a higher bid is made. The auction shall continue until the auctioneers make further bids when invited to do so by the words ‘for the first time’, ‘for the second time’. Finally, the court shall award the bidding to the highest bidder after the invitation to bid ‘for the third time’.

The auctioneer shall be obliged to pay the price immediately and, should he fail to do so, the lot shall be auctioned again without his participation. Upon payment, the right of ownership shall also pass to the auctioneer and the liens and retention rights attached to the auctioned item shall cease at that moment.

In the event of failure to sell the items, even at the reauction, they are offered to the creditor for one third of the reserve price. If this form also fails, they are excluded from the inventory and returned to the debtor.