Always double-check if the property for sale is in foreclosure or not
Whether the owner himself mentions the foreclosure or not a word is said about the foreclosure, it is always advisable to check the property. It is best to go directly to the Land Registry, where you will find all liens in the enclosed title deed, and therefore sort out the possibility of foreclosure.
If at first look there is no visible foreclosure on the property, it does not always mean a complete win. It is also advisable to check the owner to see if he has other debts that could lead to the mortgage of the property.
If you find any discrepancy, it is advisable to contact the Executive Officer directly, who deals with the case. However, cooperation with the owner of the property will be useful here, and he should provide you with the execution number and contact information for the Executor Officer. It is necessary to find out the exact amount of the debt from the Executive Officer, because this information is crucial for the next procedure. In addition, the Executive Officer, like other creditors as well, must give consent to the sale of the property.
What are the differences between purchasing an apartment in foreclosure, and a standard purchase (an apartment not in foreclosure)?
Buying an apartment in foreclosure is different from the standard procedure, via several basic steps which must be performed before signing the purchase contract.
For example, we do not start with a standard reservation contract, but with a future purchase contract. At the time when the contract of the future purchase contract is signed, it is of course necessary to already know the character and amount of all liens (or foreclosures) that are held against the owner. Ideally, it is good to know even those which are not yet final; (although finding record of them is not always easy, and unless the debtor himself mentions them, it is difficult to get all the necessary information).
Before signing, check all the debts of the seller. The Central Register of Executions is based on Edict No. 329/2008 Coll. and handles these records. Providing electronic data will cost only 60 CZK. We definitely do not recommend using databases which appear to be free, due to their often being less trustworthy. To find information about any insolvency issues with the seller, use the Insolvency Register maintained by the Ministry of Justice. This database is freely accessible, provides a relatively wide range of data on the debtor and all information is provided free of charge.
The contract of the future purchase contract must contain a complete overview of the amounts due, which you will pay directly to the Executive Officer after signing. As soon as everything necessary has been paid, the Executive Officer will issue you a written confirmation that the debt has been paid, (a so-called receipt).
With this confirmation you can go to the Land Registry, where a proposal is submitted to remove the record of foreclosure from the title deed. As soon as the title deed is free of foreclosures, it is possible to sign a purchase contract and transfer the ownership rights in the Land Registry.
If you are going to finance the property with a mortgage loan, it is not possible to create a lien on this property in favor of the bank. It is necessary to guarantee with another property in order to provide a loan.
Real Estate Purchase or Sale
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What are the risks of buying an apartment in foreclosure?
We have already mentioned that the key is to know the exact amount of debts, (liens or foreclosures). Why?
A big problem arises when the amount owed is higher than the value you are willing to pay for the property. In such a case, we recommend you to walk away from the purchase quickly, because such a deal would only bring complications and problems.
Another risk is new foreclosures, which may appear even after the debt has been paid and the records have been removed from the Land Registry. In such a case, you will need to resolve payment of the amount owed and deletion of that new foreclosure from the title deed as soon as possible. The result of this, of course, being that the prices is now higher than the amount you originally intended to invest.
Not all foreclosures can be easily found. Especially the ones that are not yet final. You will not find records about them in any register yet. However, they may appear during the transfer of the property and complicate the whole process. It is always necessary to go through all available registers, be in contact with Executive Officers and ideally with the relevant court in charge.
Purchase from the owner (debtor) vs. purchase from an auctioneer
The procedures and risks we have described so far are related to cases where you buy a property directly from the owner of the real estate, thus from the debtor himself. In practice, however, there is another way to buy real estate in foreclosure. This is a purchase at auction, where we buy the property from its auctioneer. The auction of real estate arises if the debtor is not able to repay his obligations in another way after the beginning of enforcement proceedings.
The auction can be done in cooperation with the debtor, but it can also be done if the debtor does not agree (so-called voluntary and involuntary auction). The starting price is always determined, and then according to the predetermined conditions described in the auction notice, a public auction will take place. Every interested person in the auction shall have to furnish a predetermined amount in deposit, which will allow him access to the auction. The deposit is of course returned to all those who do not purchase the auctioned property.
The advantage of the auction, is that as a buyer you will acquire the property without legal defects. Individual creditors will be satisfied from the amount of the sale of the real estate, so the obligations to the real estate are canceled and the property title is clean. The disadvantage may be that auctions take place in public, whether physically or electronically, and therefore there is a risk that there will be an interested person who offers a higher amount than you.
Real estate encumbered by easements
Whether you are buying a property directly from its owner or at an auction, it can be encumbered by easements. Some do not disappear even by auction or transfer to a new owner. While in the case of an auction, the auctioneer will warn you of all burdens (those that disappear and those that remain), when buying directly from the owner, it is necessary to find out the details about any easements at the Land Registry.
Some easements will not limit you too much. These are mainly those that are attached to the land. For example, we commonly find easements for the service of a utility network, for the benefit of energy suppliers or related services. The rights of neighbors to use part of your land, (for example, to be able to drive to their own land), can be a bit more complicated.
For potential buyers, the worst categories of easements are those that are tied to certain people – such as lifetime right to use, when for example, the owner’s parents have the right to use the property for life.
Do not risk financial loss – rather join forces with an expert
If you do not mind a larger administrative burden and you have a well-checked property, there is no need to worry about buying. In this case, on the contrary, you can get your dream property for a much better price. However, these days more than ever we recommend using the services of a lawyer who has experience with similar transactions for such a purchase.
Buying an apartment in foreclosure is a relatively complicated task, and a mistake can easily happen, which in some cases means the loss of property, or even the investment itself. It is common enough to see cases where the new owner lost the property due to incorrectly identified and treated foreclosures. For this reason, think primarily about your financial safety, and look to the help of an expert.