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Buying Foreclosed Property (Zwangsversteigerung): Bargain or Trap?
How a German court auction works: the Verkehrswert, the 5/10 and 7/10 limits, the 10% security, the Zuschlag, and the risks and costs a winning bidder takes on.
Table of Contents
A Zwangsversteigerung is a forced sale run by the local court (Amtsgericht) under the Zwangsversteigerungsgesetz (ZVG). You bid without a guaranteed viewing, without warranty and sometimes with tenants or the former owner still living in the flat. It is a bargain only if your bid leaves room for those risks.
How the auction works, step by step
The court fixes the market value (Verkehrswert) after hearing an expert, and that value anchors the whole procedure (§ 74a (5) ZVG). The court's announcement names the land register sheet, the size and the Verkehrswert of the property (§ 38 ZVG) and must be published at least six weeks before the auction date (§ 43 ZVG). Most courts publish their dates, and often the expert report (Gutachten), on the joint portal of the state justice ministries, zvg-portal.de.
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On the day, the court reads out the minimum bid (geringstes Gebot) and the conditions of sale, then opens the bidding (§ 66 ZVG). Bidding must stay open for at least 30 minutes and continues until nobody bids any more (§ 73 ZVG). The highest bidder receives the Zuschlag, the court's decision awarding the property (§ 81 ZVG).
With the Zuschlag you become the owner, before you have paid the price and before you are entered in the land register (§ 90 ZVG). From that moment the property's income and its costs are yours, and so is the risk of accidental damage (§ 56 ZVG).
The 5/10 and 7/10 limits
Two thresholds protect the owner and the creditors at the first auction date. Both compare the highest bid, plus the value of any rights that stay on the property, with the Verkehrswert.
If the bid stays below half of the Verkehrswert, the court must refuse the Zuschlag (§ 85a ZVG).
If the bid stays below seven tenths, a creditor whose claim would be covered at 70% can apply for the Zuschlag to be refused (§ 74a ZVG).
After a refusal on either ground, the court sets a new date, and at that second date neither limit applies any more (§ 74a (4), § 85a (2) ZVG). Very low winning bids therefore become possible only from the second date on.
For a flat with a Verkehrswert of EUR 200,000, a bid below EUR 100,000 cannot win at the first date, and a bid below EUR 140,000 can be blocked by a creditor.
Security deposit (Sicherheitsleistung)
A creditor or other party whose rights would suffer if you failed to pay can demand security immediately after you bid (§ 67 ZVG). It is one tenth of the Verkehrswert stated in the announcement (§ 68 ZVG), so EUR 20,000 in the example above.
Cash is not accepted. The court takes a crossed cheque (Verrechnungsscheck) issued no earlier than the third working day before the auction by the Bundesbank or a credit institution in the German institutions register and payable in Germany, an unconditional guarantee from such an institution, or a transfer that has reached the court's account before the auction (§ 69 ZVG). If you live abroad, check early whether your bank qualifies.
The rest of the cash bid is due before the distribution hearing (Verteilungstermin) and must reach the court's account by transfer; it carries interest from the Zuschlag (§ 49 ZVG). If you do not pay, the court transfers its claim against you to the creditors (§ 118 ZVG). Have the financing commitment in writing before you bid.
The risks
No viewing right. No law obliges the owner or a tenant to let bidders in. Many bidders see only the outside and the expert report, and the report's author may also have been refused entry. You get no warranty for defects (§ 56 ZVG), so damp, a broken heating system or missing permits are your problem after the Zuschlag.
Rights that stay on the property. Rights ranking ahead of the creditor who runs the auction can remain registered and are not paid off from your bid (§ 52 ZVG). They are part of the minimum bid conditions read out at the hearing. Ask the court which rights stay, because you take them over on top of your bid.
Tenants and occupants. An existing lease passes to you (§ 57 ZVG with § 566 BGB). You get a special right to give notice with the statutory notice period, but only for the first date on which notice is possible (§ 57a ZVG). For residential tenants the usual tenant protection rules still apply, so a termination needs a legal ground such as personal need. If the former owner still lives in the property, the Zuschlag decision itself is the title for eviction (§ 93 ZVG), but you may still need a bailiff to enforce it.
Owners' association arrears. In a flat, the owners' association (WEG) has a preferential rank for recent unpaid service charges (§ 10 (1) No. 2 ZVG). Ask the property manager about the reserve and planned works before you bid.
Costs
Grunderwerbsteuer applies to court auctions too. The taxable event is the winning bid, and the basis is the bid plus the rights that stay on the property (§ 1 (1) No. 4 and § 9 (1) No. 4 GrEStG). The rate is the one of the federal state, from 3.5% in Bavaria to 6.5% in North Rhine-Westphalia, Brandenburg, Saarland and Schleswig-Holstein; the property transfer tax calculator applies the right rate. You are entered in the land register only after the tax office confirms the tax is settled (§ 22 GrEStG).
There is no notarised purchase contract, so the notary fee for the sale falls away, and there is no broker. Instead you pay:
A court fee for the Zuschlag of 0.5 of a full fee from the GKG fee table, based on the bid plus remaining rights (§ 26 (2), § 54 (2) GKG and No. 2214 of its schedule).
A land registry fee for entering you as owner (No. 14110 of the GNotKG schedule).
If a bank finances the purchase, the notary and registry costs for its land charge (Grundschuld).
Frequently asked questions
Can foreigners bid at a German court auction?
Yes. The ZVG does not restrict bidders by nationality or residence. You need valid ID, and if you bid for a company or another person, the court needs proof of your authority in a publicly certified document (§ 81 (3) ZVG).
Is an auction always cheaper than a normal purchase?
No. At the first date the 5/10 and 7/10 limits keep low bids out, and there is no upper limit, so competing bidders can push the price above the Verkehrswert. The saving on notary and broker fees is real, but it has to cover the risk of defects you could not inspect.
This article is not tax, legal or investment advice.
