Auctions are one of the distressed asset investment formulas that I like the most. To put it in context, if the most incipient phase in an investment process in distressed assets would be the purchase of mortgage debt as NPL (Non performance Loan), phase in which the highest discount is found; and the later one would be the acquisition of the occupied asset directly from the forecloser who has recently awarded it as REO (Real Estate Owned) but obviously with a much lower discount; the auction assignment is an intermediate formula that offers many advantages.

The assignment of the auction

It is regulated in the Civil Procedure Law, in the chapter reserved for foreclosure, and expressly provided for in Article 647.3 thereof.

The assignment of the auction is nothing more than the power of the foreclosing party to assign to a third party its position as the successful bidder of the mortgage guarantee, i.e. the real estate, in exchange for a price at the end of the auction, provided that the foreclosing party or the subsequent creditor has been the highest bidder, either because it exercises this power when the auction is deserted or because it has maintained an active attitude during the course of the auction making higher bids than the rest of the bidders.

Advantages of the auction assignment

Auctions offer several advantages as a form of investment in distressed assets.

Price discount: Although we will not find the great discounts found in the purchase of mortgage debt, this is justified because we save practically all the judicial execution, its expenses and associated uncertainties.

Taxation: the transfer of the auction is considered as a single transfer. This issue is resolved by the Resolution of the TEAC of 22/04/2022. The transfer will be a single transfer if the bid is made as an assignment, whether it is a bid in the auction or a request for direct award, being relevant that the reservation of the possibility of assigning the auction is made at the same time that the executor (the only one who has the possibility of making a bid as an assignment) expresses his intention to acquire the property.

Possession: if the property or properties are empty, it will be sufficient to hold possession by oneself. If, on the other hand, the property is occupied, the purchaser may avail himself of the judicial process in progress to promote the launching, a power provided for in article 675 of the Civil Procedure Law.

In conclusion, the purchase of real estate in assignment of auction can be a suitable formula for those investors who, sacrificing part of the discount offered by riskier operations such as the purchase of mortgage debt, acquire properties at very advantageous prices with less risk and time.

Please contact us if you need advice or assistance in this type of operations.

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