How to buy a French property at auction

Important note: Citizen Avocats has produced this article as part of our collaboration. The contents do not constitute legal advice by SO Legal and are not intended as a substitute for legal advice.

Buying a new property can be an exciting but challenging prospect. The traditional manner in which a sale is conducted in France is of course quite well known; a buyer (often assisted by an estate agent) signs a compromis (a contract of sale) which is then notarised. After this, the sale price, related fees, and taxes are paid, and then ownership of the property is transferred from the seller to the buyer. This is a well-established system which rarely deviates too much. There is however an alternative way to purchase a property in France is by way of auction in court, this method is called jugement d’adjudication.

This then is the process by which a judge oversees the sale of a property to the highest bidder. It is a sale by order of the court.

Properties will often go to auction after they have been seized (after the activation of a mortgage security), or foreclosed by a bank or creditor. In this scenario, in order to sell the property, the creditor must take it to court auction. Specialist lawyers can carry out this process on behalf of a creditor as it can be quite complicated.

Auctions are a great opportunity for potential buyers to acquire properties at a price under their market value. However, the acquisition process is entirely different to that of a normal, amicable sale, and it is therefore essential a potential buyer understands what is expected of them.

This article aims to do the following:

• Outline the key aspects of the adjudication process
• Explain the requirements of those wishing to buy through this process
• Address the potential costs associated with a French property auction

The adjudication process

Although in France properties are sold through auction regularly, many people are unaware that this method of purchasing is available to them. Whilst house prices have steadily gone up in recent years, auctions have remained a reliable method of purchasing a house under its market value. If you are looking to buy property in France then pursuing a jugement d’adjudication could be a tantalising prospect. In order to do so though it is important you understand some additional rules associated with this method of purchase.

• Recourse

One critical aspect of purchase via auction is that the buyer does not have any rights of subsequent recourse regarding the property purchased. The sale is a strictly judicial process. No notary or estate agent is involved. In fact, the primary goal of a sale through court auction is to recover debts owed to the bank or creditor selling the property.

Information relating to the property put up for auction will be provided in a document called the cahier des conditions de vente (terms and conditions of sale). In addition to this, the Bailiff who carried out the seizure of the property will also have a written report containing details on the property. Although this is not a hard and fast rule, as a general rule of thumb these reports will contain less information than that you would typically receive from an estate agent, and therefore may omit some issues with the property, such as work required, or structural damage that was not noticed during the seizure.

In the eyes of the court, the property is sold en l’état (as is). This means a successful bidder will have no legal recourse against the pursuing creditor, the latter’s Counsel, nor any third party, including the previous owner(s). The successful bidder may not, therefore, raise any claim in respect of any error, omission, or inaccuracy in the description of the property they were provided with. Nor may they raise issues with the state they find the property in on the day they take possession of it.

A good French law solicitor will always draw their clients’ attention to this absence of recourse, and will carefully review the stipulations of the cahier with them. They may also encourage potential buyers to visit the property, if possible accompanied by a surveyor or other knowledgeable person, in order to avoid any surprises after purchase.

• Transfer of ownership

Ownership will be transferred to a successful bidder immediately after the conclusion of an auction. As of this transfer of ownership, the buyer will become immediately and entirely liable for the property. All risks associated with the property, such as fire, or damage to third parties, are assumed by the buyer.

Because of this immediate assumption of risk, it is advised that potential buyers take out an insurance policy (with a condition precedent clause) against all risks associated with the property before the auction hearing takes place. This way should their bid be successful, the new owner will be protected against the risks they will be immediately taking on.

Although ownership will be immediately transferred to them, the adjudicataire (auction winner) is legally prohibited from carrying out any act of disposal on the property (with the exception of a mortgage security to finance the acquisition) before the deposit of the full sale price and related costs is paid. Full and final possession is conditional upon this payment. The purchaser is also prohibited from making any notable changes (such as demolition, cutting of wood, deterioration of the property, substantial renovations, etc. ) until the full sale price is paid.

• Adjudication is a contingent process

Upon completion of an auction, the highest bidder is declared the adjudicataire, and becomes the new owner of the property. However, for ten days after the auction hearing, any person can lodge a new highest bid (this new bid must be at least 10% higher than the previous winning bid). Doing so will trigger a new auction.

Should you successfully place the highest bid, and assuming you are not over-bid in the ten days following that successful highest bid, you will then trigger the countdown to a new deadline. This is the deadline to pay the final sale price for the property. Typically this will have to be paid within two months of winning a property at auction. If there are any delays in this payment, interest or penalties could be applied to the sale price, or in some cases, the property could be sequestered for re-auction by the court. In the event of a re-auction, any fees sequestered for the auction are irrevocably lost by the defaulting adjudicataire.

It goes without saying that participation in adjudication is a serious decision, which must be inspired by a well-thought-out plan to acquire a specific property.

Requirements for auction participation

Having covered the key elements of the adjudication process, let us now consider the legal requirements for bidding.

• Guarantees

The purchase of a property at auction is obviously an important act.

Anyone wishing to participate in an auction must therefore be able to demonstrate that he/she:

• Is of legal age (minimum age of 18)
• Is of sound mind and full civil capacity (e.g., no guardianship or curatorship)
• Is not in a state of over-indebtedness
• Has not been convicted of criminal offences relating to the letting of unsanitary premises, nor prohibited from acquiring property for any other reason, and
• Is sufficiently independent of the previous owner and/or the creditor (e.g., they cannot be the guardian or tutor of the previous owner, the agent whose mission was to sell the property, the fiduciaire who managed the property etc.)

We will naturally carry out such due diligence with our clients and consider the implications of their family status when considering their participation. We prepare all the relevant declarations that need to be produced in court, for the client to sign.

• Legal representation

It is strictly impossible to participate in an auction hearing in person. All potential buyers must be represented by an Avocat (advocate). This lawyer must be chosen from those registered at the Bar corresponding to the tribunal before which the auction is held. Given the guarantees that the bidder must provide at the hearing, and the technical nature of all the subsequent formalities, this compulsory assistance is invaluable.

Your lawyer will have you sign a special power of attorney to push the bidding up to a predetermined threshold. You may of course attend the hearing, but your lawyer cannot exceed the amount indicated on the power of attorney. Each Avocat has their own technique for dealing with the bidding process. We believe it is important to discuss the process with our clients, and so we like to determine a ‘double threshold’ with them:

• A first, ‘unofficial threshold’, set at an amount that the bidder would ideally like to stop, according to their budget
• A second, official threshold, indicated in the power of attorney. This is the absolute maximum the bidder is willing to pay

Auction hearings can be quite captivating. When bids approach the first, unofficial threshold, we will discuss with our clients the consequences of exceeding this threshold and then request their informed consent that we exceed it. In the event bids reach the client's official threshold set out in the power of attorney granted to us, we will never exceed it.

• Financial guarantees

Before the Tribunal Judiciare de Bordeaux, you will be asked to produce a bank cheque, or a bank guarantee, equal to 10% of the initial bidding price (this will be a minimum of €3000). If you fail to do this, no bids will be accepted and you will not be recognised as the last bidder under any circumstances. This verification is carried out directly by the judge at the end of the auction.

All funds related to the sale will be handled by your lawyer and the Bar to which they belong. They will be stored securely in designated escrow accounts. We will of course check on the sufficiency and origin of the funds and will keep you informed of all your obligations, in addition to all payment deadlines.

Costs associated with buying a French property at auction

While it is true that properties purchased at auction are often sold beneath their market value, it is important to be aware of the costs associated with the sale, as these can be substantial. Although no Notary is involved in the transactions, certain costs, emoluments, fees, and taxes, must be anticipated in order to determine one’s bidding budget.

• Procedural costs and fixed fees of the creditor’s Counsel

At the end of the hearing, the costs of the proceedings are determined by the judge. These will include the cost of the seizure and of the auction proceedings, in addition to the fixed emoluments due to the creditor’s lawyer for the work they have done. These costs are to be paid by the successful bidder. They are generally paid by cheque made out to the escrow account or by bank transfer. The creditor’s lawyer will then redistribute these funds between his client (in respect of the advanced costs) and themselves (in respect of the fixed emoluments). The legal deadline for depositing these funds is two months after the close of auction. However, some cahiers des conditions de vente provide for shorter periods.

These costs can vary from case to case, depending notably on the extent of the work carried out by the creditor’s Counsel. As a general rule of thumb though, they often fall between €6000 and €10000.

• Transfer duties paid to the Treasury

The adjudication judgement is automatically forwarded by the Clerk of the Tribunal Judiciare to the tax authorities. Following this, the tax authorities will promptly send a call for transfer duties from the adjudicataire’s lawyer.

In principle, these duties are calculated as follows

• Droit départemental (Departmental law): 4.5% of final price
• Taxe communale (Municipal tax): 1.2% of final price
• Frais d’assietee (Base fees): 2.37% of the Droit départemental duty

These fees must be paid within one month of the request for payment, as particularly punitive interest on arrears may apply.

• Land registration costs

Just like any real estate transaction, the adjudication must be published by the land registry to be opposable to third parties. This step is essential for the buyer’s ownership to be fully effective. Once the final deed of ownership is delivered to the buyer’s Avocat, the latter will forward it to the Service de la publicité fonciére (land registry service), who carries out the publicity measures and amends the registry to purge any securities affecting the property.

This process costs 0.1% of the final price, in addition to some minor sums that may be added for the purging of securities and the return of the file.

• Proportional fees for the seller’s and buyer’s lawyers

As highlighted above, Avocats play a major role in the auction process. Because of this, they are remunerated in proportion to the final sale price. This is known as the proportional emolument and is calculated as follows:

• For final sale prices under €6500: 7.397% (excluding VAT)
• For final sale prices between €6500 and €17000: 3.051% (excluding VAT)
• For final sale prices between €17000 and €60000: 2.034% (excluding VAT)
• For final sale prices over €60000: 1.526% (excluding VAT)

Three-quarters of the proportional emolument is allocated to the lawyer of the pursuing creditor, with the remaining quarter going to the lawyer of the adjudicataire.

Are you interested in buying French property at auction?

Buying through the auction process can be a great opportunity to acquire property in France under its market value. However, the judicial nature of the auction process, in addition to the customs that may vary from one court to another, and the strict conditions that must be adhered to in order to be declared the last bidder, make the instruction of a lawyer imperative.

Citizen Avocats are registered at the Bar of Bordeaux, and can represent you at any auction held before the Tribunal Judiciaire of our city. For further information, please do not hesitate to contact us.

Find out more about SO Legal's exclusive collaboration with Citizen Avocats here.