Buying an apartment at a German foreclosure auction: what bidders need to know

The foreclosure auction of an apartment differs from the auction of a detached house in several important ways. Whoever buys an apartment automatically becomes a member of the homeowners association, the Wohnungseigentümergemeinschaft or WEG. With it come rights and duties that do not exist when you buy a free-standing house. This article explains the main differences.

What happens to the service charge?

Arrears on the service charge, the Hausgeld, pass in part to the new owner. Under § 16 (2) WEG the successful bidder is liable for service charge debts from the last two years before the award, up to 5 per cent of the appraised market value. That can be a substantial hidden cost.

What is the service charge and how high is it?

The service charge is the monthly contribution every apartment owner makes towards running the common property. It covers:

• Management costs
• Insurance for the building
• Maintenance and repairs to the common property
• Payments into the maintenance reserve
• Caretaker, cleaning, garden care

Typical service charges run between 2 and 5 euros per square metre per month, depending on the age and condition of the building.

How large can the arrears be?

Before bidding it is worth asking the association's manager about outstanding claims. In cases that have run out of control, arrears can build up over several years. The statutory liability cap of 5 per cent of the appraised market value comes to 15,000 euros on a property valued at 300,000 euros.

What happens to the maintenance reserve?

The maintenance reserve stays with the homeowners association. It is common property and is not paid out to the departing owner, not even in a foreclosure. The new owner therefore acquires a notional share of the reserve but cannot draw on it freely.

Important for your calculation: if you buy into a building whose reserve is very low, expect a special levy before long, as soon as larger repairs come due.

Which documents should bidders read before the auction?

Before taking part in the auction of an apartment, read the following documents:

1. The court's valuation report: it states the service charge, the reserve and known defects in the common property. Our article on reading a valuation report explains how to work through it.
2. The declaration of division (Teilungserklärung): it sets out which areas belong to the individual owner and which to the community. Exclusive use rights over a parking space, garden or cellar are also set out here.
3. The community rules (Gemeinschaftsordnung): the house rules and any further agreements between the owners.
4. Minutes of the last owners' meetings: they show work that has been agreed or planned, and any disputes running inside the community.

Do you become a member of the association automatically?

Yes. With the court's award the successful bidder becomes a member of the homeowners association. No separate admission is needed. All rights and duties of an apartment owner pass to the buyer at once:

• A vote at the owners' meeting, in proportion to the co-ownership share
• The duty to pay the running service charge from the award onwards
• Liability for damage to the common property, in proportion to the co-ownership share
• The right to use the common property

Apartments that are let

If the apartment is let, the buyer steps into the existing tenancy, exactly as in any other property purchase. For an investor that can be an advantage: rent comes in from the day of the award. Our article on tenants at foreclosure auctions covers the rights of tenants and buyers.

Frequently asked questions about buying an apartment at auction

Can I leave the homeowners association after buying? No. Membership is inseparable from owning the apartment. The only way out is to sell.

Is the new owner liable for all old service charge debts? Not without limit. § 16 (2) WEG caps liability at arrears from the last two years and at 5 per cent of the appraised market value. Older debts, and anything above that cap, do not pass to the buyer.

Can the association refuse to let a buyer move in? No. The association has no right of first refusal and no power to block the award or the move. The court's award is binding.

Do I need a Negativattest at a foreclosure auction? No. A Negativattest, the confirmation that no right of first refusal is being exercised, is only needed in a normal purchase of an apartment, and then only if the declaration of division contains such a clause.

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For the whole course of an auction, see how a German foreclosure auction works. Every cost on top of the bid is listed in the costs of buying at auction.

This article is general information. It does not replace advice from a qualified lawyer.