Property Auctions in Italy…
… a few facts and tips.
An unfinished hotel and empty swimming pool sit sadly on the lush hillside of Pitigliano in Tuscany, where they should have welcomed the holidaymakers who flock to central Italy. The Tosteto spa was seized in 2010, according to a local court order. Since then, six auctions have failed to attract a buyer for the Tosteto spa, partly because the original developer still holds rights to the land.
For a seventh auction this month, the valuation for the Tosteto spa has been cut to 4.6 million euros from 8.9 million euros at its first auction. There is already an eighth auction scheduled for October, suggesting the sellers are not hopeful.
I know that in many parts of the world, buying a property at auction is seen as a viable alternative to purchasing a property. In Italy, as the report above demonstrates, it is not quite so straightforward. This blog post sets out a few facts and tips regarding Italian property auctions. But as this is a vast and complex subject, it really just skims the surface. If you need help with a specific case, please do get in touch.
There are two types of auction in Italy. Vendita con incanto and vendita senza incanto. In both types of auctions, a reserve / minimum sale price will have been set prior to the auction.
A vendita con incanto auction happens publicly and openly. The property is sold to the highest bidder on the condition that the bid is at or higher than the reserve price.
Prior to a vendita senza incanto auction, notice will be given for participants’ bids to be submitted by a certain date – in sealed envelopes. Sealed bids cannot be under the reserve price in order to assign a property. Even if there is only one sealed bid, it may be sufficient to acquire the asset.
Unlike in the UK or USA, where voluntarily selling property by auction can be an attractive way to fetch a good sale price, in Italy a voluntary sale by auction would be highly unusual.
Generally, in Italy property is sold at auction for two reasons. An Asta fallimentare happens because the owner has been declared bankrupt and the property is being sold to pay off creditors. An Asta giudiziaria is an auction ordered by the courts. The property will have been seized or sequestered by the Italian State perhaps because the owner has been involved in a criminal prosecution or because the State has decided to raise funds to pay off the owner’s outstanding taxes, debts and or mortgage payments, or it could even be that the courts have ordered the auction to resolve an inheritance dispute.
If you are considering buying an Italian property at auction, you need to take even greater care than you would when buying property through conventional channels such as through a real estate agency or from a private vendor. The owner of a seized property may not participate in an auction. However, anyone else can and it is not unheard of for a relative, friend or associate of the previous owner to participate in an auction.
Participation in an Italian property auction involves registering to participate, which means amongst other things that you must have an Italian tax code, codice fiscale, and you need to obtain a receipt proving that you have paid a 10% deposit on the estimated value, or starting bid price of the property that interests you. You can also elect a third party to bid for the property on your behalf. This requires giving your nominated party a limited power of attorney, procura speciale.
Ten Tips for buying Italian property at auction
- Don’t take it for granted that you are getting a bargain at auction. Even if you purchase a property at a much lower price than its market value, it may not necessarily turn out to be a good deal.
- Assess the timing. Consider how urgently you want to move in to the property. The amount of time required to actually obtain the property is not always predictable…
- Read all the available documentation very, very carefully. Then read it all again. It is critically important to conduct in-depth due diligence. Study and investigate the notice of sale, the survey report, estimates, plans and maps, photographs and all the documents published on the relevant web site at least 45 days before the auction. Italian properties for sale by asta giudiziaria are advertised on the websites of individual courts. For example, tribunale.milano.it www.tribunale.roma.it www.tribunalenapoli.it and www.astagiudiziaria.com is a portal providing access to judicial sales nationwide.
- Legal paperwork. A thorough due diligence to completely understand all the implications of the property’s legal status is also vitally important. The legal paperwork should specify, amongst other things, titles, covenants, liens, debts and charges attached to the property. All these legalities will become the responsibility of the purchaser so it is extremely important to know how to interpret information contained in this documentation.
- Visiting the property is absolutely essential. View the property before the auction with the official appointed by the court. You should seriously consider taking your own professional team with you – a lawyer, a surveyor, a builder for example. There are bound to be issues not mentioned in the aforementioned sales and legal packs. Aspects such as, environmental, zoning and planning permissions- and do ask about anything that concerns you. If your bid is successful, you will be held legally responsible for everything. Also, bear in mind that quite a lot of time may have elapsed between the property documentation being prepared and your visit, so the property when you visit, may have deteriorated and conditions could be worse or zoning laws might have changed. This means that the situation described in the property packs may no longer be relevant.
- Give yourself an auction budget and stick to it. Prior to the property auction, decide the absolute upper limit of the sum you are willing to spend on the purchase. Participating in an auction requires calm rationality and it is all too easy to get carried away on a tide of emotion at an auction. Before tackling your auction purchase, perhaps attend a couple of auctions to understand how it works?
- Always ascertain auction and additional costs before participating. Find out exactly how much you should budget on top of the property purchase price. Costs might include, registration tax or VAT charges pending, any professional fees for the transfer.
- Payment methods require attention. How are you planning to pay? You will have already paid a 10% deposit to participate in the property auction. You will need to be able to access the remaining funds quickly if your bid is successful, generally between 10 – 60 days of purchase. If you need a mortgage, you will need to have a promissory note from your mortgage provider in place in advance of the auction. There are financial institutions affiliated with the courts, but it is essential to enquire closely in to related costs.
- Take tax in to account. There may be tax benefits available to you on the purchase of a property at auction. Normally, property transfer tax is calculated on the property purchase price. However, the rule on “price-value” does not apply to property purchased through enforcement procedures and bankruptcy. However, if you want to take advantage of any available tax benefits, you must express this ahead of the property auction and be ready to put it in place by the end of the auction in the event your bid is successful.
- Availability: a purchase transfer signed by a judge is enforceable and allows the immediate release of the property. However, in case of difficulties – for example, it is not unusual in Italy for the previous owner to appeal in court to have the auction annulled. Sometimes, if a property is occupied by adverse possession, or a sitting tenant – as the new owner, you must make provision, at your own expense, to carry out an eviction. You will need to engage a lawyer who can proceed through the bailiff’s court to secure an eviction order.
In conclusion then, I would always recommend that you seek independent professional advice before you contemplate participating in an Italian property auction. There are many potential pitfalls and legal ramifications to consider. It can be done safely, but is definitely not for the faint-hearted.