Concept and Definition of the Cash Offer
Das Cash Offer is a technical term commonly used in German enforcement law. It refers to a sum of money that must be offered to the creditor in the so-called market value auction, particularly in the context of a forced auction under § 50 ZVG (Act on Forced Auction and Receivership), in order to settle the claims of other creditors. The cash offer is not limited to physical cash, but also includes satisfaction of the claim by funds paid into the court treasury account or deposited by check.
Legal Foundations of the Cash Offer
Code of Civil Procedure and Act on Forced Auction
Under German law, the cash offer is especially relevant in the context of forced auctions of real estate . It is primarily governed by § 50 ZVG. There, it states that anyone who demands the redemption of a real right must make the cash offer for all prior rights. This legal basis is linked to further provisions under the ZPO (Code of Civil Procedure) and the BGB (German Civil Code).
Purpose of the Cash Offer
The cash offer serves to safeguard the rights of other creditors. When a holder of a subordinate right claims the acquisition of a property or seeks to redeem a prior right, they must ensure through the cash offer that all creditors ranking ahead are actually satisfied. This upholds the priority principle in satisfying creditors.
Areas of Application and Practical Significance
Cash Offer in the Context of Foreclosure Auction
In practice, the cash offer primarily occurs in public forced auctions of real estate. Here, a subordinate creditor in particular can submit a bid independently of an existing right of a prior creditor, provided they are willing to satisfy the latter’s claim via a cash offer. This is typically relevant for properties encumbered with multiple liens (e.g., mortgage, land charge).
Redemption of Real Rights
The cash offer enables the subordinate creditor to redeem a prior right in order to take its rank. The redemption takes place by cash payment or an equivalent money transfer to the prior creditor. Redemption is possible under § 268 BGB; the cash offer in this context is the specific offer for immediate payment.
Distinction of the Term Cash Offer
The cash offer is not to be confused with the minimum bid or other terms of enforcement law. It refers exclusively to the sum provided for the satisfaction of a specific prior right, regardless of the actual purchase bid.
Form and Modalities of the Cash Offer
Payment Modalities
A cash offer can be made not only by handing over banknotes. The legislator allows deposit with the court treasury or issuance of a bank-certified check. The details are regulated in the relevant provisions of the ZVG and the execution guidelines of the courts. The sum must be available unconditionally and immediately at the time of redemption or award.
Parties to the Proceedings
A cash offer can be made by any party whose right to redemption is legally recognized. In particular, this applies to the purchaser in a forced auction or a subordinate creditor who wishes to redeem a prior right.
Legal Consequences of the Cash Offer
Entry into the Legal Position
Upon successful provision of the cash offer, the payer enters into the legal position of the redeemed prior creditor. They acquire all rights associated with the prior real right, including the possibility to appear as an enforcement-entitled creditor.
Effects on the Foreclosure Auction Proceedings
The cash offer affects the course of the proceedings, because prior rights are satisfied by the payment, thereby freeing up rank in the land register. For subordinate creditors, this can provide particular tactical advantages.
Literature and Further References
Further information can be found in the commentaries on the ZVG, in the case law of the Higher Regional Courts, as well as in monographs on the topics of enforcement und real property liens.
Summary
The cash offer is a central instrument of German enforcement law, which is especially significant for the redemption of prior rights in forced auction proceedings. It enables certain parties to the proceedings to satisfy the prior claims of other creditors by immediately offering a sum of money, thereby stepping into those creditors’ legal position themselves. The legal requirements regarding form, amount, and modalities of the cash offer are balanced to ensure proper and fair satisfaction of creditors.
Frequently Asked Questions
What formal requirements must a cash offer meet?
A cash offer must, according to German law, meet certain formal requirements to be valid in foreclosure proceedings. The law requires that the cash offer—i.e., the declaration to pay the purchase price in cash—be made unequivocally and unambiguously. The cash offer may generally be made orally at the auction date, but it can also be made in writing or through a representative with an officially certified power of attorney (§ 49 ZVG). It should be noted that the cash offer indicates willingness to pay and not the actual immediate payment on site; however, payment must be made within the statutory deadlines after the award (usually no later than upon the court’s request). A particular consideration arises regarding security deposits: the person making the cash offer may be required to provide security no later than the end of the auction (§ 69 para. 1 ZVG). The security serves to ensure seriousness as well as creditor protection and usually amounts to 10% of the market value of the object. The court treasury will only accept means of payment permitted by law in this context, such as Bundesbank checks, bank guarantees, or wire transfers. Cash payments are now only very narrowly permitted as security and, for organizational reasons, are no longer accepted by most local courts. However, the actual cash offer—that is, the bid for the property—can be paid entirely in cash, provided all court-set deadlines and possible requirements are strictly observed.
Can a cash offer be withdrawn during the foreclosure auction?
The withdrawal of a cash offer during the auction is generally not provided for. Upon submission, the cash offer is a binding offer to purchase the auctioned object. However, as long as the award has not yet been granted, any bidder is free to submit a higher bid or to withdraw from the bidding process by not bidding further. An explicit withdrawal of a previously submitted and highest cash offer is not legally possible when the award is imminent. Only in cases of obvious mistake or significant procedural violations, which affect the proceedings as such, may a challenge to the bid be considered. After the award, withdrawal or revocation of the cash offer is excluded; at this stage, the award decision applies, which simultaneously obligates the purchaser to pay and triggers the transfer of ownership. Anyone who does not fulfill their cash offer after the award must expect significant legal consequences such as claims for damages, another auction, and exclusion from future auctions.
Who is entitled to make a cash offer and what proof is required?
In principle, any legally competent third party is entitled to make a cash offer at a foreclosure auction. Legal entities act through their authorized organs or an authorized representative. If the representative is not registered as a statutory representative in the commercial register, a notarized power of attorney must be provided (§ 49 para. 1 ZVG). Foreign nationals are also permitted to make cash offers, provided they have the required legal capacity. Bidders are also required to provide identification, particularly to comply with anti-money laundering regulations, so the presentation of a valid identity card or passport is often required. In addition, timely provision of the statutory security (regularly 10% of the market value) is a prerequisite for admission to the bidding process. If there is a statutory or contractual pre-emption right, this must be proven to the court; minors can only submit a cash offer with the approval of the family court and subject to special conditions.
What happens if the cash offer is not paid on time?
If the highest bidder fails to pay the full cash offer on time, statutory sanctions under §§ 82 ff. ZVG apply. The court may, upon application of the enforcing creditor or ex officio, reverse the award decision and order a new auction. The original highest bidder is liable in this case for the loss incurred from any lower award at the resale auction (so-called deficiency liability). In addition, they may be held liable for any additional costs incurred (e.g., court fees, additional procedural effort). The security provided is usually applied to cover the loss. The person who does not fulfill the cash offer may be excluded from future forced auctions (award exclusion pursuant to § 71 para. 2 ZVG). The strict payment rules serve to protect the parties to the proceedings—in particular the creditors—and ensure the legal security and swift execution of the foreclosure process.
How does the cash offer relate to financing commitments and loans?
The cash offer represents an immediate commitment to pay, which applies regardless of any existing financing commitments or loans of the bidder. This means that the bidder must be able to pay the entire amount bid within the deadline set by the court at the time of the award (usually no later than six weeks after the award; exact deadline per § 54 para. 1 ZVG) and in permitted payment forms. Bank financing commitments that are only available after the payment deadline has expired or that are subject to additional conditions do not relieve the bidder of their obligation to pay. The cash offer is a legally binding promise to pay to the court. If the bidder does not fulfill this promise, for example because a promised loan is not granted, they are liable for all losses as outlined above. It is therefore strongly recommended to have financing firmly secured before making a cash offer, and to clarify the payment modalities with the financing bank or financiers at an early stage, particularly with regard to the specific requirements for payments in court proceedings (no escrow account, etc.).
What is the significance of the cash offer for the transfer of ownership?
The cash offer is a central component for acquiring real estate under foreclosure law. Only upon payment of the entire cash offer amount and any additional incidental costs (e.g., court fees, award fees) does the highest bidder acquire ownership of the auctioned object (see § 90 ZVG). The award alone does not effect acquisition of ownership; instead, full and timely payment of the cash offer is mandatory. Until the final payment, ownership remains with the previous owner, although the award already triggers far-reaching legal consequences (such as rights of possession and use) for the purchaser. The definitive acquisition of ownership and registration in the land register only occur after the court provides proof of complete payment of the purchase price to the land registry, which then arranges for the change of ownership. Thus, the cash offer represents the immediate interface between the binding promise to bid and the actual acquisition of ownership by payment upon award.
Are there any special circumstances or exceptions for estates or real property owned by minors?
Special legal requirements must be observed for estates and real property owned by minors. In the case of an estate, any co-heirs or communities of heirs can make a cash offer, but if necessary, proof of inheritance or representation by an executor must be provided. For minors, a cash offer is only valid if made by a legal representative and—if it is a ‘transaction involving property’—with the approval of the family court (§ 1822 Nos. 1, 2 BGB in conjunction with § 1643 BGB). Furthermore, requirements regarding security, identification, and, where appropriate, further evidence such as birth certificates and custody documentation must be satisfied. These stricter conditions are intended to ensure that vulnerable parties such as minors or heirs are not exposed to binding obligations and risks from the cash offer without sufficient legal protection or legitimacy. The local courts regularly check compliance with all statutory protective measures in such cases before a bid is admitted and the award is made.
