Term and general definition of bidding
The term bidding is primarily understood in German law as a process in which an asset – usually in the context of enforcement or insolvency proceedings – is publicly offered for auction. The purpose of the bidding is to achieve the highest offer price for the relevant object. The role of bidding is especially central in foreclosure proceedings, which can involve both movable and immovable property (particularly real estate). The essence of bidding lies in obtaining offers (bids) from several interested parties and awarding the contract to the highest bidder.
Legal basis of bidding
Bidding in enforcement law
Enforcement law considers bidding an essential step in realizing seized assets. The legal basis can be found in particular in the Code of Civil Procedure (ZPO) and in the Act on Forced Auction and Receivership (ZVG).
Auction of movable property
For movable property, § 814 ZPO is central, which states that seized items are to be disposed of by public auction unless another form of realization is explicitly provided for. Bidding is typically carried out by a bailiff or an auctioneer appointed by the authority.
Auction of immovable property
The bidding of land and rights equivalent to land is subject to the provisions of the ZVG. Here, §§ 74 et seq. ZVG are decisive. Key terms here are the minimum bid and the cash bid. The minimum bid comprises certain claims to be considered (for example, existing rights and the costs of the proceedings). The law requires that bidding takes place as part of a publicly announced auction date, where only cash or a certified check can be bid.
Bidding in insolvency law
Das Insolvency law provides for bidding as part of the realization of items belonging to the insolvency estate. According to § 166 InsO (German Insolvency Code), estate assets may be realized by public auction or private sale. Here as well, bidding as an auction procedure—i.e., the open solicitation of bids—is applied.
Procedure and execution of bidding
Preparation and announcement
Before bidding can take place, it must generally be publicly announced . The announcement is usually made by posting, publishing in official gazettes, or via relevant electronic platforms. The statutory deadlines and procedures are intended to ensure equal access to information for all potential bidders.
The bidding procedure
During the bidding session, bids are taken publicly. For each bid amount submitted, it is recorded in writing which bidder offered which sum. In this process, the chronological sequence is precisely regulated: after a set final call, the last bid must be submitted, after which the contract is awarded.
Rights and duties in the bidding process
Participants in the bidding must generally be able to prove their bids immediately (cash payment, guarantees). Acceptance of a bid obliges the successful bidder to complete payment in full and acquire the item under the specified conditions. The legal provisions on withdrawal, repetition of bidding, or penalties for non-fulfillment are contained in the respective procedural laws.
Bidding and minimum bid (minimum price)
Function of the minimum bid
The minimum bid defines the lowest permissible amountthat may be offered within the context of the bidding. The ZVG (§§ 43 et seq.) specifies which rights are included in the minimum bid and that lower bids are excluded. The minimum bid serves to protect the interests of creditors.
Consequences of failing to reach the minimum bid
If the minimum bid is not reached in the bidding – meaning no corresponding bid is made – the bidding is considered unsuccessful and the item initially remains the property of the current owner. The procedure may be repeated upon application.
Special cases of bidding
Private bidding
In addition to public, judicial auction, so-called private bidding is also legally permissible, provided it is expressly allowed or approved by all parties involved. Private bidding differs in that the sale can be made by private agreement and is not necessarily public.
Bidding in partition auctions
If a jointly owned property (e.g., as part of an heirs’ community) is to be divided, a partition auctiontakes place. The same rules apply to the bidding process, with the special feature that the proceeds must be distributed among the co-owners.
Legal protection and opportunities for appeal
Various legal remedies are available for procedural errors during bidding. These include in particular the objection and complaint under the ZPO or ZVG. Erroneous bidding procedures can lead to the invalidity of the contract award or to a repetition of the auction.
Significance of bidding for creditors and debtors
Bidding serves the creditor’s interest in obtaining the best possible realization of his claim through the sale of the asset. For the debtor, bidding means the opportunity to ensure the best possible realization of his property within the legal framework.
Literature and further information
For an in-depth study of the subject, relevant commentaries on the ZPO, ZVG, and insolvency law are recommended. Precise knowledge of the relevant statutory provisions is essential for practical dealings with bidding. Decisions of the highest courts, particularly the Federal Court of Justice, specify the details of application in each individual case.
Summary:
Die bidding is a fundamental concept of German procedural law and refers to the process of obtaining bids through public or judicial auctions of assets, particularly in the context of enforcement and insolvency. Its legal basis is complex and subject to precise statutory regulations. It guarantees equal treatment of all interested parties, protects the rights of creditors, and provides the debtor with an orderly procedure for asset realization.
Frequently Asked Questions
What legal requirements must be met for bidding in the context of a foreclosure auction?
Before bidding can legally take place as part of a foreclosure auction, various requirements must be met as set out in the Act on Forced Auction and Receivership (ZVG). First, the foreclosure order must be issued by the enforcement court and made public. The debtor and other parties involved must be duly notified (§ 37 et seq. ZVG). On the day of the auction, at least one eligible bidder must be present and able to place bids. Furthermore, there must be no legal obstacles to bidding, such as suspensive objections or temporary suspension of the proceedings (§ 30a ZVG). For valid bidding, compliance with the statutory minimum bids is also central (§ 85a ZVG), which regulate the amount of the initial bid (e.g., the 5/10 or 7/10 bid) to protect creditors’ interests. Finally, the bidder must provide the specified securities, such as a bank guarantee or an LZB check, as stipulated in the auction terms (§ 69 ZVG).
Who is legally permitted to participate in the bidding process?
According to § 59 ZVG, both natural and legal persons may generally participate in the bidding process, provided they are not excluded by law or judicial decision. Persons barred by law include, among others, the enforcing creditor unless a legal representative has been expressly appointed (§ 68 ZVG), the debtor, and persons officially involved in the auction (e.g., the judicial officer). Eligible bidders must have legal capacity, i.e., they must not be restricted in capacity due to age or other legal reasons (e.g., guardianship). For legal entities, their statutory representative or a duly authorized proxy acts, whose authority must be proven with appropriate documents.
What are the legal effects of awarding the contract after bidding?
With the successful award after bidding, the highest bidder immediately becomes the owner of the auctioned object pursuant to § 90 ZVG. The award constitutes an original acquisition of ownership by sovereign act, regardless of the debtor’s consent. Furthermore, under § 52 ZVG, all rights and encumbrances entered in the land register or arising by law that do not expire in accordance with the auction terms transfer directly to the buyer. Simultaneously, unsecured rights not covered by the bid lapse (§ 91 ZVG). Parties have the right to file an objection against the award within one week after announcement (§ 100 ZVG); for certain serious procedural defects, an immediate complaint is also available by analogy.
What are the formal requirements for bidding in the bidding procedure?
According to § 66 ZVG, offers must be made expressly and unambiguously. The bid must be made publicly at the auction date and state both the amount offered and, if applicable, any additional services or reserved rights exactly; concealed bids or later changes are not allowed. The bid may not fall below the minimum bid (§ 85a ZVG). All bidders are required by § 67 ZVG to identify themselves before submitting the first bid by presenting identification and furnishing the required security. The bid is recorded in the official minutes of the session and is available for review by all parties thereafter.
How are security deposits legally incorporated into the bidding process?
The law requires that every bidder deposit a security of at least ten percent of the determined market value of the object before bidding (§ 69 ZVG). The security may be provided in cash, by certified check from the Federal Bank, a domestic bank’s clearing check, or an unconditional, unlimited, and directly liable bank guarantee. Proof of security must be submitted to the court in good time before the start of the session. If the required security is not provided on time, the relevant bidder is excluded from the auction procedure.
What legal risks are involved in making a valid bid?
By making a valid bid, the bidder makes a legally binding declaration, which obliges immediate payment of the bid amount upon award (§ 49 ZVG). The right of withdrawal exists only in cases of serious procedural defects or grounds for contestation, such as fraudulent misrepresentation or mistake. Otherwise, the highest bidder may be held liable for shortfalls in case of non-payment (§§ 122 to 124 ZVG), including possible compensation claims from the creditors. Inexcusable misjudgments regarding the value or existing encumbrances usually do not entitle the bidder to withdraw and carry the risk of financial loss.
What role do land register entries and divisions play in the bidding process?
The relevant rights and encumbrances in a foreclosure auction derive from the sections entered in the land register. Section I relates to ownership, Section II lists encumbrances and restrictions (e.g., usufruct, rights of way), while Section III records land charges and mortgages. The bidding terms are largely determined by which rights are extinguished on award (junior rights) and which remain (senior rights). The conditions of auction explicitly inform the bidders about the remaining and assumed encumbrances. Knowledge of the respective sections is essential for bidders to correctly assess the economic and legal consequences of bidding.
