I want to bid on a property, but it has a mortgage. Should I do it?

The protection of mortgage creditors is effected through the lodging of claims.
Articles 22/06/2023

Auction bids often bring great opportunities for good business as they are usually sold at values lower than the market value of the assets. However, it is important to be informed about the risks and aware of them in order to bid in conscience.

First of all it is important to mention that, once submitted, proposals may only be withdrawn if their opening is postponed for more than 90 days after the first appointed day.

With specific regard to mortgages on real estate, please note that the rights of mortgage creditors of property that has been seized in enforcement proceedings are safeguarded through the mechanism of credit claims.

Thus, if the mortgagee did not first file an enforcement action to collect his claim, he shall be summoned after the act of seizure to file a credit claim, if he so wishes, within a period of 15 days. In the event the mortgagee is not summoned, he may claim credits up to the transfer of the seized property.

The mortgage creditor’s failure to claim the credit has the effect of extinguishing the mortgage with the execution sale. Thus, the guarantee provided by the mortgage loses its value if the credit is not claimed and the property is acquired free of encumbrances and charges by the bidder. Having been summoned, the sale proceeds will serve to cover the outstanding credits, whether the credit of the execution proceedings or the credits claimed by other creditors within the scope of such proceedings.

In any case, the bidder acquires the property without the responsibility for the mortgage credit.

Apart from this matter, and when analysing a bid, it is important to check what is actually up for auction, what encumbrances are registered on the property, if it is occupied or not, and what condition it is in, as it is sold as is. This implies checking the existence of rental contracts, necessary legalizations, among others.

The content of this information does not constitute any specific legal advice; the latter can only be given when faced with a specific case. Please contact us for any further clarification or information deemed necessary in what concerns the application of the law.


Practice Areas

  • Family and Inheritance
  • Real Estate Law