Housing Auctions: The Subrogation of Registration Charges (Risks for Awardees)

The purchaser of a property at auction must deal with a complex legal framework regarding the existing registration charges on the property. It is crucial to understand the risks and limitations of liability associated with such encumbrances in order to avoid future litigation and financial loss. In this article, we will explore the statutory provisions and case law related to subrogation in the above charges, particularly in the context of judicial auctions.

Subrogation of the Auctioneer or Awardee in the Previous Charges

According to articles 668.2 II and 670.5 of the Spanish Civil Procedure Law (LEC), the successful bidder of an auctioned property must be subrogated in the responsibility of the previous charges or encumbrances, if any. The Supreme Court clarifies that this subrogation concerns the charge and not the debt secured by it, implying that the purchaser responds with the property awarded, but not with his personal assets.

Recommendations for the Acquirer

It is advisable for the purchaser to release the previous charges, such as preventive annotations of seizure or mortgages, paying the registered amount to avoid being sued later. The auctioned assets are valued according to their liquidation price, considering the existing charges. Ruling 366/2016 of the First Chamber, Civil, of the Supreme Court, highlights that the acquirer may be sued for unjust enrichment if, after the auction, the guarantor satisfies the debt secured by a previous charge.

Limitation of Liability: Preventive Attachment Annotations

Article 613.3 LEC limits the liability of the purchaser with respect to annotations of attachment up to the amount recorded at the time of registration of the adjudication decree. However, this limitation does not apply if the acquisition is voluntary (outside of a forced disposition), where the property is liable for everything due in the foreclosure process.

Controversies and Doctrinal Perspectives

The doctrine is divided as to whether any third party possessor should have its liability limited to the amount recorded at the time of acquisition. Some argue that this would encourage fraudulent conduct on the part of the debtor. The Supreme Court, in judgment no. 824/2013, addresses a miscarriage of justice claim related to this issue, stressing that limitation of liability is justified only if the requirements of article 34 of the Mortgage Law (LH) are met.

Limitation of Liability: Mortgage Charges

The mortgage, by its reipersecutory nature, may lead to the foreclosure of the auctioned property if the debtor defaults. Although the successful bidder does not respond with his personal assets, he may lose the acquired property. Articles 114 and 146 of the LH establish limits to the amount secured by interest on mortgages.

Challenges for the Third Party Possessor

There is debate as to whether the third party possessor should be sued in a mortgage proceeding if he has not accredited his acquisition to the creditor, even if his right is registered in the Registry. Jurisprudence of the Provincial Court of Madrid and the Supreme Court has addressed these issues, emphasizing the importance of active accreditation by the third party possessor.

Conclusions

The acquisition of assets at judicial auctions involves careful navigation through a sea of legal provisions and case law. Understanding subrogation to registration charges and limitations of liability is essential to protect against future risks and claims. Awardees should exercise caution and, if possible, seek legal advice to ensure a smooth transaction.

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