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In August this year, Beijing resident Xiao Chen found a foreclosed house with a total area of ​​110 square meters in a community in Chaoyang District, Beijing, at a price of 6.67 million yuan on the Alibaba auction platform, which made her very happy. "The location and community environment are good, and the price is much lower than houses in the same area. I did a lot of homework in advance, and this foreclosed house is vacant and unrented, which can save me a lot of trouble later."

On social platforms, the topic of foreclosed properties is sparking heated discussions among netizens, ranging from the purchase process to bidding strategies and pitfall avoidance guides, with some experience posts viewed over hundreds of thousands of times. Transaction data also shows that foreclosed properties, especially foreclosed residential properties, are becoming increasingly popular among residents.

According to the judicial auction rules, bidders need to pay the full amount of the purchase price to the court at one time. In actual operation, due to the high value of the subject matter and the difficulty of bidders to raise funds, no one bids and the auction fails. At present, many banks cooperate with the court to promote judicial auction loans in response to the needs of home buyers. However, financial difficulties are not the only problem. Among the multiple risks hidden in judicial auction houses, the most criticized by home buyers is the obstacles encountered in the clearance process. Solving this problem requires strong promotion by the judicial department.

The experience post on avoiding pitfalls received extremely high views

Xiao Chen said that the starting price of the property was 5.27 million yuan, and the price was raised several times on the day of the auction, and the final total price rose to 6.67 million yuan. "The appraisal price given by Alibaba for this house is 7.6 million yuan, and the appraisal price given by JD.com is 8.79 million yuan. The average unit price of second-hand houses in the same area is 64,000-65,000 yuan, and the unit price of this house is less than 61,000 yuan."

When it comes to preparations before the auction, Xiao Chen has a set of tips: "Before bidding, prepare the deposit, various taxes and fees, and the service fees of the judicial auction agency. The deposit for this house is 1 million yuan, which is not a small amount. If the auction fails, the platform will return the deposit. If we win the auction, the deposit will be transferred to the court's designated account, and the balance will be paid later."

In addition, Xiao Chen believes that there are many things to pay attention to when choosing a house. She first browses the houses on the platform, then inspects the quality, orientation, decoration and other conditions of the house on site, and talks to the residents around to find out if there are any other abnormalities in the house. She also hired a professional judicial auction service agency to analyze the house.

On social platforms, many netizens who have purchased foreclosed properties like Xiao Chen share their experiences. From the purchase process to bidding strategies, to guides to avoiding pitfalls, there are many types of experience posts, and some posts have been viewed more than hundreds of thousands of times.

According to statistics from China Index Academy, the cumulative number of auctioned properties in the first half of 2024 was about 78,500, an increase of about 5.8% over the first half of 2023. Among them, the transaction volume of judicial auction residential properties was 53,000, an increase of more than 6% over the first half of 2023. In terms of amount, the total transaction amount of judicial auction residential properties has increased, and the average transaction price has decreased. In the first half of 2024, the transaction amount of judicial auction residential properties was 76.53 billion yuan, accounting for 49.8% of the total transaction amount of judicial auction houses, and the average transaction price was 9,075 yuan per square meter. In the first half of 2023, the transaction amount of judicial auction residential properties was 76.18 billion yuan, accounting for 49.6% of the total transaction amount of judicial auction houses, and the average transaction price was 9,606 yuan per square meter.

Industry insiders told reporters that the sources of foreclosure houses mainly come from judicial confiscation, commercial mortgage defaults, etc. When a debtor is unable to repay his debts, his property may be forcibly auctioned by the court to repay the debts. "Compared with the market transaction price, foreclosure houses often have a significant discount in price, mainly because the disposal of debt-foreclosed assets usually has a time limit, and the buyer has strong bargaining power." Ren Tao, a specially appointed senior researcher at the Shanghai Finance and Development Laboratory, told reporters.

Xiao Qiu, a loan manager of a city commercial bank, told reporters that the discount rate (transaction price/assessment price × 100%) of foreclosed properties varies, including the first auction, second auction, sale, and re-auction. The discount rate for the first auction is often 70% to 80%, while the discount rate for the second auction is 80% of the first auction starting price. In general, the sale starting price is equal to the second auction starting price, but the specific situation requires specific analysis, and it is often negotiated on a case-by-case basis.

Banks find new business growth points

"Our bank has loans for foreclosed properties, but we can only provide pure commercial loans. The interest rate is the same as the second-hand housing loan rate, and the process is the same as the normal commercial loan process. The difference is that before the loan is issued, you need to find an insurance company to provide a guarantee. The premium is borne by the customer and is 1.5% of the loan amount." Xiao Qiu said.

Several bank insiders told reporters that in the current real estate market, auctioning mortgaged properties at low prices is sometimes unavoidable, but it has also spawned new business growth points. "As a bank, we definitely want to dispose of the mortgaged property as soon as possible and recover the bad loans. But not all mortgaged properties are so easy to sell. Sometimes the properties are in poor condition. Even if they are successfully auctioned, the discount is large and cannot cover the loan principal and interest." The head of a branch of a joint-stock bank in Chengdu told reporters.

Therefore, how to prevent mortgaged properties from being undervalued and sold at a low price is a concern of banks. Wang Ran, the head of Jilin business of a state-owned bank, said that the bank would first conduct market research, understand the surrounding market prices, and form a research report. Then, it would jointly inspect the property with the appraisal company to understand the actual situation of the property, diagnose the advantages, disadvantages, and selling points, and provide the bank's research results to the appraisal company as a reference, requiring it to give a more reasonable appraisal price that meets market expectations.

"We prefer to use an online platform for public auctions to avoid human interference during the auction process. At the same time, we will take a variety of measures to find potential buyers and facilitate the auction." Wang Ran said that the bank will expand publicity channels, not only posting sales notices at provincial branches, municipal branches, and related branches, publishing information on auction platforms, but also finding ways to increase employee recommendation enthusiasm and publish advertisements through broadcast media. At the same time, the bank will take advantage of the fact that appraisal companies, auction companies, bidding agencies, and real estate agencies have many clients and precise customer groups to help the success of real estate auctions.

Cooperating with courts and other parties to promote judicial auction loans is a new business growth point for banks. "In traditional judicial auctions, bidders need to pay the full amount of the purchase price to the court at one time. In actual operations, the high value of the subject matter and the difficulty of bidders in raising funds often lead to no bidders or unsold properties. We have launched judicial auction loans to meet the corresponding needs of customers," said Wang Ran.

Since the beginning of this year, some courts and financial institutions such as banks have vigorously promoted judicial auction loans, providing credit support for qualified bidders to participate in judicial auctions of real estate, resolving the problem of home buyers having difficulty raising large amounts of funds in a short period of time in order to participate in full-payment auctions.

For example, in May this year, the Intermediate People's Court of Yan'an City, Shaanxi Province, Bank of China Yan'an Branch, Agricultural Bank of China Yan'an Xiaodongmen Branch, Yan'an Rural Commercial Bank and others signed a cooperation agreement on judicial auction loans. "On the basis of introducing several professional auxiliary auction institutions to improve the efficiency of auction disposal in the early stage, we cooperated with financial institutions in the jurisdiction to launch judicial auction loans to help judicial auction execution reduce costs and increase efficiency. If there are no bidders or auction failures during the auction, the assets of the person subject to execution cannot be realized, and the applicant's winning judgment cannot be effectively executed." The Intermediate People's Court of Yan'an City, Shaanxi Province stated that according to the cooperation agreement, professional auxiliary auction institutions will participate in the disposal of the real estate involved in the case throughout the process, provide support services to bidders and financial institutions, and avoid possible ownership disputes, quality problems, usage, property fees, late payment fees, taxes and other issues of the real estate. Banks will further strengthen the risk control of judicial auction assets and jointly promote the implementation of judicial auction loan services in order to achieve a win-win effect for applicants for execution, persons subject to execution, buyers, banks, courts, and auxiliary institutions.

Procuratorate gives tips

Pei Hongbo, co-executive director of Beijing DHH Law Firm and director of the Commercial and Financial Dispute Resolution Department, said in an interview with reporters that an important reason why the price of foreclosed properties can be significantly discounted is that buyers need to bear a certain degree of risk, such as difficulty in clearing the property, high appraisal prices, and complicated transfer procedures. In addition, in order to attract more bidders, the starting price of foreclosed properties will also be lower than the market price.

"I fell into the trap of foreclosed houses. I bought the house half a year ago, but I haven't lived in it yet. Instead, I paid more than 8,000 yuan in property fees owed by the previous owner." Wang Meng, a Hunan resident, did not have a smoother home buying experience than Xiao Chen. She told reporters that although she bought the foreclosed house at a price nearly 70% off the market price, the previous owner's parents had been occupying the house. "The other party refused to leave, and we were afraid of disputes with the elderly, so we had to apply to the court for forced vacancy. But it takes time, and half a year has passed."

In Ren Tao's opinion, unlike ordinary commercial housing, foreclosure housing may involve multiple stakeholders. When purchasing foreclosure housing, residents need to pay attention to the risks behind it. Foreclosure housing often has many historical problems, not only economic problems, but also social problems, such as property rights disputes, occupation and use, etc.

Pei Hongbo told reporters that sometimes the ownership of foreclosed properties is unclear. For example, there may be multiple creditors or mortgagees in foreclosed properties, which eventually leads to property rights disputes. Such disputes are usually not mentioned in the auction announcement, and buyers can only discover them after the transaction. Some foreclosed properties may not be able to obtain property rights certificates due to problems with the developer, affecting the normal transaction and use of the house. In addition, due to other hidden costs involved, sometimes the transaction price of foreclosed properties may not truly reflect the actual cost of purchasing the house.

Among the multiple risks hidden in foreclosure houses, the most criticized by buyers is the clearance issue. Pei Hongbo said that some foreclosure houses have been occupied by the original owners and their families, or have signed valid leases before, which means that although buyers own the houses, they cannot move in immediately. Especially when the lease period is long or the rent is low, the clearance issue is particularly complicated. Although buyers can resolve it through legal means, it is time-consuming and labor-intensive.

During the investigation, the reporter found that not only individual homeowners like Wang Meng encountered problems with house clearance, but some bank insiders also had troubles caused by judicial auction houses.

Wu Tong (pseudonym), head of a branch of a state-owned bank in Hangzhou, told reporters that in 2023, a mortgage customer of the bank owed more than 400,000 yuan in principal and interest and had been out of contact for a long time. According to the loan contract, the bank took legal action. After winning the case, they found that the property used as collateral had signed a lease agreement with others for one year before the bank applied for property preservation, which made it difficult for the bank to dispose of the property immediately.

"After much communication, the tenant was willing to cooperate with the court's execution and promised to move out of the house after the lease expired. In the first half of this year, we auctioned the property on the Alibaba auction platform and recovered the non-performing loan in full. It took a year from the time we won the application for execution to the time we recovered the money, which provided a warning for our post-loan management work. Negligence in post-loan work will lead to problems such as lack of customer tracking and declining asset quality." Wu Tong said frankly.

On August 9, the Supreme People's Procuratorate issued a report on the procuratorial organs' strengthening of legal supervision over civil enforcement and promoting the standardized implementation of judicial auctions of houses. The procuratorial organs found that there are "minefields" in some judicial auctions of houses. Some bidders maliciously colluded with others to win the auction houses at a lower price, thereby damaging the interests of the property owner or other bidders.

According to the Supreme People's Procuratorate, in recent years, some persons subject to enforcement have used the "sale does not break the lease" system to evade debts and hinder enforcement, colluding with others maliciously, and fabricating false lease relationships through means such as backdating contracts, mixed payments, and false litigation, agreeing to a longer lease term and collecting rent in advance, thus hindering the normal conduct of house auctions. In addition, in judicial practice, the court faces many difficulties in vacating houses in accordance with laws and regulations, and sometimes bidders have to postpone receiving the house.

In conjunction with supervision and case handling, the procuratorate reminds that when participating in the bidding for judicial auction houses, buyers should understand the relevant processes and procedures in advance, read the public information in detail, and be fully aware of the various risks that exist in the house, and participate in the bidding on the premise of rational budgeting, knowing the risks, and understanding the rules.