The significant reform of real estate judicial auctions

Organic Law 1/2025 of 2 January on measures for the efficiency of the Public Justice Service has introduced important reforms in the regulation of judicial auctions of real estate in enforcement proceedings.

These reforms will apply to procedures initiated on or after 3 April 2025 and are aimed at streamlining electronic auctions.

The most significant amendments introduced by the law are as follows:

(a) For enforcing parties

(i) They can no longer wait until the end of the auction to submit their bid.

Enforcing parties lose their right to submit a higher bid after the close of the auction in which bidders have participated, as well as their right to request the award of the property in the event the auction has not drawn any bidders. Therefore, if they are interested in acquiring the property, they must join the auction as bidders and must be subject to the same rules as other bidders (although, naturally, without the need to pay a deposit). For these purposes, they are recognised as having the right to bid, even if there are no other bidders.

(ii) If the auction does not draw any bidders, the enforced party is in control of the situation.

If the enforcing party does not bid and the auction does not draw any bidders, the enforced party can directly request that the seizure on the real estate asset be lifted. The only alternative is that the enforced party itself, either on its own or at the proposal of the enforcing party, designates a person willing to take the property for 50% of the auction value or for an amount sufficient to achieve full satisfaction of the enforcing party's claim, which may not be less than 40% of the auction value. But in any case, even if the enforcing party can propose such a successful person, it seems that it is at the discretion of the enforced party whether to designate this person or to request that the seizure be lifted.

(iii) If the debtor's main residence is being enforced, an auction may be approved for an amount higher than the amount actually offered.

As we will see in the following section‎ ‎(b)(iii), the new amendments require that awards of the main residence of an individual be, in any case, for 70% of the auction value or more. Lesser awards are allowed, with a ceiling of 60% of the auction value, but only if they are made for the complete amount owed to the enforcing party. If it is the enforcing party who has made the highest bid, but does not meet these conditions, the Court Clerk will approve the auction for the amount that meets those requirements. These percentages correspond to those by which, prior to Organic Law 1/2025, the enforcing party could request the award of the main residence in its favour in the event that the auction drew no bidders.

(iv) They have a deadline to pay the difference between their bid and the debt. There are severe consequences if they fail to do so.

When the enforcing party is awarded the lot and has made a higher bid than the principal sum claimed (here the reform refers to the principal sum claimed, not the entire debt), the Court Clerk will settle the difference and will notify it to the enforcing party. In turn, the latter will have pay the difference within 10 days. If this payment is not made within the time limit, the enforcing party will be subject to the following consequences: (i) the auction will be declared “unsuccessful” (in Spanish, “quiebra de la subasta”), (ii) the deposits paid by the other bidders to participate in the auction will be deducted from its claim and (iii) it will have to bear the costs of holding a new auction.

(v) They may assign the award of the auctioned lot to a third party (without the need for a prior reservation of this right).

Organic Law 1/2025 recognises the right of the enforcing party and subsequent creditors participating in the auction to assign the award of the lot to a third party, without the need for an express reservation of this right at the time of the bidding.

If it has not already been made, the assignment shall be carried out within a period of five days granted by the Court Clerk when the order which will award the lots is pending and, if applicable, after the price of the award has been paid. Furthermore, it is no longer necessary for the assignor and assignee to appear in person. It is sufficient to present a written document signed by both of them, attaching the documents attesting to their identification, powers, representation and, if the assignment is for a price, payment. This modification is very relevant in the context of purchases of portfolios of non-performing loans secured by real estate mortgages, insofar as the relevant enforcement proceedings may already be taking place.

Organic Law 1/2025 also clarifies that the price of the assignment of the award may be lower or higher than that of the auction or award. If it is lower, the enforced party's debt will be reduced, naturally, by the total amount of the auction or award. If it is higher, and there is a surplus over the enforced party's debt, the enforcing party must pay the surplus into the court's bank account within 10 days. Should the enforcing party fail to pay it within the deadline, it will be subject to the following consequences: (i) the auction will be declared “unsuccessful” (in Spanish, “quiebra de la subasta”), (ii) the deposits paid by the other bidders to participate in the auction will be deducted from its claim and (iii) it will have to bear the costs of holding a new auction.

(b) With regard to the minimum values for the award:

(i) When the best bid is less than 70%, the enforced party may designate a third party who offers an amount equal to or more than 60% of the auction value or which, even if less than that percentage, is sufficient to achieve full satisfaction of the claim of the enforcing party. Prior to the reform introduced by Organic Law 1/2025, it was only possible for the enforced party to designate a third party if the latter offered a price higher than 70% of the auction value (or settled the debt in full). The reform addresses the different requirements this third-party must meet in order to be awarded the lot.

(ii) If the enforced party does not designate a third-party, the auction will be approved if the bid is at least 50% of the auction value (previously, it had to be higher). In addition, the auction may also be approved for the complete amount owed to the enforcing party, provided that it covers 40% of the auction value. In this second case, the enforcement proceedings will be terminated and, if applicable, the remaining assets that guarantee payment of the amount will be released. If the bid does not meet these requirements, the Court Clerk, after hearing the parties, will decide whether or not to approve the auction. This last circumstance was also provided prior to Organic Law 1/2025.

(iii) As an exception, in the case the debtor's main residence is being enforced, no award shall be made for less than 70% of the auction value, unless it is made for the complete amount owed to the enforcing party, in which case the award may not be approved for less than 60% of that value. These minimum amounts apply to any successful bidder. Furthermore, if the highest bidder is the enforcing party and does not meet these conditions, and if the enforced party does not designate a third-party, the Court Clerk shall approve the auction for 70% of the auction value or for the complete amount owed to it if it is less than this percentage, with a minimum of 60% of the auction value.

(c) In relation to the general dynamics of the auction:

(i) The deposit to be made in order to participate in the auction is increased to 20% of the auction value (as opposed to the previous 5%), with a minimum of EUR 1,000. However, the Court Clerk is allowed to increase or reduce the deposit percentage according to the circumstances of the auction. The enforcing party is still exempted from paying the deposit.

(ii) Bidders must indicate, from the moment they first identify themselves, whether they are acting on their own behalf or on behalf of third parties. If they are acting on behalf of several parties, they must indicate the percentage of the award corresponding to each of them. In addition, if a bidder acting on behalf of a third party becomes the highest bidder, it will have to prove its representation within three days and the party being represented will have to ratify it. Otherwise, it will lose the deposit and the auction will proceed with the next highest bidder which has maintained its deposit (in Spanish, “reserva de postura”).

(iii) Bids shall be secret. During the auction period, the Auction Portal will not inform of the existence or non-existence of bids or their amount. And, at the end of the auction, the Portal will only publish the amount of the highest bid or inform that the auction has drawn no bidders.

(iv) Organic Law 1/2025 clarifies that the same bidder may place new bids for a higher or lower amount than the one it has already placed, in which case only the last bid placed before the closing of the auction will be taken into account.

(v) The possibility of making deferred payment proposals is abolished.

(vi) Organic Law 1/2025 clarifies that if the auction is suspended for more than 15 calendar days, the auction will be cancelled and the bidders' deposits will be returned to them. If the suspension does not exceed 15 calendar days, the auction will be stopped and will resume for the time remaining until its conclusion.

(vii) The period of duration of the auction (20 calendar days) shall not be extendable (without prejudice to the causes of suspension provided for) and may not end on Saturdays, Sundays, national holidays, nor on the days between 24 December and 6 January, both inclusive, nor in the month of August. The 24-hour extension provided until now no longer applies.

(viii) The deadline for the highest bidders to pay the difference between the amount deposited and the total price of the auction is shortened to 20 days (compared to the previous deadline of 40 days) and will start to run automatically from the closing of the auction, without the need for notification.

(ix) Only the second highest bidder is allowed a bid reservation (in Spanish, “reserva de postura”). If the highest bidder does not pay within the time limit specified in the preceding paragraph, the auction may be approved in favour of the next highest bidder if it has in fact made a bid reservation and its bid, added to the deposit of the first bidder, is equal to the amount of the initial highest bid. If this second bidder also fails to pay within the time limit, it will lose its deposit and a new auction will be held.

In no case shall the auction be approved in favour of the second bidder if the deposit paid by the first bidder is sufficient in itself to satisfy the capital, interest on the claim of the enforcing party and judicial costs. Nor shall a new auction be called in the event of non-payment by the second bidder, if the same amounts can be satisfied with the deposits made by the first and second bidders.

(x) Organic Law 1/2025 clarifies that the enforced party may release the property by paying principal, interest and costs, even after the closing of the auction, if the result of the auction has not yet been approved by the court or the lot has not yet been awarded.

(xi) Finally, the return of deposits is regulated in order to ensure it is carried out in a timely manner.