Financing a compulsory auction: how the bank sets your bid limit

If you want to buy at auction without a thick equity cushion, you need a bank – and you quickly run into a peculiarity: at the auction hearing, no one checks whether you can actually afford your bid. The court only requires the security deposit. Your real bidding ceiling is therefore set by your bank, not the court. This article explains how financing works, how it relates to the security deposit, and what – sometimes existential – consequences a bid that is too high can have.

The court does not check your creditworthiness – the bank does

In a normal notarised purchase, the contract is concluded only once the financing is in place. A compulsory auction is different: to bid, the court requires solely the security deposit of usually 10% of the market value (§§ 67, 68 ZVG) – no proof of financing and no credit check. In purely formal terms you could therefore bid without a single cent of financing behind you.

This is precisely why the bank is your real limit. There are statutory value thresholds (five-tenths and seven-tenths of the market value), but these protect debtors and creditors and are lower limits – they do not cap your bid from above (more on this in the article on value thresholds). There is no statutory upper limit. Your limit is simply whatever your bank finances, plus your own funds.

How the bank determines your maximum

A bank assesses two things: the property and you.

The property: The basis is the market value from the court appraisal. Because an interior inspection was often not possible, many banks factor in a safety discount of 10–30% and apply a cautious lending value. A share of this value is financed – not necessarily your desired bid. For your own preparation it is also worth checking the risk class, because it bundles exactly such property-related warning signs.
You: Income, creditworthiness and, above all, equity. For auction properties banks usually expect more equity than for a normal purchase (often 20–30% or more), because the risk is higher and the condition uncertain.

In the end you have a financing commitment with a maximum amount for this specific property – in effect: "For this property we will finance up to €X." Together with your own funds this is your bid limit. Three points matter:

Sort it out before the hearing. The award is immediately binding and withdrawal impossible – the commitment must be in place beforehand.
Property-specific. The commitment applies to one particular property. If you bid on another, the bank must reassess.
Not every bank does this. Some institutions do not finance auctions at all or demand a risk surcharge. An available appraisal speeds up the bank's assessment – in our property overview you can see for each property whether one is available.

A security deposit is not proof of financing

A common confusion: the 10% security deposit and the bank financing are two completely separate things.

The court requires the security deposit so that you may bid at all. It must be in the court's account before the hearing (no cash) – details in the article on the security deposit. You do not have to present the court with any certificate of financing.
The financing is a matter between you and the bank. The loan, however, is only paid out after the award (typically at the distribution hearing) and is secured via a land charge on the property bought at auction.

From this follows the most important practical detail: you must advance the 10% from your own funds before the loan is paid out. So plan the security deposit as your own funds, not as part of the loan – and clarify explicitly with the bank how it will be bridged.

When you bid more than you can pay

This is the dangerous borderline case – and it does not end with "the property simply not being handed over." On the contrary:

With the award you immediately become the owner (§ 90 ZVG), and the bid is binding. The cash bid (your bid minus the security already provided) falls due at the distribution hearing – roughly 4 to 8 weeks later – and from the award onwards accrues interest at 4% p.a. (§ 49 ZVG; more on this under After the award). If you do not pay, the following happens:

Your deposit is gone. The 10% is offset against the claim – you do not get it back.
The claim passes to the entitled parties (§ 118 ZVG) and is secured by a security mortgage on "your" property (§ 128 ZVG).
Re-auction. This security mortgage can be enforced against you – the defaulting purchaser – again, even without re-serving the title (§ 133 ZVG). The property is therefore auctioned once more.
You are liable for the shortfall. If the re-auction yields less than your original bid, you owe the difference – plus interest and procedural costs. Conversely, you do not receive any surplus.

And it does not stop at the property: the award decision acts like an enforcement title. With it, the entitled parties can enforce against your other assets – for example seizing accounts. Anyone who bids from the outset without intending to pay also acts contrary to public policy and is liable for damages (§ 826 BGB). In short: a bid "on the off chance" can cost you far more than just the security deposit.

Federal law: governed identically everywhere

A final point of classification: all of this – security deposit, bidding, award, payment and the consequences of default – is set out in the Compulsory Auction Act (ZVG) and is federal law. The procedure is identical in all 16 federal states; there is no "state-specific route" for financing or liability.

What differs regionally is above all the property transfer tax (3.5%–6.5%) – a cost factor you should build into your bid limit (details under Differences by federal state). Your bank's terms are individual too – but that is a question of the institution, not the federal state.

In brief

The court only checks the deposit, not your creditworthiness – your bid limit is set by the bank.
The bank finances a share of the (cautiously assessed) market value and gives you a property-specific commitment – be sure to obtain it before the hearing.
The 10% deposit is your own funds, not proof of financing; the loan flows only after the award.
Bid too high and didn't pay? Deposit gone, re-auction, liability for the shortfall plus costs – if necessary against your entire assets (§§ 118, 128, 133 ZVG; § 826 BGB).
It is all federal law – uniform nationwide; regionally the property transfer tax matters most.

Note: General orientation, not legal, tax or financing advice. What governs is the court's official announcement and the terms of your bank; when in doubt, seek expert advice.