The effects of an auction in settlement of bankruptcy proceedings Fascinating. Our office defends a debtor in a matter which seems very interesting to me and which I think has its own merits.

The story is as follows. Within the bankruptcy proceedings something unfolds which predominates the liquidation phase. Within this period, the bankruptcy trustee puts all the company assets on sale so that the creditors can be paid with the balance. One of the assets to sell is a plot of land.

This plot has a mortgagee which, in this case, is a Caja (Building Society). So, the plot has been valued at €1,200,000 but the mortgage is for €1,000,000 The trustee took this asset to auction. This fact is important as it wasn’t the mortgagee as is normally the case. The assessment value set at €1.2m with the express mention that the successful bidder would take on the rights and responsibilities of the estate. The day of the auction arrived: the Caja (B.S.) awarded the estate for the amount of €600,000.

Exactly 50% of the value laid out by the rule. The discussion has come to this point. The court and the trustee understand that the Caja (B.S.) has appropriated the estate as if it had been the petitioner. That means, without any obligation to transfer the mortgage. The consequence of this is that the Caja (B.S.) has kept the estate and the debtor (and his guarantors) still owe the Caja €400,000 plus costs.

Our stance is that the Caja, by coming to the auction in the bankruptcy proceedings as a third party (the auction being promoted by the trustee) is obliged to pay the amount bidded in the sale, that is, €600,000 (plus the relevant VAT) and furthermore is obliged to keep the mortgage. As the mortgage is theirs in the first place this disappears as you can’t owe yourself a debt.

When there is a solution (I think this matter will go to the Supreme Tribunal at least) I’ll comment on it, if there isn’t an agreement beforehand. All this brings up the fact that in mortgage matters you have to split hairs because routine matters, on occasion, make you commit errors which individuals and firms don’t have to lose out on: Have a good weekend!

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