Resolving Joint Ownership in Germany: The Partition Auction

A partition auction often occurs in the context of the dissolution of communities of heirs or in the case of divorce. If a community of a property is to be terminated, this requires agreement on the whereabouts of the common property. If the co-owners cannot agree on its realisation or sale, the German law states that each owner can demand the dissolution of the co-ownership. In the course of the partition auction, the indivisible property, the real estate, is then to be converted into the divisible property, i.e., money, to end the community of ownership.

The procedure of the partition auction is regulated in the German Act on Enforced Auction and Receivership (ZVG). This defines the partition auction according to Section 180, paragraph 1, first half-sentence as “to terminate a joint ownership”. However, a partition auction is not the same as a forced sale. A compulsory auction requires an enforceable title (for example, a registered land charge of a bank) and an application for auction by the creditor. On the other hand, only the application of one co-owner is required to initiate proceedings for partition auction. An enforceable title is not needed here. Any of the co-owners can file the application for a partition auction. A majority share in the property is not required.

In the subsequent procedure, the property is auctioned off as a whole. Anyone can acquire the property, including the previous owners, during the auction. The procedure itself is an enforcement procedure before the local court. The district court in whose district the property is located has jurisdiction.

A partition auction begins with filing an application by one of the co-owners, which will be examined together with the order. The order is sent to the other co-owners by post as respondents. In the future course of the proceedings, the market value and the minimum bid are determined by valuing the property. Once all these steps have been completed, the court sets an auction date. At the auction, the highest bidder is awarded the property. The proceeds are deposited with the court and then distributed to the previous owners.  The court and the land registry handle the new owner’s registration in the land register.

Especially when an application for a partition auction is to be filed, the proper preparation is of enormous importance. All substantive requirements must be met, and the exact designation of the property and the addresses of all co-owners must be determined.

In addition, a partition auction must also be prepared beyond the application. This includes, for example, the cancellation of a land charge that has been repaid but is still entered in the land register.

Such cases can be problematic, as all owners must agree to the cancellation. However, blockades can occur if all owners do not want the auction. The other owner can be compelled by court order to give their consent because of the right to cancel the community at any time, according to Section 749 I of the German Civil Code (BGB). Although this makes the partition auction factually feasible again, in practice, such a process leads to considerable delays.

Because of this right to dissolve the community at any time, blocking a partition auction is generally hardly possible. Under Section 180 (2) of the German Act on Enforced Auction and Receivership (ZVG), the court may, upon application, order the temporary discontinuation of the proceedings “if this appears reasonable when considering the conflicting interests of the various co-owners”. However, such discontinuation is limited to six months and can only be repeated once. Also, the legal hurdles under which a court will agree to discontinue a partition auction are enormously high.

Once the property is finally auctioned off to the highest bidder, the proceeds are paid to the court. First, court, lawyer and expert fees are paid from the proceeds. After deducting these costs, the remaining proceeds are distributed pro rata to the owners. However, this does not happen automatically. The co-owners must make a concordant declaration on the distribution of the proceeds. If they disagree on the distribution, the proceeds are deposited with the court until the conflict is resolved. If no agreement can be found between the owners, it is possible to sue for the distribution of the proceeds, which again means a high expenditure of time and money.

A partition auction is often associated with conflicts, out-of-court settlement efforts, and representation in civil proceedings and enforcement measures. Legal mistakes or lack of preparation, especially in the context of the application, can lead to problems that affect the entire course of the proceedings. Therefore, comprehensive legal advice is essential in such cases. Should you require assistance in this regard or have further questions about partition auctions, please contact our team of experienced lawyers directly so that we can support you in solving your problem.