Advantages and disadvantages of buying an auction property in Italy, and how to get a mortgage for a property bought at auction.
Get a mortgage to pay for an auction house in Italy / Creative commons
Get a mortgage to pay for an auction house in Italy / Creative commons

Buying a house at auction in Italy can be a great chance to buy a new home cheaply, even if there are sometimes hidden pitfalls. Unlike in the other countries, such as the UK or USA, where choosing to sell your property at auction can be a really attractive way to get a good sale price, in Italy a voluntary sale by auction would be highly unusual and most auction sales are due to repossession. Let's look at the pros and cons of buying property at auction and how mortgages work for this type of property transaction.

Buying a house at auction: advantages and disadvantages

Judicial auctions are an alternative to buying a house the traditional way and they are popular in Italy compared to other countries, due to the fact that you can find good opportunities to buy property at below market prices. Judicial sales involve the auctioning off of property that belonged to someone who didn’t pay their debts, culminating in the seizure of their property and its sale at auction; the proceeds go to pay off part of the previous owner’s debt.

Buying a house at auction has several advantages, including especially low prices. Sometimes, it’s even possible to get prices 20% lower than the market average. There is no risk of fraud, as all the property information is available on the public sales portal. The paperwork and appraisals are also already included, while no notary fees are ever borne by the buyer of the house at auction, nor is commission paid to any estate agent since the purchase is made in the context of a lawsuit.

These auction opportunities are open to all types of buyers from professional property developers to private individuals searching for a family home, or even those seeking a profitable rental property. However, you should bear in mind that auction prices are affordable precisely because the property is subject to the legal burden of an ongoing lawsuit. In light of the decree rewriting Article 560 of the Italian Civil Code, for example, the new owner cannot take possession of the property until a judge issues a decree up to 90 days after the transaction date.

How to get a mortgage to buy a house at auction in Italy

If the property does not present any particular problems, it is always possible to buy it using a special loan which finances the purchase subject to the actual obtaining of the asset at auction. Getting a mortgage in Italy for the purchase of a house at auction is not in itself different from any other mortgage in Italy: to request it you must provide information to the bank about your income, debts and guarantees you can supply, just like any other mortgage application.

In addition, however, you must forward the documentation related to the auction notice in which you intend to participate and all the relevant details about the property you want to buy to the bank. On top of this, a copy of the invitation to participate, the expert's property report and the preliminary notarial report must also be provided.

In the case that the loan amount is not enough to cover the entire cost of the purchase, the borrower must cover the remaining part (with their own funds or with a liquidity loan). The mortgage will be granted if the property is to be your main residence, with the tax benefits that go along with it.

Why mortgage applications are declined for houses bought at auction

The agreement made between the Italian Banking Association (Associazione Bancaria Italiana or ABI) and the Italian courts in 2014 is also fundamental in understanding the timing of the mortgage, which must be linked to the time frame for releasing the property to the market. It is possible to make a preliminary loan contract between the client and the credit institution in which the actual handing over of the house and its transfer to the owner are fixed as conditions for the granting of the loan.

Remember, this transfer could precede the actual clearing of the property by a court by 90 days, which could constitute a certain impediment. If all goes well, though, the bank will undertake to provide the financing within the terms set by the court for the purchase of the home. If the permission to take possession of the property or the actual transfer don’t end up coming off, the mortgage will not be granted.