Economic crises often influence the frequency of forced sales. An indicator of the overall economic condition of a country can therefore be the number of foreclosure sales of real estate. This is because if the economy collapses, unemployment figures increase, for example, and this results in real estate loans no longer being serviced. For this reason, we have analysed the number of foreclosure auctions in Germany over the last six months and tried to find out whether the Corona crisis has had any effects so far, and if so, what they have been.
In recent years, the low interest rate phase, the economic situation in Germany and the extremely high demand for real estate have ensured that the number of foreclosures has fallen steadily (see Statista 2020). Our analysis shows that even now there is no increase in foreclosure auctions for the time being and the opposite is true. Published advertisements collapsed by more than 88 percent between February and the end of April. They then recovered by 286 percent by the end of July compared to February, which is about 54 percent below the level prevailing in February.
The reasons for the massive drop in the number of foreclosures in March and April were presumably mainly due to contact restrictions, which made foreclosures impossible for the time being. The recovery in May, the month in which the contact restrictions were relaxed, also speaks for this. Since then, courts have again begun to publish and allow forced auctions to take place in compliance with hygiene measures and distance rules.
A further explanation for the declining number of foreclosures can be the legal option available to creditors and enforcement debtors: to obtain a postponement or cancellation of the date of the foreclosure or even a temporary suspension of the foreclosure proceedings. The legal framework can be found, for example, in § 765a ZPO. If creditor and debtor can reach an agreement, a temporary suspension of the proceedings by both parties may also be possible. This on the basis of § 30 ZVG. However, we cannot read from our data whether this happened more frequently. (see Sebastian Meyer-Löffler: Anwalt.de 2020)
If more and more borrowers are no longer able to service their real estate loans, an increase in foreclosures will only become apparent with a time lag. This is because if a loan can no longer be serviced and is terminated by the bank as a result, a foreclosure sale can take place six months later at the earliest. The possibility of the deferral of the credits which was decided by the Federal Government, contributes to a time delay additionally. We suspect that interest and redemption payments by those affected have been deferred for the time being and that in the long term, however, foreclosure proceedings could well increase. In the end, the period for the payment of interest and redemption payments was only extended and the debt burden was not waived.
Should a forced sale take place, it must be made public six weeks in advance. The first place for this are the official gazettes of the court districts and notices in the court. However, foreclosures are also published on the real estate platforms. For our analysis we have scanned the common real estate platforms. In our analysis we did not distinguish between single-family houses, apartment buildings, condominiums, land and garages. In our analysis, we have summarised these.
Only the coming months will show whether there will be more foreclosure sales of real estate. The decisive factor will be the extent of the economic consequences due to the abrupt decline in economic output and the long-term consequences thereof. An important role is certainly played by the question of whether the income of real estate buyers will remain the same in order to service the loans taken out for real estate investments made, or whether the economic slump will lead to increased unemployment and therefore to loan defaults.