Mortgage foreclosure: What debtors need to know

Introduction

The mortgage is the foundation of many real estate financing options in Switzerland - it enables home ownership but also involves legal obligations. If a mortgage is no longer serviced, it can ultimately lead to a forced auction. This measure is not an abrupt event, but the conclusion of a legally regulated process in accordance with the Federal Act on Debt Collection and Bankruptcy (SchKG).

For affected owners, it is crucial to understand the processes, rights, and courses of action. A forced auction does not automatically mean total loss - on the contrary: with timely action, many negative consequences can be avoided.

Legal Basis and Procedure

If a debtor falls behind on mortgage payments, the creditor - usually a bank or insurance company - can request the so-called realization of collateral. The procedure is governed by Articles 151 to 158 of the SchKG and is carried out by the competent debt enforcement office, for example in the Canton of Zurich (ZH), Bern (BE), or Lucerne (LU).

The goal of the realization of collateral is to achieve the settlement of the outstanding claim through the sale of the encumbered property. The process follows clearly defined steps:

1. Application for Debt Collection: The creditor submits the application for debt collection to the debt enforcement office.
2. Payment Order: The debtor receives a payment request with the opportunity to raise a legal objection.
3. Request for Continuation: If the legal objection is dismissed or no payment is made, the creditor applies for the continuation of the debt collection.
4. Announcement of Sale: The debt enforcement office publicly announces the forced auction - usually through official publications or platforms like LocalAuction.ch.
5. Public Auction: The property is auctioned, the proceeds are distributed to the creditors, and any surplus is returned to the debtor.

“The goal of a forced auction is not expropriation, but the fair satisfaction of creditors while respecting the rights of the debtor.”

The Pledge: Foundation of the Mortgage

A mortgage is legally considered a real pledge - a security that is registered in the land register and allows the lender to realize the property in case of insolvency. This pledge remains in effect even if the property changes ownership, until the debt is fully paid off.

Unlike other forms of debt collection (e.g., wage or asset garnishment), the realization of collateral applies exclusively to the encumbered property. Creditors cannot access other assets of the debtor as long as the pledge covers the outstanding amount.

Rights and Duties of Debtors

Owners have clearly defined rights throughout the debt collection process. They are informed of all steps, can request access to the documents, and have the right to file appeals within certain deadlines. However, it is important: Inaction automatically leads to the continuation of debt collection.

Debtors also have obligations - in particular, they must inform the debt enforcement office of relevant changes, such as ongoing sales negotiations, partial payments, or new agreements with the bank. Transparency is the best protection here.

Right of Redemption

Until the auction, there is the option to settle the claim including interest and fees, thus preventing the realization. This so-called redemption can still occur on the day of the auction, as long as the award has not been granted.

Assessment and Appraisal of the Property

Before any forced auction, the property is officially appraised. This appraisal serves as the basis for the minimum bid. Typically, the auction price ranges between 70% and 100% of the market value - depending on the location, condition of the property, and market demand.

In highly sought-after regions like Vaud (VD) or Ticino (TI), bids often exceed the appraised value. In structurally weaker areas, such as Graubünden (GR) or Jura (JU), the discount may be higher.

Distribution of Proceeds

The sale proceeds are distributed according to a clear hierarchy:

1. Costs of the Debt Collection Procedure (e.g., official fees, publications, assessments)
2. Pledged Claims (e.g., mortgage loans)
3. Other Creditors according to their ranking
4. Surplus, if any, is returned to the debtor

This process ensures that no party is disadvantaged and that the proceeds from the realization are transparently divided.

How Debtors Can Limit Damage

A forced auction is avoidable in many cases. Owners should contact their bank early if payment difficulties are foreseeable. Banks generally prefer amicable solutions, such as installment plans, partial sales, or refinancing.

Furthermore, an orderly private sale - often with the support of brokers or through platforms like LocalAuction.ch - can achieve higher proceeds than a forced auction. The debt enforcement office can agree to this approach if it aligns with the interests of all parties involved.

Benefits for Buyers - Opportunities for Debtors

For buyers, forced auctions offer the opportunity to acquire properties below market value. At the same time, debtors benefit from the fact that the process is public, legally secure, and fully documented. Manipulations or non-transparent sales are excluded.

In regions like Zug (ZG) or Basel-Stadt (BS), investors increasingly utilize this form of acquisition as a strategic investment. For debtors, this means that their property is likely to receive a fair price - even if the sale is involuntary.

Role of LocalAuction.ch

LocalAuction.ch is the leading platform for official real estate auctions in Switzerland. It consolidates all ongoing procedures from the cantons and presents them clearly - including market value, auction date, documents, and location analysis.

This gives both buyers and debtors transparent access to all information. Debtors benefit from a greater reach, which often leads to higher bids and thus to lower remaining debts.

Conclusion

A forced auction due to mortgage is not a sudden event but the last step in a clearly regulated process. Those who know their rights can act early, explore alternatives, and minimize damage.

Switzerland offers one of the fairest systems in Europe with its debt collection law - transparent, legally secure, and efficient. With platforms like LocalAuction.ch, this process becomes more modern, accessible, and comprehensible for all parties involved.

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LocalAuction.ch - All official real estate auctions in Switzerland. Transparent. Digital. Fair.