Auctions: Bank REOs Under Judicial Scrutiny

Auctions: Bank REO Companies Under Judicial Scrutiny

Approximately two years ago, we addressed the issue of real estate acquisitions at auction by banks’ REO companies.

The issue is no longer merely theoretical. Over the past few months, the first judgments have begun to emerge from regional Courts of First Instance, while only a few weeks ago the Western Macedonia Court of Appeal handed down the first appellate judgment on the matter, followed, just a few days ago, by the first relevant judgment of the Athens Court of First Instance.

For those who have not followed the issue, the key concern may be summarised as follows.

Under the legislation governing the transfer and servicing of non-performing loans:

“Credit Servicing Companies (i.e. Servicers) may not acquire, by way of transfer, assignment, voluntary sale or auction, real property connected with the credit agreements they service.”
(Article 5(5) of Law 5072/2023)

This provision introduces an express prohibition preventing Servicers from acquiring ownership of real estate connected with the claims under their management.

One of the indirect effects of this prohibition is to encourage Servicers to prioritise debt restructuring over enforcement and auction proceedings. If a Servicer does not have the “easy” option of acquiring the secured property itself, it may be more inclined to pursue long-term restructuring solutions, which may also assist debtors facing financial difficulties.

This is where the issue arises.

Given the difficulty of disposing of properties through auctions to private purchasers — for a number of reasons, but principally because prospective buyers are generally unable to inspect the interior of the property — Servicers and Funds have, for some years now, adopted the practice of having properties acquired by REO companies whose shareholders are banks but which are, in practice, controlled by the Servicers.

These companies acquire the properties at auction and, following any necessary renovation or other works, subsequently place them on the market through their own platforms and real estate agents.

The three largest Servicers, however, appear to be related to the relevant banking groups within the meaning of IFRS and IAS. Accordingly, although the above statutory provision prevents the Servicer itself from bidding for and acquiring property at auction, an REO Co belonging to the same corporate group as the Servicer — and effectively managed by the latter — would, at least prima facie, appear able to do so.

Indeed, members of the boards of directors of these REO companies are, in a number of cases, also members of the boards of the Servicers, while their share capital is set at the statutory minimum, namely EUR 25,000.

These issues were recently brought before the Western Macedonia Court of Appeal, which, in Judgment No. 75/2026 delivered only a few weeks ago, held, inter alia, as follows:

“In practice, however, the above prohibition is circumvented through the incorporation of Real Estate Owned companies (hereinafter also ‘REO Cos’), which are subsidiaries of, or entities affiliated with, the corporate group to which the claims management company (Servicer) initiating the auction belongs.

The acquisition of property sold at auction by a Real Estate Owned company, however, constitutes a circumvention of the law. This is because the formal separation of legal personality between the claims management company (Servicer) and the property acquisition company (REO Co) is used as a device to circumvent the above prohibition, while economic control and the ultimate benefit remain concentrated within the same centre of business interests.

In such cases, the claims management company (Servicer), having full control over the enforcement process and access to information concerning the debtor’s financial position, directs the affiliated company to acquire the property at a price below its actual value, with a view to its subsequent profitable resale, thereby depriving the debtor of the opportunity to reach a more favourable settlement or to achieve a sale at a fair price.”

The problem for Servicers has already become more acute, as similar judgments have now begun to be issued by the Athens Court of First Instance, within whose territorial jurisdiction the overwhelming majority of auctions take place.

Only a few days ago, Judgment No. 3242/2026 was published. In addition to the considerations set out above, the Court made the following particularly significant findings:

“…while at the same time displaying an unwillingness to engage in serious and substantive negotiations, from which it follows that the first respondent entered into and participated in the entirety of the negotiations purely for appearances’ sake, without any genuine intention of preventing the auction. On the contrary, it sought to ensure that the auction proceeded, a position which may readily be causally attributed to its certainty that the auction would be successful as a result of the participation of, and bidding by, the second respondent.

This would enable it to recover the debt for whose satisfaction the auction had been initiated, while receiving the corresponding remuneration and thereby increasing its profits far more rapidly than if it had waited for the claim to be collected under a long-term restructuring arrangement. At the same time, the property would be acquired by a company affiliated with it within seven months. It therefore had no incentive to restructure the debt in question and thereby avert the adverse consequences for the applicant — a finding which confirms the purpose underlying the statutory prohibition referred to above.”

The same judgment also attached importance to the following finding:

“It was subsequently established that the aforementioned successful bidder — the second respondent — is a wholly owned subsidiary of the former holder of the claim, Bank …, which is also its sole shareholder, holding 100% of its shares. The company leases office space from the Bank under a lease commencing on 22 October 2021 at a monthly rent of EUR 96, while at the same time having no employees or branches, although it holds real estate assets of at least EUR 12 million.”

This is, in substance, precisely what we had pointed out two years ago in our earlier Euro2day.gr article.

At this stage, the following points should be highlighted.

1. The issue is plainly a matter of concern for Servicers and Funds and is already creating legal difficulties for the practice they have adopted in recent years.

Hundreds of properties have passed from debtors into the hands of such companies and these transfers are now exposed to legal challenge, provided, of course, that the applicable time limit for challenging them has not expired.

Moreover, where an auction has already been challenged on any other ground, this additional ground may also be raised by way of a supplementary ground of opposition, which must be filed within 2026 under the new procedural mechanism for expediting pending opposition proceedings introduced by the Government.

2. Servicers will, of course, not remain passive. They are likely to seek to modify the manner in which they participate in auctions, including by incorporating new companies without the involvement of Servicer employees and by restructuring the relevant corporate arrangements.

In addition, as regards auctions that have already taken place, they are expected to bring the issue before the Greek Supreme Court (Areios Pagos), in an attempt to stem what appears to be an emerging line of case law.

3. The above judgments illustrate a further point: the Servicer and Fund system often underestimates debtors.

What it cannot control, however, is the judiciary — and, in particular, an appellate judge in Macedonia or any one of the hundreds of first-instance judges serving at the Athens Court of First Instance.

The view sometimes expressed by debtors that there is no point in challenging the “system” is therefore misplaced. There can be no centrally controlled “system” as regards the outcome of judicial proceedings.

Even when a matter ultimately reaches the Greek Supreme Court, the result cannot be regarded as predetermined. This was recently demonstrated in relation to the so-called Katseli Law, in Plenary Supreme Court Judgment No. 6/2026, in which the borrowers’ position was upheld.

4. Finally, one factual incident is worth recalling.

Approximately four years ago, we published another article on Euro2day.gr concerning appellate judgments addressing the ability of Servicers to initiate enforcement proceedings.

The day after publication, I met with a lawyer acting for Servicers, who remarked:

“What you published has really got them scrambling…”

They had not been aware of the developing line of judgments — and plainly could not have been, because they did not have real-time knowledge of every judgment being issued by every Court of Appeal throughout the country.

This is worth bearing in mind for borrowers: when it comes to the administration of justice, there is no centrally controlled “system.”