The three terms belong to the same territory, real estate assets at a discount to market value, but they are legally and financially distinct transactions. Confusing them is the source of 80% of the mistakes we see in investors who come to this market without a specialist beside them. This guide explains what each one is, what risks it carries and which kind of investor it suits.
In this article
1. The market: why these opportunities exist
When a mortgage borrower stops paying, the loan goes into default. Beyond a certain arrears threshold (normally 90 days), it is classified as a non-performing loan (NPL). Because of regulatory and capital requirements, the bank tends to offload those assets. That is where the opportunities appear for the specialised investor.
The same asset can be offered in three formats, depending on the point in the chain at which you come in:
- Before the court process: purchase of the NPL (non-performing mortgage loan).
- During the auction: direct bidding at a judicial auction.
- Just before the award: auction assignment (cesión de remate) from the creditor who bids.
2. Judicial auction
How it works
The mortgage foreclosure procedure ends in an auction managed by the BOE Auction Portal. Any individual or legal entity that has first lodged a deposit of 20% of the auction value may bid. In a mortgage enforcement that value is the one agreed in the mortgage deed, never below 75% of the appraisal. In proceedings started before 3 April 2025, the deposit is 5%. The bidder who offers the highest amount is awarded the asset.
Advantages
- Potentially low entry price (discount on market value).
- A public and transparent process.
- No negotiation: the highest bidder wins.
Real risks
- Occupation. The asset may be occupied by the debtor, by a third party with title or by squatters. Eviction can take months or years.
- Prior-ranking charges. If you do not analyse the land registry extract (nota simple) correctly, you may take on uncancelled charges.
- Unknown physical condition. There is usually no prior viewing.
- Outstanding community fees and property tax (IBI). The property answers for community fees for the part of the current year already due and the three previous years. Outstanding IBI only falls on you if the former owner does not pay it, and no further back than the four-year limitation period.
- Payment deadline. If your bid reaches 70% of the auction value, you have 20 days from the close of the auction to pay the remainder. Below 70%, the 20 days run from when the court approves the sale and asks you to pay. In proceedings started before 3 April 2025, the deadline is 40 days. If you miss it, you lose the deposit.
If you are going to operate through this route, first read our article on what an REO is and how it differs from an asset awarded at auction.
3. Auction transfer (cesión de remate)
How it works
It is the least well-known transaction and, well structured, one of those with the highest potential margin, with its risks. The enforcing creditor, or a subsequent creditor, may bid and assign the award to a third party before the award decree is issued. Since April 2025 they no longer need to reserve that right when bidding, and the assignment price may be lower than the auction price. The assignee steps into the assignor's position and is awarded the asset directly.
It has two advantages: (1) it gives access to properties at auction prices without having bid, and (2) it can avoid the double transfer (auction specialist → investor → final buyer), so transfer tax is paid only once. For that, the right to assign must be exercised at the auction itself (article 20 of the transfer tax regulations). If the assignment is declared afterwards, tax is paid on two transfers. In enforcements started before 3 April 2025, the risk arises if the creditor bid without reserving the right to assign.
Advantages
- Access to assets without the need to bid.
- A negotiated price, not a blind one.
- The possibility of inspecting the condition of the asset before closing.
- Possible tax savings compared with a double transfer, if the assignment is exercised at the auction.
Real risks
- Very short deadline. The assignment must be formalised, at the latest, within the five days the court grants before the award decree.
- Dependence on the assignor. If the assignor defaults or disappears, the process becomes complicated.
- The same charges and occupation as in a direct auction.
- An opaque market. It is not public; it requires access to a professional network.
We explain it in more detail in our article what an auction assignment is and why it can be an investment opportunity.
4. Mortgage NPL
How it works
You buy the non-performing loan directly from the bank or the fund that holds it. You become the creditor of the original debtor and inherit the court proceedings in whatever state they are in. From there you can: (a) negotiate a debt write-down with the debtor, (b) wait for the judicial award of the property, or (c) resell the loan to another fund.
Advantages
- Much larger discounts on face value (from 20 to 70% depending on the case and the quality of the loan).
- Multiple exit routes (collection, award or resale).
- The possibility of reaching an agreement with the debtor (dation in payment, refinancing, write-down).
Real risks
- High legal complexity. Without a lawyer specialising in procedural law, the investor is working blind.
- Uncertain recovery period. From 2 to 60 months, depending on the stage of the proceedings.
- The debtor's procedural defence. They can drag out the proceedings with motions, objections and appeals.
- Risk of unfair terms arising after the fact. European case law has invalidated clauses that seemed settled.
If you are still unclear on the basic concepts, start with what an NPL is and how the market works.
5. Direct comparison
| Variable | Judicial auction | Auction transfer | Mortgage NPL |
|---|---|---|---|
| Realistic minimum capital | 30.000 - 80.000€ | 50.000 - 150.000€ | 100.000€+ |
| Average recovery period | 6 - 18 months | 3 - 9 months | 2 - 60 months, depending on the stage of the proceedings |
| Typical discount on market value | 20 - 35% | 25 - 40% | 20 - 70% on face value, case by case |
| Legal complexity | Medium | Medium-high | High |
| Market access | Public | Professional network | Institutional |
| Exit routes | Resale or rental | Resale or rental | 3 combinable routes |
6. What fits each profile
Investor with 30.000 - 80.000€ and available time
Direct judicial auction, with prior technical advice and exhaustive registry analysis. One or two transactions a year, managed with patience.
Investor with 80.000 - 250.000€ seeking efficiency
Auction assignment. The best return/risk/time ratio, without the need to bid. It requires access to a professional network with a flow of transactions.
Investor with 250.000€+ and a long horizon
Mortgage NPL, ideally in portfolios of several loans to diversify. It calls for permanent legal and tax support and the capacity to manage the debtor actively.
The common mistake: choosing the format by expected discount without weighing available capital, horizon and legal management capacity. A 60% discount on face value in an NPL with a 4-year procedure can yield a lower net IRR than a 30% auction transfer closed in 6 months.
7. How Equus Capital operates
At Equus Capital we work all three routes and analyse each case separately: registry due diligence, market valuation, procedural analysis of the state of the file, realistic timeline estimates and three scenarios (conservative, base, optimistic) before each investment. We do not sell opportunities. We structure transactions that have passed the technical filter.