Real Estate Auction: Irrevocable Bank Guarantee, the Only Accepted Security

Imagine the scene: you are in Trappes, in a packed courtroom, ready to bid on that commercial premises you have been coveting for months. The judge-commissioner's gavel falls, you are declared the successful bidder (i.e., the buyer designated by the auction). But a few days later, you are told that the sale is cancelled because the guarantee you provided was not compliant. How is this possible? The question every owner or investor asks: what are the exact rules for participating in a forced sale? This decision of the Court of Cassation of 20 May 2021 sets the record straight: only two forms of guarantee are accepted, and no others. Explanations.

The Facts: A Story Like Many Others

Mr. X, owner of an industrial property in Saint-André-Lez-Lille, sees his property seized by a creditor. The judge-commissioner orders the sale by auction (judicial auction) of several lots. The conditions of sale document (which sets out the rules of the sale) specifies that bids are open to any person offering an irrevocable bank guarantee or a banker's draft of 10% of the reserve price, with a minimum of €3,000.

On the day of the hearing, a bidder appears with a different guarantee: a non-irrevocable bank certificate. The lawyer for the pursuing creditor (the creditor requesting the sale) immediately challenges the validity of this guarantee. The judge-commissioner, after deliberation, rejects the bid and declares the bidder inadmissible. The bidder challenges the decision, arguing that the bank certificate was sufficient. The case goes up to the Court of Cassation, which must decide: is the list of guarantees provided for by Article R. 322-41 of the Code of Civil Enforcement Procedures exhaustive?

The Reasoning of the Court — Analysed

The Court of Cassation confirms the decision of the judge-commissioner and gives a clear answer: Article R. 322-41, paragraph 1, of the Code of Civil Enforcement Procedures (the text governing auctions in real estate seizures) exhaustively lists the acceptable guarantees. These are the irrevocable bank guarantee or the banker's draft payable to the sequestrator or the Caisse des Dépôts et Consignations. No other form of guarantee, such as a simple bank certificate, a personal cheque or a comfort letter, is admissible.

In other words, the law leaves no margin of manoeuvre: the bidder must deliver to his lawyer, before the opening of the bidding, either an irrevocable bank guarantee (a firm commitment by the bank to pay) or a banker's draft (issued by the bank itself), representing 10% of the reserve price, with a minimum of €3,000. This guarantee is delivered against a receipt.

What few people know is that irrevocability is essential: the bank cannot withdraw its commitment. A simple certificate, which could be withdrawn, does not meet this condition. The Court of Cassation insists on the strict nature of this obligation, as it protects the seller (the creditor) against the bidder's default.

undefined, I have come across cases where ill-informed bidders lost their bid for providing a non-compliant guarantee. In Mantes-la-Jolie, for example, one of my clients nearly saw the sale of his property cancelled for this reason.

What This Changes for You — Practically

If you are a landlord-owner wishing to acquire a property at auction, you must absolutely obtain an irrevocable bank guarantee or a banker's draft. Do not show up with a simple certificate from your banker, even if it mentions a commitment: if it is not irrevocable, it will be refused.

For the purchaser, be vigilant: the amount of the guarantee is 10% of the reserve price, with a minimum of €3,000. For example, for a property with a reserve price of €50,000, you must provide a guarantee of €5,000. If you cannot present this guarantee, you will not be able to bid.

If you are a pursuing creditor, you have an interest in checking that the conditions of sale document clearly mentions the accepted guarantees. In case of challenge, you can ask the judge-commissioner to reject a non-compliant bid.

However, be careful: the guarantee must be delivered to the lawyer before the start of bidding. If you arrive late or if the bank is slow to issue the draft, you will be excluded. So allow sufficient time.

Four Tips to Avoid This Type of Dispute

• Before the hearing, contact your bank to obtain an irrevocable bank guarantee or a banker's draft. Do not settle for a simple certificate. Explicitly ask for an irrevocable document.
• Check the exact amount of the guarantee: 10% of the reserve price, with a minimum of €3,000. If the reserve price is high, the amount of the guarantee may be substantial. Make sure you have the funds available.
• Deliver the guarantee to your lawyer sufficiently early before the hearing, against a receipt. The lawyer must be able to present it to the judge-commissioner before the opening of bidding.
• If in doubt, consult a lawyer specialising in property law. He or she can check that your guarantee is compliant and assist you with the procedures.

Further Reading: Related Case Law and Developments

This decision is part of a consistent line of the Court of Cassation. In an earlier ruling of 15 March 2018 (No. 17-14.222), the Court had already held that the delivery of the irrevocable bank guarantee was a substantive formality, the absence of which renders the bid void. The 2021 decision confirms this strictness and specifies that no other guarantee can be substituted.

The trend of the courts is therefore towards a strict interpretation of the conditions for participating in auctions. This aims to secure sales and avoid subsequent challenges. For the future, it can be expected that judges will continue to require scrupulous compliance with Article R. 322-41. In short, if you want to bid, follow the letter of the text.

Frequently Asked Questions

• Can I use a personal cheque as a guarantee? No, a personal cheque is not accepted. Only a banker's draft or an irrevocable bank guarantee is valid.
• What happens if I cannot provide the guarantee? You will not be able to participate in the auction. The lawyer cannot place your bids without this guarantee.
• Is the guarantee refunded if I do not win the property? Yes, it will be returned to you after the hearing, less any expenses. The receipt serves as proof.
• Can I bid through an agent without a personal guarantee? No, each bidder must provide their own guarantee, even if you are represented by a lawyer.
• Is there a deadline to provide the guarantee? Yes, it must be delivered before the opening of bidding. No additional time is granted.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →