Forced sales

A forced sale is a procedure to sell a property with the aim of settling claims secured by the property. Auctions are announced at least three days in advance on the District Commissioner´s website. For a forced sale to be requested, the claim (debt) must be in arrears and secured by a lien on the property requested for sale.

Collaterals involved include:

• A collateral based on a mortgage recorded on the property. The mortgage must state that a forced sale may be conducted to satisfy the claim without prior judgment, settlement, or attachment.

• A collateral based on attachment (execution collateral).

• Statutory collateral such as property taxes and premiums for mandatory fire insurance.

• Possessory collaterals, such as those for transport and storage costs. In special circumstances, a forced sale may also be requested to dissolve joint ownership.

Parties involved in a forced sale:

• The claimant, or the person requesting the forced sale.

• The respondent, or the owner of the property subject to the forced sale.

• Those with registered rights in the property, such as holders of collateral, tenants, and others, or those who assert rights based on interests in the property, even if those rights are not registered.

• Others who assert claims regarding the property or its value, or object to the claimant's request if they have legally protected interests.

Where to file a request for forced sale:

• Real estate: To the District Commissioner in the jurisdiction where the property is located.

• Ships: To the District Commissioner where the ship is registered.

• Ships or aircraft registered abroad: To the District Commissioner where the ship or aircraft is located.

• Aircraft registered domestically: To the District Commissioner in the capital area.

• Personal property (valuables other than real estate, ships over 5 gross tons, or aircraft): The general rule is to submit the request to the District Commissioner where the debtor resides or where the property is located.

Costs

A forced sale fee, which is paid to the state, is added to the claim:

• For real estate: ISK 40,000

• For personal property: ISK 13,000

Real estate, ships over 5 gross tons, and aircrafts

A request for a forced sale of real estate, a ship over 5 gross tons, or an aircraft must be submitted in duplicate to the District Commissioner. Upon receiving the request, the Commissioner verifies whether the request meets all formal requirements, including whether a payment demand has been issued to the respondent, if that´s applicable, whether the request is directed at the correct party, and whether the claim is properly specified. The Commissioner then sends a notice to the respondent and claimant regarding the hearing date for the request. Additionally, an advertisement is published in the Legal Gazette regarding the upcoming forced sale with at least four weeks' notice (six weeks for aircraft).

Process of forced sale

The sale occurs in three steps:

Hearing of the forced sale request:

• The first hearing usually takes place at the commissioner's office. The parties involved in the auction can raise objections or oppose the claimant's request, and the commissioner decides whether to consider these objections in whole or in part. The commissioner 's decision to halt the forced sale can be appealed to the district court, but the claimant's approval is required for the debtor to appeal the decision to continue the sale. The first hearing is not postponed unless an obstacle prevents the case from proceeding, such as the debtor's estate being subject to bankruptcy or inheritance proceedings.

• The respondent and claimant can request that the property be sold on the open market, and the commissioner is generally required to comply if they consider the sale feasible and the parties would be fully compensated by the proceeds of the property. A guarantee for costs must be provided. The commissioner oversees forced sales on the open market.

• At the hearing, a time for the auction to begin is set.

Start of auction:

• A written notice of the auction's start is sent to the respondent and claimant.

• The auction is advertised with at least three days' notice on the commissioner's website.

• The auction usually takes place at the commissioner 's office.

• The start of the auction can be postponed upon the respondent's request. However, the respondent must agree with the claimant on the postponement, and the duration is set. The postponement is then notified to absent parties and re-advertised. The start of the auction can be postponed more than once and even several times but not for more than one year. When a year has passed since the first hearing, the case is automatically dismissed. If there are multiple claimants, all must agree to postpone the case.

• If the auction starts, bids for the property are sought.

• If a bid is made and the property is sold to the highest bidder, it is determined whether and when a continuation auction will be held.

• Those who bid at the start of the auction are bound by their bids until the continuation auction. If, for some reason, no continuation auction is held, the bids made at the start remain valid, and the case is concluded as if a continuation auction had taken place.

Continuation auction/final sale:

• A continuation auction is held within four weeks of the start of the auction.

• The respondent is sent a notice requesting access to the property when the auction is held.

• The continuation sale is advertised in a newspaper and on the commissioner website with at least three days' notice.

• The continuation auction cannot be postponed, but claimants may withdraw their requests to prevent the sale of the property. Claimants can grant an extension of several weeks. If the debtor settles the claim during this time, the claimant can withdraw the request.

• Claimants and all parties with registered liens or rights in the property are notified that the property is going to auction.

• Continuation sales of real estate usually take place at the property itself. The property holder must grant access by law, and if no one is present to provide access, the commissioner has the right to have the locks broken to inspect the property before bids are made.

• Ships and aircraft are generally sold at the commissioner 's office.

• Anyone may attend the continuation auction, whether it takes place at the real estate or the commissioner s office.

• During the continuation auction, bids for the property are sought, and the property is sold. Payment of the sale price to the commissioner then depends on the terms set at the start of the auction. The same applies to the guarantee that the commissioner requires for the bid to be accepted. The most common requirement is to pay 25% of the auction price upon bid acceptance, 25% one month later, and the remainder three months after acceptance. Often, bidders negotiate with lienholders to take over the outstanding liens.

• If no bid is received or if the bid is too low to cover the claim, the case is dismissed, and the creditor must start the auction process again if desired.

Distribution of sale proceeds

The commissioner prepares a proposal on how the sale proceeds will be distributed to the creditors. The proposal outlines how the sale proceeds will be applied to the claims registered during the sale. The distribution depends on the priority of the creditors. The commissioner sends the proposal to the creditors, the respondent, and the buyer if the respondent is a purchaser under a sales contract.

At least two weeks are allowed for objections to the proposal. If objections are made, they are reviewed by the commissioner, who then decides whether to amend the proposal or keep it unchanged. This decision can be appealed to the district court. If no objections are raised, the proposal becomes final, and the sale proceeds are distributed accordingly. However, lienholders cannot be paid from the auction proceeds until the deadline for challenging the validity of the forced sale in court has passed.

Issuance of deed of transfer and handover of property

The buyer gains control of the property upon the commissioner s acceptance of their bid and has the right to take possession of it. The buyer also assumes the risk associated with the property from the time of bid acceptance.

The deed is not issued for the property until the deadline for challenging the validity of the forced sale in court has passed or a court decision has been reached if a legal dispute arises.

Right of the respondent to continued residence

If the property sold is a residential home where the respondent lives, they can request to remain in the property for up to 12 months. The commissioner decides whether to grant this request and sets the rent. A tenant in residential housing may have the same right under certain conditions.

The respondent/tenant must notify the commissioner if they wish to remain in the property, no later than when the continuation auction begins. The commissioner will decide on the request, and if approved, they will set the rent. The commissioner may require the respondent to provide a deposit to cover potential damage to the property. The deposit must be equivalent to three months' rent and be submitted within one week of the continuation auction. The commissioner will return the deposit to the respondent within six weeks after the end of the lease period if the buyer does not make a claim for it.

Personal property

Personal property includes vehicles, unregistered boats, boats under 5 gross tons, machinery, equipment, and other goods.

A request for a forced sale of personal property must be submitted to the commissioner in triplicate. If all formal requirements are met, the commissioner sets the auction date and notifies the respondent. The auction is also advertised on the commissioner s' website and in a newspaper at least one week before the auction.

The claimant must bring the personal property to the auction site before the auction begins. For example, if a construction crane is being auctioned, the auction takes place at the construction site. The respondent is required to hand over the property to the claimant if a writ of possession signed by the commissioner is presented.

The auction buyer generally must pay for their bid on the property immediately, and credit card payments are not accepted. The proceeds from the sale are then distributed to creditors according to the priority of their claims.