For sellers

Municipalities across Bulgaria auction properties due to unpaid property taxes

13 March 19

Municipalities across Bulgaria are taking legal action against property owners with outstanding taxes. Commonly left unpaid by foreign owners, thousands are discovering injunctions against their Bulgarian properties with ever increasing volumes being passed to bailiffs for sale by public auction. 


All properties in Bulgaria are subject to annual taxes; cars, land, houses, apartments, even when unfurnished, unfinished or unused. The nominal amounts vary from region to region, but generally these taxes are a marginal annual cost throughout the country, unless left unpaid; annual interest of 10% plus bailiff fees combine to far exceed the initial tax causing debts to multiply. Concerted effort is now being made by councils across Bulgaria in a collective effort to raise awareness and penalise inaction.


What is municipal property tax?
Similar to the UK’s council tax, annual municipal taxes are calculated against the value bracket of the property according to the state (not the market price), this can be the amount that was paid according to the title deeds, or the ‘tax estimated value’ generated by the municipality. This tax covers local services such as road maintenance and refuse collection, the amount escalates according to the use of the plot or building, anything in ‘regulation’ (has the right to be built upon) is taxed at a higher rate regardless of whether the property is in use or not.  



What has changed?


With Bulgaria’s economy growing substantially, most municipalities are operating with higher annual budgets, greater resources and more manpower, part of which is being applied to the pursuit of debtors. Local mayors facing re-election have encountered ever increasing scrutiny over their negligence towards uncollected taxes, claims of insufficient funding are tough to justify when no effort is being made to collect from those who simply haven’t paid their dues. In a bid to please the electorate these municipalities are now actively pursuing those who owe local property taxes, both foreign and domestic.


It has been commonly accepted that municipal taxes can be paid infrequently or not at all until selling, at which point the debt must be cleared in order to legally qualify for transfer of ownership. This culture of long term non-payment is what foreign owners have become accustom to, however change is being forced as owners must either pay their dues or risk their property being auctioned.


.'..the bailiff will accept an offer from the highest bidder and having deducted all fees will retain the net balance for the original owner to claim whenever they make contact.'


What are the implications for foreign owners?


Unlike private entities such as companies or individuals, the state does not require a court decision to place injunctions against property assets due to non-payment of property taxes. Once a debt exists the municipalities have a choice of appointing a state bailiff or a private bailiff, either have the power to amend the property registry with the entry of an injunction. Typically, municipalities opt for private bailiffs as they tend to be faster and more eager. The results are effective; bailiffs bill for every step they are instructed to take and the debt against the owner grows accordingly. In recent cases the initial tax has represented less than 20% of the final bill, the majority comprises fees, fines and huge interest. Owners who have failed to pay their 50-100 Euros per year tax are amazed to learn that they owe thousands and cannot sell their property until its paid in full, meanwhile their debt grows daily.  


A court decision is not required for a bailiff to be able to proceed to auction a property, there is neither a fixed percentage nor amount that will ensure or prevent a property going to auction, it is entirely the bailiff’s decision. The auctioning of property is governed by various rules and stages, but princiaplly a bailiff will publically advertises for the highest offer, which must clear all fees owed to all creditrs, (namely the state and the bailiff), the net balance is retained for the original owner to claim whenever they make contact.


Which municipalities are most active?


Until 2018 there was almost no municipal action of this type, although there were literally hundreds of thousands of cases that qualified. However, recent months have seen a considerable upturn in the volume of surprise injunctions particularly in the regions of Dobrich, Razlog and Nessebar, where one in every five sales is now postponed due to unknown encumbrances resulting from injunctions placed by the state.


Foreign owners have voiced concerns that they are being deliberately targeted, yet the reality is that these municipalities house the largest tourist hotspots of Sunny Beach and Bansko, which are disproportionately foreign owned and thus disproportionately affected by uncollected tax revenues. Similarly, overseas owners commonly complain of not being informed of action taken against them and are surprised when discovered, yet the purchase of a property in an oversea territory carries the irrevocable responsibility to pay state fees and follow state laws, no different to the requirements in Ireland for payment of Local Property Tax or Council Tax in the UK. In any case, should a private entity take legal action against you then proof of your notification is required by the court before proceeding, but not so in the case of the state for matters relating to unpaid tax, as such unless taxes have actually been paid in full then owners should expect to be surprised.


5 Year Statute of Limitation


Legally, the Bulgarian statute of limitations limits debt collection of unpaid taxes to a maximum of 5 years prior, as such any older debt can remain unpaid and effectively written off. However, if legal action is taken by the claimant within 5 years then the clock resets and the pre-existing debt rolls forward, which ultimately must be paid in its entirety regardless of the passage of time. For this reason, municipalities are generally taking action against those who owe 4+ years taxes, those with ‘younger’ debt are a lower priority at the time of writing. Nonetheless, with the growth in the economy and intrinsic expansion of municipal budgets, it won’t be long before unpaid tax debt will not go more than a few months without legal action being deployed, as is the common practise of Ireland’s Revenue or the UK’s HMRC.          


With Bulgarian buyers becoming an ever growing part of buying demand, bailiffs have been quick to realise that they can now successfully auction foreign owned holiday properties since they no longer need to involve international sales agents, with this barrier lifted they are far more willing to undertake the task on a no win no fee basis given a more certain outcome. This trend is set to continue and it we expect it to be commonplace by the end of 2019.


Be sure to avoid unnecessary costs and any possibility of losing your property in bailiff auction, make timely payment of your local property taxes and definitely clear and debt approaching 5 years of age.


Should you require assitance in discovering and clearing your property tax, please click here to view our service.