Financial agency FINA and online auctions in croatian amended distraint act

Abstract

This paper presents an analysis of the newly amended Distraint Act in Croatia, concerning foreclosure and sales of properties. The idea behind the act is that making sales of foreclosed properties more transparent by the means of online auctions can create gains for both the foreclosed and the state. The banks may also profit from better repayment of defaulted loans. The unamended act provided that the properties are put on sale by the court in execution proceedings, and those sales were conducted by dealers that saw their interest in lowering the prices. This apparently meant that properties were sold below the market prices and that loans were still not payed off when the sale of property was concluded, which also presented a useful opportunity for some buyers of properties to make profits, as well as for dealers themselves, while the state did not collect as much as it could have and the process of selling was slow. With online sales of properties the process becomes more transparent and it can reach larger number of potential buyers, which could increase the price and profits for both state and the former owners of those properties that are in debt. However, a similar act in the Netherlands provided that the properties should be sold through private online auction resellers, while in Croatia this is given to the government financial agency FINA. The problem is analysed from the perspective of principal agent theory, and from the perspective of supply and demand.