Note: I am neither a Realtor® nor a Lawyer. This post is for information purposes only. It also focuses on the province of British-Columbia, where I live.
A property is considered in foreclosure when a lender obtains an order of sale from a Court and the owner is unable to redeem the property. In plain terms, this happens when an owner is behind on their mortgage payments.
Let’s take an overview of the process for buying a foreclosed property, as it differs from buying a traditional property.
the price on a foreclosure will be close to market value
Unlike in the United States for example, Canada’s Courts protect the owner, not the lender or the buyer. The sale price is as to be close to market value as possible. You won’t be able to buy a property at a deep discount. Lenders work with a Realtor® and the property is listed on the MLS®.
That being said, the listing price will usually be lower. There are a few reasons for this: the property is usually sold to the highest bidder in court, the property is sold “as is”, and if after all fees are deducted there is a profit, the lender has to write a check to the owner….most lenders don’t want to do this.
the only subject you can include is “subject to court approval”
That’s right, you are reading correctly. Unlike a regular purchase, you cannot include the usual subjects like financing, home inspection, review of documents etc…in your offer. This is a legal requirement. The offer presented in Court has to be free of subjects. When the lender/trustee approves your offer, you have five business days to get your affairs in order, i.e. obtaining financing, do a home inspection if you can etc…
This can be a bit tricky, which brings me to the very important next point.
YOU ARE BUYING THE PROPERTY “AS IS, WHERE IS”
Neither the lender or the Court makes any representations or warranties as to the condition of the property. Many documents may not be available to review. There will be no property disclosure statement. Chattels are not included in the sale, as the lender does not own them. A chattel is an item that is removable from the property, such as appliances. In an nutshell, you assume all the risks related to the condition of the property.
A lot of lenders will also not finance foreclosures.
once accepted, your offer becomes public
When the lender accepts your offer, a date in Court is set. Your offer is part of the public court filing for everyone to see.
be prepared for court
On the set date, you need to be present. You also need to have a deposit in hand. Unlike, a regular purchase, the deposit needs to be included with your offer.
The Judge -or Master- will ask if the owner can redeem the property. If not, they will ask if they are any other parties interested. If yes, this is when the bidding war occurs. You only have one shot at this. All bids are presented in sealed envelopes. Usually, the property is sold to the highest bidder and/or the bidder with the highest deposit.
If the judge approves your offer, it becomes legally binding as the only subject is removed. You also need to pay close attention to details like spelling, names and legal description of the property, as there is no title transfer in a foreclosure. Instead the Order Approving Sale is filed at the Land Title Office. If there are mistakes, the Office could refuse it.
Buying a foreclosed property is definitely not for the faint-of-heart. Should you decide to take this route, you will need to leave your emotions at the door. You will also need to be patient, as the process takes more time.
Don’t be lured by the perceived lower price. Since you are buying “as is”, you have no idea of the actual condition of the property. You could face big costs upon possession.