Buying a foreclosed property

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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.

final words

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.

 

 

 

Suburban life ain’t cheaper

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Extraordinary real-estate costs in cities like Vancouver and Toronto are pushing people further and further away from said cities.

A single detached house in Vancouver costs close to 1.5 millions. A townhouse costs  about 500K and a condo 350K. No wonder people rush to the suburbs in hopes of snapping-up properties at a somewhat lower price.

The problem with this approach is two-fold: first, it drives prices up in the suburbs as well. Bidding wars and no-subject offers have become the norm there too. Second, it will cost you more if you have to buy a car or two.

A recent study compared the costs of housing in Langley with the costs of commuting Downtown Vancouver for 25 years. There are very few properties assessed at over a million  in Langley. However, the transportation costs would be close to 565K over the course of a quarter century. Staggering! On the other hand, someone living in Vancouver would spend “only” 298K in transportation costs, over the same period of time.

The choice of Langley is not random. Public transit is fairly limited in this city, making a car a necessity. Technically, one could go Downtown Vancouver from Langley with bus/skytrain but it would take them close to 2 hours. There are also fewer job opportunities.

Case in point with my own story: before buying my first condo in Surrey, I rented in North Vancouver and New Westminster. I worked mainly Downtown Vancouver and have been calling New West my workplace for close to 5 years. I never rented Downtown Vancouver, as I simply couldn’t afford it and didn’t want to. Rents are a waste of money in this part of the city!

With some previous salaries I made, I simply couldn’t afford a car, but I also didn’t need one. When I was in North Van and worked Downtown, I would simply take the Seabus. It took me 15 minutes to get to work. The best was when I moved to New West and also found a job there. I would walk to work.

If I needed a car, I was member of a couple of car-share organizations. It was way cheaper than owning one. I would also claim the monthly bus pass as a tax credit. Financially, it looked like an idyllic situation, when it was not necessarily the case.

The black point is that I was renting when it no longer made sense for me to do so, both financially and personally. I am not getting into the rent vs.buy debate here!

Back to my own story, I didn’t qualify for anything in Vancouver or closer suburbs, so I turned to further suburbs, namely Surrey and Langley. With public transit more limited, I had to buy a car, which added $ 800 to my monthly budget. Buying was cheaper than renting, but when I factored in that extra $ 800, I wasn’t so ahead anymore!

The yearly cost of a compact car in Canada is just under $ 10 000. If you have a bigger car or a truck, that amount will be higher. If you have 2 cars, it will be double.

Living in the suburbs used to be a no-brainer. It is definitely no longer the case. Nowadays, suburban vs. urban living is a trade-off between housing and transportation costs. Before deciding to move to the suburbs, whether as a renter or owner, take a look at your transportation costs and commute time.

As for me, I do not regret buying in the suburbs and getting a car, despite the extra expense. My car will be paid off next year and I anticipate my transportation costs to actually be lower for a few years after.

Most importantly, I enjoy my suburban life.

Condo-buying mistakes

I have been re-assessing my living situation lately. I mentioned in a previous post my building underwent major repairs that directly impacted my unit. The bulk of the work is done, but deficiencies have yet to be addressed. That was not a fun experience, and the contractor doing the work was just plain dreadful.

Unfortunately, this was only the first of a series of repairs our building needs. It has been estimated each unit will have to fork $ 29 000 over the next 10 years or so to fix the building envelope and the roof. This does not include any repairs of the mechanical components such as the furnaces or the pipes.

Needless to say I am thinking about selling my unit, which was not exactly what I had planned on doing just yet. Back in 2013, when I bought, the engineers had just started doing the building envelope assessment. Their final report and recommendations came in in April 2014. There was no way I would have known the condition of the building before buying.

That being said, I realize I made a few mistakes and oversights when buying my condo:

  • Getting a 5-year fixed rate mortgage: The majority of first-time home-buyers do this. I thought it would be easier to have a fixed payment each month, but I am paying a wack load more in interests. The Bank of Canada lowered its rate twice….I didn’t benefit from it. If I want to break my mortgage, I will be faced with a stiffer penalty (I.R.D.).
  • Buying with a 5% down-payment: Unfortunately, 5% is really low. I had to pay for mortgage insurance and it will take me more time to see some significant equity in my condo. I may have to hold-on selling or turn down offers if I can’t “break even”.
  • Not paying sufficient attention to the Contingency Reserve Fund (CRF): Each strata corporation must set money aside each month to fund for larger repairs. When I bought my condo, the CRF had about 10K, and no major repairs had been done.
  • Buying into a “rental building”: Almost half of my building is tenanted and there is no rental restriction. The majority of owners is uninterested in the building and don’t want to spend any time or money on it. The turn-up at our AGMs is very low, except when money is asked for. Tenants don’t care and have no problems damaging the property.
  • Not fully considering whether condo living actually suited me as an owner: in a condominium building, you cannot choose your neighbors or do what you want. More and more things are just irking me. I bought on the ground floor, meaning constant pacing, stomping, vacuuming from the unit above. When buying, I didn’t meet with any Council member or other owner. Most people don’t.

After being a Council Member for over 2 years, I can also add the following points to consider:

  • Most Council members have no clue what they are doing: this probably sounds very negative. What I mean by this, is that Council members usually volunteer their time and come from all walks of life. They are not necessarily licensed Realtors, property managers, engineers etc…No formal or informal training is provided on how to manage a strata corporation. If you think it is scary, you are right!
  • Consultants, contractors and other agents are not always acting in the strata’s best interest.

This definitely gives me a lot to ponder. If I sell my unit, I may not be able to buy again in Vancouver. On the other hand, I am not sure I want to fork $ 29 000 over my building.