If the Owner is unable to sell the property
themselves or otherwise bring the mortgage into a “current”
status, then the financial institution will apply for the
“Conduct of Sale” of the property, granting official approval to
sell, and if successful, will then list the property for sale on
the MLS® system.
The company that lists the home for sale must
respect certain rights of the Owner by providing sufficient
notice to show the home, refraining from Sunday showings and so
forth. Sometimes it is not as easy to view a foreclosed
property, so prospective Buyers may need to be a bit more
patient than they would with the sale of a regular property.
All foreclosure listings are offered on
an “as-is, where-is” on the date
of possession basis, because
the financial institution is not prepared to make any
representations as to the condition of the property. Sometimes
the property is left in a particularly bad condition by the
“Owner” because of their anger at losing their home. The Buyer
must be prepared for that eventuality.
Foreclosure listings apply only to the
property and its “fixtures”. No chattels, such as appliances,
curtains, shelving units, and the like can ever be included in
the offering. Private arrangements to purchase such items can be
made between the Buyer and Owner if so desired.
And so, you have now viewed the property, you
have determined that the property suits your needs and that it
is being offered at a reasonable price. What do you do now?
The Foreclosure Process in British Columbia
In British Columbia, it is the judicial sale process that
involves licensees most frequently. The petitioner or any of the
respondents (i.e. 1st, 2nd or 3rd Mortgagee) can apply for a
judicial sale, also known as a court-ordered sale, which will be
carried out under the supervision of the court.
The judicial sale begins with a Demand Letter to the
borrower, giving the borrower a short amount of time to pay out
their mortgage. Then a petition is filed in the
BC
Supreme Court registry, which starts an action:
The Order Nisi, which fixes the time for redemption.
The redemption period, usually six months, is the time period
given to the borrower to redeem the mortgage, as well as the
amount required. Where a lender (respondent) applies for such an
order, he or she may satisfy the court that the value of the
property is high enough to satisfy the costs of the sale and the
claim of the petitioner. If the property is sold by judicial
sale, the petitioner is entitled to recover the difference
between the sale proceeds and the mortgage debt from the
borrower.
Once a petitioner or respondent has been granted a conduct of
sale, they act in the role of the vendor pursuant to the Court
Order, only for purposes of disposition of the asset, and can
now list the property for sale with a realtor.
When a party has expressed an interest in making an offer,
their realtor or the selling agent will draft an offer, directed
at the Vendor (usually one of the Mortgagees.) At this point
their realtor should confirm that the purchaser understands that
although they will be negotiating with the vendor and a deal may
be agreed on, there is still a possibility that, when the offer
is presented to the courts, the offer may be subject to a sealed
bid process by other purchasers.
Once the offer is made and the terms are agreed to, the
Purchaser commences their Subject Period. If the purchaser
removes its subjects, the offer will be presented to court.
Submitting Your Offer
Your REALTOR® prepares an offer, called the
“Contract of Purchase and Sale” on your behalf. It may have the
typical subject conditions such as Financing, Inspection, Title
Search, but must also have a subject clause making the contract
“Subject to the approval of the British Columbia Supreme Court.”
Your offer is submitted to the Lender or
solicitor acting for the Lender, and it is negotiated back and
forth in the normal manner. Counter-offers with respect to price
or other terms may be proposed until an “acceptable” offer is
achieved.
You then execute due diligence by having a
mortgage appraisal performed, inspection carried out, title
verified, and so forth until you are satisfied that the property
will serve your purposes.
You then remove your subject conditions in
writing, which leaves “Subject to the approval of the British
Columbia Supreme Court” as the only remaining condition. At this
time, you would be expected to provide a deposit, in the form of
a bank draft, for at least 5% of the offered price. This deposit
would be paid to your Buyer Agent in Trust and will form part of
the purchase price.
Awaiting Approval
Now that the solicitor for the Lender has your
relatively “unconditional” offer in hand he or she will apply to
the Court for a date at which time the offer can be presented
for its approval. This date is usually 10-15 days after you
remove subject conditions and pay your deposit.
On the date that the Court agreed to hear
about your offer you would attend with your Buyer Agent at the
stipulated location. There is a list in the lobby of the
courthouse that indicates in which courtroom your offer will be
heard by the judge or master. Also on that list may appear the
price that is in your offer.
This may seem a bit unfair, but it is the
Court‘s job to protect the “Owner” to greatest extent by making
sure the highest possible price is received for the property.
It is also important to understand that your
offer must be somewhat close to the Fair Market Value of the
property. The Court will not automatically approve any offer
just because it satisfies the Lender; its role is to insulate
and protect the foreclosed upon “Owner” to the greatest
reasonable extent.
All offers made at the court level must be subject free offers.
As you can see, buying a foreclosed property is not as simple as
many think. Even if you have an accepted offer on a foreclosed
property, there is a high likelihood that there will be other
offers once you reach the court proceedings.
In the courtroom, the process works as follows:
- The vendor’s lawyer presents the purchasers’ offer to
the Judge, (in foreclosure proceedings they are referred to
as Masters.)
- The Master asks if there are any other parties in the
courtroom who would also like to submit an offer. If there
is not, and the appropriate marketing has taken place and
the price of the offer is market value, the Master will
approve the sale. If there are competing offers in court the
Master will instruct all parties, including the original
purchaser to leave the courtroom and resubmit their final
offer in a sealed envelope to the vendors lawyer.
- After these offers have been submitted, the Master
reviews the offers and approves the best deal.
Normally, the existing “Owners” will be given
30 days to vacate the property, but sometimes the Courts will be
more lenient and allow up to 60 days.
From this point on, the transaction unfolds in
the normal manne
r.
The following chart has been reproduced with the permission
of the UBC Commerce Real Estate Division.
Steps in a Foreclosure Proceeding in BC Demand Letter
|
A letter accelerating the loan and
giving the borrower a short period of time to pay out
the mortgage or else face foreclosure.
|
Petition
|
Filed in B.C. Supreme Court registry.
The lender is the petitioner, while the borrower and all
other charge holders whose interests rank in priority
behind the lender, are the respondents.
|
Order Nisi
|
The first order of the court. It
establishes, amongst other things, the amount required
to redeem the mortgage and the time period given to the
borrower to redeem.
|
Judicial Sale
|
The petitioner may choose to
have the property listed for sale by the court.
Unless special circumstances exist, the
petitioner only seeks this order at the expiry
of the Redemption Period (Traditionally 6
months).
|
Order Approving Sale
|
The court approves the sale of
the property. If the sale proceeds do not pay
the petitioner in full, the petitioner will seek
the deficiency from the respondent borrower
under a court action.
|
|
Order Absolute of Foreclosure
|
If the redemption period has
expired and if:
- the property is worth the same amount as
the mortgage debt or more;
- the respondent borrower is
judgment-proof (i.e., no assets or money to
apply towards a deficiency); or
- there are no offers under a judicial
sale; the petitioner can seek an absolute
order of foreclosure, under which the
petitioner becomes the new registered owner
and all respondents are wiped off title. No
further action can be taken against the
respondent borrower after the court has
granted the order absolute.
|
|
How to avoid foreclosure
There are many reasons why a person might fall behind with
their loan payments such as a loss of employment, medical
expenses and other life-altering events. As we all know with
debt comes a responsibility on us to make sure the debt is paid
back to the lender on time. If it's not, our credit rating is
affected making it harder for us to buy things in the future.
Unlike credit cards (where it only hurts your credit rating,)
not paying your home loan can result in the lender foreclosing
and taking ownership of your home.
If you are falling behind, contact your lender as soon as
possible. Lenders generally do not want to foreclose, and will
usually work with you to get you back on track. Never ignore the
lender's letters or phone calls. The problem won't go away and
foreclosure will more than likely be the result. I would also
recommend getting legal advice from somebody who is a specialist
in the foreclosure and debt consolidation field who can properly
assess your situation.
Another option would be to sell your home as
soon as possible, pay the lender
from the sale proceeds and have a fresh start. Should you decide
to go this route, I have litterally hundreds of buyers who would
be willing to buy right now. If you require a quick sale and
information on what your home might sell for please let us know.
