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Foreclosures

 

 

 

Bank Foreclosures

Bank foreclosures are often a great way to find deals when investing in real estate. It's important however to have a clear understanding of the foreclosure process before deciding to buy a foreclosure property.

 

So How Do Foreclosure Sales Work?

A bank, credit union or other financial institution usually gives the Owner of a property and the Grantor of a mortgage 3-4 months notice that foreclosure proceedings will be commenced in order to recover funds lent to the Owner to purchase the property. Usually an Owner must have been 3 months in arrears on the mortgage payments before the notice is given.

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 manner.

 

 

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:

  1. the property is worth the same amount as the mortgage debt or more;
  2. the respondent borrower is judgment-proof (i.e., no assets or money to apply towards a deficiency); or
  3. 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.

 

 

     

 

 

 

 

 

 

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Mike Shafie 604-230-1000