Buying BC Foreclosures

Published: 01st March 2011
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Foreclosures are an opportunity to acquire a wise investment in real estate, but they aren't without challenges, and they aren't easy money.

Foreclosures aren't enjoyable for the parties involved (the lawyers and I get a kick out of them, but neither the bank or the mortgagor enjoy the process, and its not a lot of fun for a Realtor representing buyers).

In a market where prices are rising an owner make a quick exit by just selling the place before much of the legal work has been done, especially in the Lower Mainland. When prices are rising its easier for an owner who's stuck with no income to sell, pay off the bank, get rid of his debt, and save some equity.

When the market slows down, or in a market that has crashed, the easy solution that is provided by a quick sale disappears. Homeowners must go through the whole process because the easy way out starts to disappear.

Foreclosures are thought to be bargains, but I'd argue that this isn't really the case. A foreclosure property isn't always workable for all buyers. The lender only sells their financial interest in the property, and makes no representations or warranties. You buy "as is, where is". If you later learn that you bought a leaky condo, or have dry-rot, or if it encroaches on the neighbour, you have nowhere to turn. You have no recourse with the lender, because the buyer and lender both agree that the lender won't be responsible for any problems with the property after closing.

The vendor in a foreclosure is the judge, not the financial institution. If your offer to purchase is accepted it becomes the subject of a court order. You can not complete the sale, but you're not in the usual civil fight between a buyer and seller; instead bidder is in contempt of court. In other words, if the master says "sold", you're buying, for better or worse.

That means that when you throw an offer in court you have to have a clean offer, with no conditions accompanied by a a rock solid deposit.

It also means that you won't find out whether you get the property or not until the court decides. If other buyers make bids you might not win. If you do win you'll usually close and take possession within 2 weeks of the court date. You need all your ducks in a row before you get into court. If you're a FTB or an end user these things can be a problem, whether you are successful or not.

It's also worth remembering that most financial institutions go to foreclosure as a last resort. Usually the lender approves the offer that will get the court date; the actual individual who approves the offer on the lenders' behalf is invariably in Toronto (o.k., Missasauga), and is more worried about policies and procedures than by getting rid of the property. He'd rather explain a long listing period than be accused of selling too cheaply. That means that it can be difficult to get a lowball accepted (although it happens).

Once the lender approves the offer the their lawyer will apply for a court date. When that happens the offer becomes a court record, and is public. If there is competition the 2nd, 3rd and all subsequent potential buyers will know what the original offer price is, but the 1st person won't know what subsequent offers were.

At court everyone appears before a Master, rather than the judge. There are no set rules for buying foreclosures, and each lawyer each time is a little different. Most will review all offers before going into court, and will advise everyone to make sure they've made their best offer.

Once inside everyone waits until the case is called. The lawyer for the bank speaks to the Master, explains the offer(s) and the Master either asks some questions or makes an order. If you haven't seen it before it often occurs before the buyers even know what happens.

Do foreclosures sell for bargain prices? Sometimes. Is that a discount? I'd say no, and that really its a reflection of a smaller pool of potential buyers for foreclosures. They really can be a challenge for FTBs/end users.

The fastest wayto get more information aboutforeclosures is to contact me directly or go to the courthouse on Smythe or in New West and check the lists. I'll put you on an automatic MLS search that will bring up most foreclosures (that's another way we maintain the MLS information monopoly! :-)

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