Foreclosure in BC: What You Need To Know – Part I
The F-word in real estate.
Everyone is curious when they see “Court Ordered Sale” or “Foreclosure” in a listing they find while browsing homes. In this new series, I will take you through the foreclosure sale process in British Columbia, and hope to demystify it and to dispel some of the common myths about foreclosure. I was inspired to write this series because currently, I have 2 foreclosure listings in Sooke, and a good deal of time is spent explaining the process to prospective buyers. Buying a foreclosure listing is not as simple as buying any other house, and there are many pitfalls to avoid and processes to follow if you want to be successful. I won’t get into the details of how the foreclosure process happens and the legal steps necessary before a court can order the property sold. Instead, I’ll pick it up where it becomes relevant to buyers – when the listing hits the MLS® system and the sale process begins.
Foreclosures are always a bargain, right?
Not necessarily. Remember, this is a court-ordered sale in most cases. The court is involved to make sure that the home owner’s rights are protected, and that he or she is not taken advantage of by the lender and the prospective buyer. The court decides if the terms of the purchase contract are reasonable and fair. For example, let’s imagine a home owner who has fallen on hard times. His home is in good condition, worth about $300,000, and he only owes $100,000 on his mortgage. He stops making payments, and through a long process, the lender finally gets authority to sell the property. It is unlikely that a judge (called the Master in foreclosure proceedings) will approve a sale for, say, $125,000 because clearly, the bank is trying to dump the property and leave money on the table that could go to the buyer.
The important thing to remember about foreclosures is that they are market-value transactions, in most cases. If a foreclosure is listed at a bargain-basement price, chances are it’s for a good reason, needing repair or maintenance. Also, at court, anyone can show up with an offer on the property, so sometimes an auction-like situation is created at court. More on this in a later post, though.
How is an offer on a court ordered sale different?
When you offer on a regular listing, typically, your REALTOR® will insert several clauses in the offer to purchase that allow you to do your due diligence on the property – inspection, approval for financing, research on the title, etc. When you offer on a foreclosure, in some cases, you’ll need to have your ducks in a row ahead of time – you must write an offer subject only to court approval. If you are the first buyer to offer, you will usually be able to write an offer subject to the regular conditions, but this is not always so. And, if you write an offer with conditions, the lender will not set a court date until after you remove your conditions. However, if there is already a contract in place – another buyer has already offered, done due diligence, and removed their conditions – you’ll have to compete at court for the property, submitting a sealed bid at court. This means spending money on an inspection, appraisal if necessary, and getting your bank to approve the financing of the property, all before you have a contract in place. This represents a little bit more risk than a typical sale, because it’s completely up to the master at court which buyer will be successful.
So, your REALTOR® prepares the offer, and it is submitted to the lender for consideration. A typical back-and-forth negotation will likely occur, and once consensus is reached, and any conditions have been removed, the lender’s lawyer will set a court date for the offer to be approved (typically, 2-3 weeks from acceptance of your offer). I’ll talk about the court process in the next post.
If you have any questions about foreclosures in BC, contact me and I’ll be glad to try to answer!
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