BUYING A FORECLOSURE IN BC
Many of my clients have asked what the process of purchasing a foreclosure looks like. I compiled a short list to help you understand the basic steps involved. Once a home becomes a foreclosure, the bank takes ownership of the home and you will be dealing with the bankers lawyer.
First step is submitting an offer to the bank. A ‘Schedule A’ will typically be attached to the offer. If you are the first offer, you will have the opportunity to make it a conditional offer for the purpose of obtaining inspections and financial approvals. Only the first offer may have conditions.
If there is already an offer in place, you must submit a ‘subject free’ offer directly to court on the scheduled court date. In the meantime, you can still obtain bank approval, and do all your inspections and inquiries. The price of the first offer will be publicly disclosed to all subsequent buyers.
Once your offer is accepted by the bank, you will then do your due diligence as you would do on any other home purchase such as obtaining financing approval, home inspection etc.
If you are satisfied with the home inspection, have obtained bank approval, and satisfied the other conditions you had in the offer, you will then remove all the subjects and provide your deposit. Your offer will now be firm, subject to court approval.
Now that a firm deal is in place, the bank will request a court date where the court will approve the sale. A court date now in 2022 will generally be anywhere between 4-6 weeks away. As stated before, the price of your offer will now become public knowledge. Other interested buyers will know your price, have the opportunity to inspect the home, and also be able submit a higher offer than yours to court on the scheduled court date.
The scheduled court date is now here. Now let’s hope that no one else shows up in court. If you are the only one, your offer will be reviewed by the judge and your offer approved.
However, if more buyers are present who also are interested in the same property, you will have one last chance at revising your offer by raising your price. This offer will then be placed in a sealed envelope and submitted to the judge. Remember that all the other interested parties also have a one last chance to revise their bid and submit their offer.
The judge will now open and review all the offers. The 3 important parts they will be looking at are: PRICE, COMPLETION DATE and DEPOSIT. The judge will then decide which offer is the best and approve the sale.
In majority of cases, the highest price wins. But there may be times that a judge may not approve the highest bid. They also will be looking at completion dates. If the highest bid for example has a completion date for 3 months down the road, the judge will estimate how much it costs the bank each month to hold the property as the bank is also paying for the hydro, gas, maintenance fees, insurance and all other associated costs of keeping up the home. If the next lower priced offer has short completion dates, it may be the best interest of the bank to accept that one.
Lets say the bank accepted your initial offer of 500k with a possession date of 90 days after court approval. Another buyer provides an offer slightly higher than 500k but only has 30 days for completion after court approval. The judge will need to consider what it costs the bank each day to hold the property till the date of completion and may consider that to be a better offer. It can cost the bank $50-$100 a day to hold the property till completion.