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.

STEP 1
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.

Note:
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.

STEP 2
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.

STEP 3
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.

STEP 4
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.

STEP 5
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.

STEP 6
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.

Note:
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.

• The majority of foreclosure applications are heard by Masters rather than Judges. Masters can only approve subject free offers.
  
  
• The judge will also take into consideration the size of the deposit. The bigger the deposit, the higher your chance of winning if up against a similar priced offer.
  
  
• In rare cases, the offers presented to the judge may all come in with very similar prices, dates and deposits. In this case the judge may provide all parties a second chance to revise their bid by sending everyone out the room and come back with another offer in a sealed envelope.
  
  
• There is an advantage to being the first offer. If you are competing with an identical or very similar offer, the judge may consider yours since you invested more time and effort into it.
  
  
• Completion and possession dates are usually set for 14 days following the date of the court order and its best to keep this in consideration.
  
  
• ORDER ABLOSUTE: There is another type of sale called an ‘Order Absolute’. This is less common than the ‘Conduct of Sale’ as mentioned above. The sales process of an Order Absolute is like any other normal property but there are no competing bids. Often a lender may receive an order absolute after attempting to sell the property. This could be a for example a mortgage default insurance company such as CMHC stepping in after previous attempts to sell the property by the original lender.
  
  

OTHER CONSIDERATIONS WHEN BUYING A FORECLOSURE

PURCHASING ‘AS IS, WHERE IS’
All offers must include a ‘Schedule A’. This document contains several clauses that override and/or amend some of the standard clauses in a contact. The property will be sold ‘as is where is’ and the buyer accepts the condition of the property as is on the possession date and not on the date as viewed. The bank offers no representations or warranties whatsoever as to the condition of the property. Property may be damaged, lights, faucets and cabinets removed, house left dirty and unwanted trash left behind are all risks a buyer needs to consider. There is no Property Disclosure Statement available on foreclosed properties.

INCLUDED ITEMS
Foreclosure offers cannot have any included items such as appliances etc. What you see on the possession date is yours, and in some odd cases, even the original owner may still lay claim to some of his possessions after the possession date.

TENANTS
If there is a tenant in a house that is in foreclosure, this will be an added complexity. The Residential Tenancy Act protects the tenants, and the court cannot enforce anything against them unless the tenants are named in the court order. If not, the tenants’ rights continue to apply. This could lead to a delay in taking possession of the property.

INSURANCE
It may be difficult to obtain insurance on a foreclosed property until the day the title is transferred into the buyer. Insurance companies look at foreclosed properties as high-risk properties. Another thing to keep in mind is that many insurance policies contain a clause excluding coverage for damage caused by a tenant.

BUDGET FOR REPAIRS
Foreclosures tend to be rundown and often require some TLC and sometimes major repairs. Banks or the previous owners may remove some of the valuable and appliances. So budget this into your numbers a well.

DISADVANTAGE OF BEING THE TRIGGER OFFER
If you are the first offer and triggered the court date, you can never be certain you will get the property. Court dates can be anywhere form 4 to 10 weeks away. If you are on a sensitive time frame and/or see another very desirable property come onto the market, you may be very limited in pursuing that other property until after the scheduled court date.

As purchasing a foreclosure may help you buy your dream property at a discounted price, understanding the process and potential risks involved in purchasing a foreclosure will help you navigate the purchase with more knowledge and confidence.

This is a very short and basic list to help you understand the foreclosure process in BC. If you have any additional questions, feel free to contact us at any time.