Foreclosure: A foreclosure is the legal process by which a mortgagee, or other lien holder, usually a lender, obtains a termination of a mortgagor's equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure).
Court Ordered Sale: A Court Ordered Sale is the legal process where the BC Provincial Court is petitioned to approve the sale of an Offer To Purchase of a property once a buyer has removed all conditions precedent.
So how exactly does a home owner find themselves entering into the Foreclosure process to begin with?
Here are the steps of a Foreclosure action in BC:
1. Default of Mortgage Payments (typically 2-3 months behind)
2. Demand for Payment by Lender
3. Filing of Petition for Foreclosure
4. Order Nisi (Final Order, usually with a Redemption Period* (6 months or less)
5. After Redemption Period expires, either:
5a. Order for Conduct of Sale (subject to court approval), or
5b. Order Absolute of Foreclosure (no court approval required)
*Redemption Period means the ability to “redeem” the mortgage by paying the full amount outstanding, plus interest, costs and taxes.
Where a Lender has obtained an "Order for Conduct of Sale" the Lender's REALTOR® is required to attach a Schedule "A" (this document modifies the Offer to Purchase which protects the Lender's interests) to any proposed Contract of Purchase and Sale which generally states the following terms and conditions:
1. Court Approval of the Offer is required after Condition Removals
2. The Court has complete and full discretion, the Lender will not advocate for the Buyer
3. Other offers may be entertained
4. Title transfer is by Vesting Order of Court
5. The Lender makes no Representations or Warranties as to: Title, Condition of Premises, Environmental Condition (otherwise known as “as-is-where-is condition)
Okay, now you have asked your REALTOR® to show you some foreclosure properties and you find one that is of interest. You decide that you want to place an offer on it and now court procedures must be considered. So here’s how it works: First your offer is submitted to the listing agent who in turn forwards it on to the lawyer representing the lender for their consideration. Once the lawyer and the lender have reviewed your offer (allow 48 hours for an initial response) and all conditions/terms are agreed upon by all parties you may then proceed with your due diligence period (approximately 7-10 days including Home Inspection, Finances, Title Search etc.) If you are satisfied and remove all your conditions the Lender's lawyer will then apply to the local BC Provincial Court for a court date to be set.
The court date traditionally ends up being 10-14 days after the initial application takes place. It is also important to know that once the court date is set the accepted offer becomes public knowledge and anyone may go the Court Registery to see what the accepted offer amount is, completion date, etc.
Once the court date arrives your REALTOR® will be there to represent your offer and it highly recommended that you be present as well. The reason you want to be present is in case other competing offers come into play. You will not know the interest level in the home until the court date. Let’s say for instance, there are three additional offers that are presented before the judge there is a possibility of the judge sending all interested parties away with instructions to come back with your best price. Essentially, this creates a kind of auction type atmosphere and drives the purchase price higher to benefit the Lender. Keep in mind that the judge's mandate is to recover as much of the Lender's monies as possible and it is at his/her sole discretion on how they go about doing so.
Common foreclosure questions:
1) The list price is not firm by any means, they are set by the Lender and are reduced over time until the property sells. You are able to offer whatever price you want, it doesn't mean that the Lender and ultimately the Courts will accept and approve it. Ideally, you want to offer something that the judge will feel is in line with market value based upon a recent appraisal of the property. There is some strategy to placing an offer and if done correctly it can result in a very good buy for the purchaser!
2) As mentioned above the judge really has the final say as to whether or not to approve your Offer to Purchase. The amount left owing on the mortgage may be well above or below the current market value of the home. The judge will want to recover as much money on behalf of the lender/creditors as possible. It is important to learn as much about the foreclosed property prior to making an offer on it in order to give you the best chance of having your offer approved!
3) In order to learn more about a particular foreclosure property prior to making an offer is where your REALTOR® comes in. They will be able to provide you a Title Search, Tax Assessment, and give you comparables of recent sales in order to give you a well rounded view of the current market value of the home. You then can take all this information and sit down and discuss the best strategy to get you the home at a price you are happy with.
One more thing, it is very important to be aware that the mortgagor has the right to redeem their home by paying all the mortgage arrears, court costs, taxes and any other costs related to the foreclosure process that the Lender has incurred right up until the day of court. Bottom line is to be aware of all the risks involved in the purchase of Court Ordered Sale prior to placing an Offer to Purchase. Your REALTOR® is always there to help!