WELCOME TO PART II on purchasing foreclosures and court-ordered sales in BC.
The previous post, Part I, provided an overview on court-ordered sales and foreclosures in BC as well as a discussion on the risks and benefits of purchasing such property. Part II will review the normal procedure to be expected when investigating, preparing an offer and purchasing on a court-ordered property.
STEPS TO BUYING A COURT-ORDERED SALE
The blind bidding process and the risks, purchasing a court-ordered sale may still be desirable and advantageous. I have acted as an agent for Buyers on a number of foreclosed properties, and have had success at obtaining a fair price given the risks and condition of a property. Preparation and strategy are key to success in purchasing a court-ordered sale.
STEPS TO BUYING A COURT-ORDERED SALE
Even with the blind bidding process and the risks, purchasing a court-ordered sale may still be desirable and advantageous. I have acted as an agent for Buyers on a number of foreclosed properties, and have had success at obtaining a fair price given the risks and condition of a property. Preparation and strategy are key to success in purchasing a court-ordered sale.
The steps are involved in purchasing a court-ordered sale:
1. Determine if the desired property meets your needs.
2. Write an offer — either a normal offer or a mock offer.
3. Remove conditions, as normal, with due diligence.
4. Pre-Court Strategizing & Preparation with your REALTOR®.
5. Attend Court Hearing.
DETERMINE IF THE DESIRED PROPERTY MEETS YOUR NEEDS
View and examine the property with your REALTOR®. Give yourself time to consider the benefits and drawbacks of the property so that you can confidently determine that price that makes sense for the property. Looking at comparable homes in the market place with your REALTOR®, and doing a market valuation on the property with your REALTOR® can help you determine a fair market value for the property and a purchase price that makes sense for you.
WRITING AN OFFER
If you determine that the property matches your needs, the next step is to write an offer. The type of offer written (normal vs. mock) depends on where the sales process of the property currently sits. All offers written must be subject to court approval.
WRITING A “NORMAL” OFFER & REMOVE CONDITIONS
A normal offer is written and requires acceptance from the Seller. This is essential for the first accepted offer on the property. The offer will have the usual conditions such as financing, legal advice, inspection, title search, and reviewing the property disclosure statement if available. Additional conditions important to the Buyer can also be included. An example might be subject to confirming costs of repairing a roof at a cost acceptable to the Buyer, or subject to confirming the addition of a carriage house. This offer goes through the normal negotiation process but because lawyers are often representing the Seller, it might take a few days for the offer to go back and forth.
Once the offer is accepted, the Buyer goes about removing all subjects as normal. For example, financing needs to be fully approved by the Buyer’s lender and then the financing condition can be removed. Legal advice is procured from the Buyer’s conveyancer and then that condition is removed. And, so on with the other conditions (subjects) in the offer. The only condition that would not be approved would be the court approval. That condition would be removed on court date for the winning offer.
When all conditions are removed on the accepted offer, a court date is set. Court dates are generally 2 to 3 weeks after removal of buyer subjects. In Kelowna, most court-ordered sales are heard by the Supreme Court on Wednesday mornings.
When the court date is set, and both the court date and the accepted price of the first accepted offer are posted on MLS. Being the first accepted offer, for lack of a better term, kind of sucks because now the price that the Seller and the courts are willing to accept (i.e. the price to outbid) is public knowledge. Sometimes, though, the first accepted offer is the only offer and the winning bid. However, until the moment the judge hears the case in court, other Buyers can come in with bids. Thus, the first Buyer needs to be prepared to offer more at the court hearing if they still want the property. In essence, if there are more interested Buyers, the court hearing becomes a blind auction.
Although not always favorable for the Buyer, the blind bidding opportunity in court provides a degree of protection to the owners. Announcing the accepted price stimulates the bidding process and gets a higher price for the property than if just the first offer was accepted. In BC, owners are entitled to excess funds gained above the money owed, for instance, to a lender or a former partner.
For example, let’s say the foreclosing bank, needs 100K to recoup losses on a property worth 500K. The bank cannot sell the property for 100K, recoup their losses and walk away. In BC, the original owner has the rights to the excess funds and the law in our province ensures that he or she is not to be stripped of any additional possible financial gain from that they would normally have been entitled had there not been a court-ordered sale. This blind bidding system in court is designed to maximize profits and protect the home owner from further undue financial loss.
WRITING A “MOCK” OFFER & REMOVE CONDITIONS
If an accepted offer is already in place, an alternative to writing a real offer is to prepare for court with a mock offer. This will enable you to prepare for an unconditional offer for presentation at the court hearing.
A mock offer does not require written acceptance by the Seller but allows the Buyer to navigate through all the steps of writing a conditional offer and removing subjects as if they were buying the home. For example, subject to financing would be submitted to and approved by the lender as if you had an accepted offer on the home. Legal advice, inspections, etc. would also be performed as if the offer was accepted. These subjects/conditions are addressed with due diligence and removed prior to court date so that the Buyer can present a clean unconditional offer on the court date.
A mock offer is like a “secret” offer for the maximum price a Buyer would be willing to pay for the property. It is recommended that this price be somewhat higher than what a Buyer thinks their maximum might be (i.e. the price at which the Buyer would be disappointed not getting the property versus the price the Buyer thinks they are willing to pay for a property — usually the former is a little higher than the latter). Discuss this step with your me so that I can explain this further.
I like to meet with Buyers again shortly before the court date to review your options. My role is to remain informed about the general interest in the home from and help you strategize as wisely as possible regarding the property. It is wise to have several options ready for the court hearing based on the number of expected offers. If your offer is the initial accepted offer, be prepared to come in with an alternate (i.e. higher) offer if there are other offers.
The bottom line is to be assured the property meets your needs, know what price you are willing to pay given the risks, and to be cognizant of the price at which you will be disappointed not to get the property. Then, whether or not you get the property, you will know whether or not the property made sense for your needs at the price for which it sold. That way, even if you are not the winning bid, you can walk away feeling confident that you did not pay above your comfort level for that property.
FOR MORE INFORMATION:
For more information on foreclosures and court-ordered sales, buying and selling property in the Okanagan, or any other real estate questions contact:
Heidi Gross, REALTOR® CELL: 250-801-4276 EMAIL: firstname.lastname@example.org
Remember - no question is too small! If you would like me to email or mail you the complete package on court-ordered sales, please contact me.
***Disclaimer: This offering is not intended to be all encompassing or offer legal advice. It is intended to provide guidance only for interested parties.