FORECLOSURES & COURT-ORDERED SALES - Part I

 

FORECLOSURES & COURT-ORDERED SALES IN BC:

WHAT TO EXPECT

BY: HEIDI GROSS, REALTOR®

Cell: 250-801-4276    EMAIL: heidi.gross@century21.ca

 

WHAT IS A COURT-ORDERED SALE?

WHAT IS THE DIFFERENCE BETWEEN A COURT-ORDERED SALE AND A FORECLOSURE?

"Court-ordered sale" means that the sale of a property is in essence imposed upon the owners of the property by the legal system and courts. Bankruptcy and/or foreclosure  by a lender are probably the most common reasons for a court-ordered sale, but court-ordered sales might also arise in other situations. For example, a court-ordered sale might be necessary in a divorce situation where one partner wants or needs to sell and the other partner is not in agreement or unreasonably cooperative. At times court-ordered sales can arise when there is confusion or a dispute about how to settle an estate. Regardless of the impetus for the sale of a property, the bottom line is that the judicial system has determined that the sale of the property is required and  the process needs to be supervised by the court system and a judge.

GENERAL INFORMATION

In Canada, court-ordered sales, like bankruptcies, fall under the jurisdiction of the provincial government. Thus, while there are governing principles in place, each province has its own system for managing these sales within those governing principles. In British Columbia, these sales are handled generally in the courts, typically the Supreme Court of British Columbia.

The premise behind the system for court-ordered sales is that even though the sale is required, previous owners are still entitled to getting fair market valuator their property. The system in BC is designed to minimize "fire sales" and aimed at soliciting the best possible price for the Seller.  The onus is on the courts to ensure that the property sells as close to full market value as possible. The property is usually listed on MLS and given full market exposure just like any other property that is for sale on MLS. With a court-ordered sale though, the sale of a property is typically finalized with a court-hearing and a formal court ruling of a judge sets out who the Buyer will be.

 

VERY IMPORTANT INFORMATION !!! -- It  is a myth that foreclosures are good deals.

While it is true that sometimes there are “good” deals to be made, that is not always the case. There are two main reasons that court-ordered sales are not always the best bargain:

           1. Bidding Procedures in BC are in essence a blind auction.

           2. There are inherent risks involved in purchasing a court-ordered sale. 

 

BIDDING PROCEDURES & THE "BLIND-AUCTION" PROCESS

Court-ordered sales in BC are, in essence, blind auctions. Unless there is only one offer, the sale is comparable to a blind auction, a bidding procedure where Buyers compete against unknown offers. The goal for interested Buyers is to outbid other Buyers yet not overpay for the property. At the same time, the Seller is under no obligation to make any guarantees about the condition of the property at the time of sale. Therefore, in order to become the purchaser of such a property, a Buyer might have to pay market value while simultaneously taking on the risk of an unknown condition of the property on possession (and no recourse). Generally speaking, because they have done their due diligence and examined the possibilities and risk associated with a property, despite the challenges of going through a court-ordered, Buyers are satisfied with the outcome.

 

WHAT ARE SOME OF THE  RISKS OF PURCHASING A COURT-ORDERED SALE? WHAT PRECAUTIONS ARE IMPORTANT?

"AS IS WHERE IS"

Foreclosures can be great opportunities for buyers but can also pose significant risk. It is important to go in with eyes wide open as foreclosures are sold “as is where is” on possession day. Additionally, there is no recourse for a buyer if the property is the property is not in good shape on possession day.  I have also seen foreclosures that on possession date, holes were punched in walls, appliances replaced with damaged appliances, appliances removed all together, and so on. On the other hand, I have also been involved in a foreclosure where on possession date, the previous owners left a behind a home in pristine condition and left all their high-end furniture behind. Just remember that anything is possible and there is no recourse for the Buyer if the condition is less than ideal or less than expected.

QUICK COMPLETION 

The winning bid, that is the approved "Buyer" must be prepared for a quick completion. All monies for the property must be available as quickly as ten days after court approval. The judge sets the completion date. The Buyer cannot negotiate an alternate date. If the funds are not available, the Buyer is can be charged with breach of contract.

COMPLETION NOT GUARANTEED -- but only for a few days!

There is another risk involving completion. While the Buyer is required to have the funds available and move ahead with steps such as engaging a lawyer to complete the purchase, the original owners generally retain the right to "buy back" the property prior to completion. That is, original owners will most likely to allowed to keep the property prior if they can come up with the necessary funds between the court date and completion date. For example, let's say the owner wins the lottery or, a family member or friend taking pity on them suddenly gifts enough money to pay the owners to pay off the debt. In these cases, the sale may become null and void without any further recourse for the Buyer. This is an unlikely, yet a possible, event.  Fortunately, completion is usually in a short period of time, as early as 10 days after the court hearing, so the "winner" of the court-ordered sale will not be in limbo long. Moreover, upon completion, this risk no longer exists. 

TENANTED PROPERTIES 

The Landlord and Tenancy Act of BC does not apply to court-ordered sales. This means that if a property is tenanted, the tenants do not require the "normal" notice to vacate the property. This can be either good news or bad news, depending on the Buyer's needs.

What is the tenant refuses to leave the property when it is time to do so?

Most times, general procedures for such an event are attached to the Schedule A which become part of the offer. Each Schedule A is different and unique to each property. Your real estate agent should provide you with a copy of the Schedule A for the property that interests you. Your REALTOR® will also be able to help you understand the general terms. It is important to have an agent experienced in foreclosures helping you through this complex process.  At the same time, remember that your agent is not a lawyer -- AND it is of the utmost importance that potential Buyers review the legal language of the Schedule A in detail with their own legal council. Lawyers write Schedule A's and lawyers are highly trained to interpret legal language accurately. Buyers need to understand clearly from the legal experts what the Schedule A outlines regarding dealing with tenants. (NOTE: The Schedule A also addresses other contractual obligations and idiosyncrasies that Buyers are strongly advised to review with their lawyers.)

What if the Buyer feels sorry for the tenants and is ok with them staying longer?  

Because the process of even getting a court-order to sell a property is generally months long, and the process for selling is several more months long, tenants are usually well aware that they must be prepared to vacate the property within a few days of the court date. I have not yet come across an uninformed tenant. If the tenant remains and the Buyer (i.e. the new owner now) does not make efforts to remove the tenant as per Schedule A, the Buyer might be in a bind. Even without a written contract between the tenant and the new owner, the BC Landlord and Tenancy Act may rule that a new tenancy has now been formed.While it may be desirable and advantageous for the Buyers to have the tenants remain, it might be exceptionally difficult to remove them at a future date. Again, the onus is on the Buyer to ensure that they review the legal implications of such actions with their lawyer and the government so that an informed decision is made. Remember -- "normal" tenancy laws do not apply to court-ordered sales.

OTHER RISKS

I have attempted to touch on some of the more common risks associated with court-ordered sales. My purpose is not to be a doom-sayer, but to enable my clients to go into the process with their eyes wide open.

THE BEST SURPRISE IS NO SURPRISE

My philosophy in business is that, "The best surprise is no surprise."  Even when caution is exercised, surprises can still arise, but my goal is to help you avoid unnecessary surprises.  I take the task of minimizing surprises for my clients very serious, and as much as is reasonably and foreseeable possible, I seek to prepare you for various outcomes in a foreclosure so that whenever possible, my clients are not surprised with an unforeseen event.

KNOWLEDGE IS POWER

Knowledge gives people power to make informed decisions. In court-ordered sales, I help my clients unearth as much information about the property and related factors, so that they, the client, can make knowledgable, informed  decisions about whether or not buying that foreclosure makes sense. My job is to be your guide in unearthing information, your strategist for navigating through the wealth of real estate and expert negotiator. 

 

COMING SOON -- VERY SOON -- VERY, VERY SOON............ 

            PART II - STEPS TO BUYING A COURT-ORDERED SALE

 

Coming soon: PART II - STEPS TO BUYING A COURT-ORDERED SALE

Even with the blind bidding process and the risks, purchasing a property under a court-ordered sale might 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.  

It takes much preparation and digging for information to prepare placing offer on a court-ordered sale. Information is often limited or there are barriers to access. Your agent's knowledge and experience is important. Additionally, because information on a fore-closed property is limited or not always accessible, a great agent will also be creative in helping potential Buyers unearth as much information as possible about a property given the constraints. A great agent will also have created connections that give their clients greater access to human and archival resources on properties. The best agents are also familiar with steps involved in purchasing a court-ordered sale.

Watch for my next blog: PART II - STEPS TO BUYING A COURT-ORDERED SALE

         ....... MORE TO COME VERY, very SOON in my next blog......

 

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: heidi.gross@century21.ca

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 as above.

 

***Disclaimer: This offering is not intended to be all encompassing or offer legal advice. It is intended to provide guidance only for interested parties.

 

THIS DOCUMENT IS COPYRIGHTED AND NOT AVAILABLE FOR DISTRIBUTION BY OTHER AGENTS, REALTORS,

OR PERSONS INVOLVED IN THE SALE OF REAL PROPERTY WITHOUT WRITTEN CONSENT OF AUTHOR. 

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Heidi Gross

Heidi Gross

REALTOR®
CENTURY 21 Assurance Realty Ltd.
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