Foreclosures and Court Ordered Sales

I can almost tell the day when the local market started to fall - I used to wake up to a computer screen full of e-mail inquiries on local Real Estate, my pager, voice mail and cell phone rang constantly on a daily basis.  In January of 2008 there were only 7 houses on the market in Rossland (it showed up as 10 but 3 of those had accepted offers).  If you were looking to sell, that would have been the ideal time to do so. 

When people ask me if I'm busy, I tend to compare to that time (which wasn't sustainable for the market or for my sanity).  Things ticked along at a steady clip until one day in May of 2008 I woke up to no e-mail!!  My pager was quiet, my cell phone was quiet too.  It was weird!!  I sent myself e-mail to see if it worked, I called my cell phone to see if it worked.  If I had been smart, I would have realized that since Real Estate is a leading indicator of the health of the economy, that I needed to pull my RRSP's out of the stock market RIGHT THEN!!  But of course I didn't....  Everyone lost money then (well everyone except my friend Rick who has an uncanny ability to sense a downturn - he sold all his stocks a few days before 9/11 too!!).  If you had money in the stock market, you lost and if you held Real Estate, you lost value.

Locally, other than the shift in the supply vs demand which impacted our prices, people were not forced to sell right away.  Over the past few years, when the values in the once booming Real Estate market fell significantly due to the Global Financial Crisis, many people found themselves "upside down with their mortgages" where the amount owing was greater than the value of ther property.  There were two main scenarios where this happened - purchasing a property at the height of the market or having refinanced a property in order to do a reno, take advantage of low interest rates or buy toys (more on that in another blog post).  As those mortgages come up for renewal though and with tougher mortgage rules some people may find themselves with difficult decisions to make.  When it no longer makes sense to pay the mortgage on a property now worth significantly less than the amount owed, the property can end up in foreclosure and become a court ordered sale.

In Florida and Arizona, there have been an astronomical number of court ordered sales.  In our local area, we are buffered from global influences to some degree by the strong local economy (new hires at Teck and the Waneta Dam expansion).  Nevertheless, there have been several court ordered sales on a wide range of properties from condos at Red Mountain, homes on acreages at Black Jack Cross Country to single family homes in Rossland, Warfield, Trail and Castlegar. 

Although it is difficult to do, sometimes it just makes financial sense to walk away from a home and let the bank have it - if you are a buyer, there are deals to be had.

The following is an overview of what is involved in purchasing a property that is a court-ordered sale:

 You decide that you want to place an offer on a property that is a court ordered sale and now court procedures must be considered. So here’s how it works:

  • First your offer is drafted by your Realtor ® and 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 can be anywhere from 2 weeks to a month 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 Registry 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) 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) Your Realtor will be able to provide you with 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. As with any property purchase it is in your best interest to be well informed about the local market. 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!