As real estate agents here in Calgary we get daily request from buyers that are seeking foreclosure homes that are for sale in Calgary & surrounding areas. These buyers seem to believe that they can get a great deal on bank owned properties just like buyers and investors in the US are picking them up for cheap. Canadians need to understand that our housing market and banking system is completely different than our neighbours to the south.
First of all What is a FORECLOSURE?
Foreclosure is the legal right of a bank or lending holding a lien on the property to gain ownership and control or the right to sell the property and use the proceeds from the sale to pay off the mortgage that is in default along with legal fees, commissions, court costs, property taxes, etc. This process is different in US because in Canada the laws are different.
In Canada, there are two main methods that a lender can use to gain ownership or control over the property where the loan is registered on title is in default. The first one is the bank or lender taking title to the property and then selling it. The other allows the lender to get a court order to sell the property without having title.
It is true that both the banks in Canada and the US would want their non-performing loans off their books so they can lend that moeny to other borrowers to earn interest on performing mortgages.
In Canada, a bank or lender must protect the property owners equity. The bank must attempt to obtain fair market value of the property in the current market. This is where the major difference lies between Canadian foreclosures and foreclosures in the US. Whichever way the bank goes about selling the property or what the outstanding mortgage is that is in default, under the Canadian Securities Act, a bank is mandated to achieve FAIR MARKET VALUE for the property. So buying a Canadian property through the bank's back door at a huge discount is unheard of in Canada. It does happen in the US and we see it all the time on Real Estate TV Shows from the US.
So how does this process work in Canada?
Typically the bank will be in communication with the borrower if a mortgage payment has been misses. If after 30 days, the bank still does not receive the mortgage payment, the banks lawyer will then send a demand letter stating that they require the borrower to pay off the entire mortgage balance since the borrower is in default and has not made a payment. If the mortgage is not paid off immediately, the bank will then start the foreclosure process. The property owner then has a redemption period of typically up to 6 months where they can either refinance the property to payoff the outstanding mortgage, interest and legal fees. Once the initial redemption period is over the property owner or any other loan holder with a registerd lien on title may request an extension of the redemption period of up to an additional 6 months. If the property owner has very little or NO EQUITY, this period will not be extended and the bank takes control of the property either through a Final Order (becomes the owner of the property) or by Conduct of Sale ( takes control of the property sale)
When the bank has control over the property, they will hire a local agent to conduct a Comparative Market Analysis of the property as well as obtaining an independant appraisal. The bank or the lawyer representing the bank will often use the appraisl to set the asking price of the property or set the list price very close to it.
The bank is mandated to get fair market value for the property and they must prove this in court that the property was property marketed and seen by as many potential buyers as possible to achieve a final accepted offer. The bank can't accept an offer that is substantially lower than the asking price, especially if it has only been on the market for a short period of time, as there is not enough proof that the bank attempted to obtain fair market value for the property. If there is very little traffic or interest in the property, the bank will usually adjust their asking price every 30 days as the real estate agent will conduct a Comparative Market Analysis every 30 days to the bank or the lawyer handling the sale. Unlike many typical property sellers, the Banks will contine to lower their asking price until they get an offer. Depending on whether the bank is the tile holder of the property ot if they are conducting the sale through a court order, the offer may require court approval to be accepted. If the bank has title of the property, then no court approval is require and once the offer is accepted and the buyers condtions are lifted, the sale is Final.
If a bank has the title of the property and if they use a lawyer to represent them in the sale, the lawyer will usually have about a 10% flexibility in their asking price without having to go to the bank for approval. Usually when a buyer makes on offer on a Bank owned property, a Schedule A usually forms part of the purchase contract. This document basically protects the bank and the buyer acknowledges that they are purchasing a property "AS IS WHER IS, WITH NO WARRANTY OR REPRESENTATION" No Real Property Report will be provided by the Bank so if there are any encroachments or issues with the land survey of the property, the buyer will then take full responsibility of these. No Chattels or appliances are included, if they are left on the property, who knows if they work or will work.
I have personally sold Bank Owned properties where we have had people lined up down the drive way to view the property and with competing offers selling for $25,000 over list price. Now the buyer paying that price, could have gone up the street and bought a well cared for home where they do have a seller who has taken good care of their property.
So Buying a Canadian Foreclosure Property at bargain prices or at 50 cents on the dollar simply DOES NOT HAPPEN.
If you are facing FORECLOSURE see our usefull links at the bottom. If you need to sell
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