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Foreclosures will now get renewed attention as families are pushed to their financial limits and mortgage delinquencies rise.

The number of mortgages up for renewal at significantly higher mortgage rates than their previous payments will hit a peak in the next 1 – 2 years.

There will be realtors with ‘foreclosure lists’. There will be sharks.

There will also be buyers trying to find ‘a great deal’ in the market.

The balance of risk/reward is understanding the adjusted price and associated risk for each individual property.

Who owns the foreclosed property?

When the title to the property is searched, who is the legal owner?

When a homeowner gets behind on their payments, the bank can take them to court to initiate a sale of the home to pay off the loan.

At this stage, any real estate listing would be a Judicial Listing. The title of the property remains in the name of the original homeowner, not the bank.

Alternatively, the bank can complete foreclosure proceedings where the bank becomes owner on title and then sells the vacant property. This is a Foreclosure listing.

All listing and purchase contracts are dramatically altered on Judicial and Foreclosure Listings. Risks for Buyers for Any Foreclosure.

Real Property Reports Not Provided

In Alberta, a property requires a valid real property report (RPR) often with a City Compliance Stamp to transfer ownership. The RPR requirement is usually struck in these purchases.

A real property report typically shows:

Locations of buildings, garages, structures
Locations of right of ways and encroachments
Compliance with municipal bylaws and codes

People make assumptions when they view a home or walk a property. When they see a fence, they assume a property line. When they see a structure, they assume it is permitted to be there.

Buying a home without a RPR means the buyer may not know the true property boundaries, or if structures were built without permits, across boundaries or setbacks and right-a-ways. The buyer bears the cost of resolving these issues. The Alberta Land Surveyors Association provides information and resources regarding RPRs.

Changes to the Standard Contract

As mentioned, the purchase documents are dramatically altered for these purchases. Understand what is added and removed.

There are also often additional documents such as a ‘Schedule A’ or ‘Schedule B’ which add additional detail to changes to the standard purchase contracts. You may wish to review the contract with your real estate lawyer.

Financing Challenges

Some lenders will not finance a mortgage on a foreclosure property and/or a judicial listing. If you have a mortgage pre-approval, it is irrelevant in this case. Discuss this specific purchase with your lender before putting forth an offer without a financing condition. Lenders may require higher down payments and only offer higher interest rates or different terms for these listings.

 

Disclosures

All disclosure requirements are typically removed from the purchase contract. The seller or bank does not need to disclose any material latent defects or stigmas to the buyer. They do not have to disclose if the property was a former grow-operation, had a health caveat, or other previous issues.

 

Property Condition

Property Inspections may or may not be accepted as a condition of purchase. If you can inspect, complete all available inspections including a permit review.

Appliances are often not included in the sale so they may be on property at the time of viewing but may or may not be there on possession day.

Some larger appliances such as furnaces, alarms, solar panels and other major components may be rented rather than owned.

The property is usually sold with an ‘As-Is/Where-Is’ clause. The buyer receives the property in whatever condition it is in on Possession Day without any recourse for issues that exist.

Permits

Any permit or lack-of-permit issues become the buyer’s full responsibility.

Higher Insurance Costs

Insurance costs for a foreclosure may be higher than a standard home purchase and may require inspections to be completed by the buyer as a condition of insurance.

Condo documents Not Provided

A Condo Documents Review condition may not be accepted as a condition of purchase.

The seller or bank does not need to provide any condo documents as typical in a regular purchase. There is no obligation by the seller to disclose upcoming special assessments. It is up to the buyer to obtain these documents.

Title Issues and Hidden Costs

A title search may uncover additional financial challenges such as outstanding liens, claims, or other legal issues against the property.

A buyer may incur additional hidden costs such as court fees, legal expenses or expenses to resolve outstanding taxes or liens.

Some major items such as furnaces, hot water tanks, security systems, solar panels or other systems may be rented rather than purchased. It is up to the buyer to research these items.

Additional Risks to Purchase for Judicial Listings

Limited Viewing

Homeowners under the pressure of foreclosure are often not very open to home viewings. Homeowners may deny access until court ordered and even then make viewings difficult, limited or challenging.

 

Loan Buy Back

The bank may allow the previous homeowner time to pay back their loan before the property is transferred. In this case, the homeowner could pay back their loan and keep their home. Details around redemption, legal proceedings and timing vary by jurisdiction.

There is risk here for the buyer that the sale will not be completed.

Ongoing Occupancy

When a property is sold as a judicial listing, the court then gives the previous homeowners a set amount of time to vacate the property before the new owner takes possession.

The ongoing occupancy can result in additional challenges.

There may have been damage, minor or major, caused by the ongoing occupancy prior to possession day. Due to the As-Is/Where-Is clause discussed above, all costs may become the buyer’s responsibility with limited legal recourse.

Offers

There is a set process for how legal proceedings occur and vary by area. Speak to your real estate lawyer for details on the types of proceedings, timing and deadlines for your specific situation.

Offers presented to the bank may take time to get a response and with limited negotiation. Once an offer is received only then may a court date be set.

Generally offers are reviewed by the court on a court appointed day so you may have to submit an offer, but then wait until the court hears the case to know if the offer was accepted. Depending on timing and the type of offer submitted, the buyer may not be able to offer on another property during this time.

Proceedings are public and presented offers become public record.

Additional offers or bidding can and often occur in court. Attendance is recommended.

How to Mitigate the Risk of Buying a Foreclosure

Understanding the risks will help you make informed decisions and ask questions to protect yourself and better understand the value of the property.

  • Research the property through all available means including permit searches and any municipal records available
  • Review the Historical Property Title
  • Review the property sale history and any historical information
  • Complete the inspections
  • Buy and review the condo documents
  • Talk to the neighbours
  • If you see structures, fences or other improvements, do the research regarding their locations and construction against community standards.
  • Discuss insurance options with your Insurance Company
  • Discuss a mortgage on the specific property with your lender
  • Talk to a Real Estate Lawyer before putting in an unconditional offer.
  • Buy Title Insurance
  • Verify responsibility and payment for previous utility costs
  • Verify there are no ‘rented’ appliances on the property that may have outstanding contracts.

At the end of the day, a Judicial Sale/Foreclosure listing has pros and cons and each buyer needs to decide if the price is worth the risk.

It is up to the buyer to understand the real estate purchase process, the specific issues regarding judicial sales/foreclosures and the legal proceedings.

Engage the advice of a real estate lawyer and a realtor with specific knowledge of judicial sales and foreclosures.

May you always find your way home.