This page covers the buying process after a foreclosure listing is posted. It provides a general description of a typical bank foreclosures purchase process and the steps you will be involved in when buying. To see the process from an owner's view, click on Foreclosure Process. There you will also see a Foreclosure Process Map.
For most foreclosures the borrower (owner) still owns the property and appears on title, however, the bank is the seller, by way of a court order sale. Once the seller (bank) has obtained a court order to sale and the redemption period has been satisfied (the period of time allowed the owner to reconcile the situation), then the property can be listed with a Realtor. The listing is a standard listing and it may or may not publicly state it is a foreclosure or court ordered sale in the description. The listing may also be flagged as a foreclosure, which is how our system identifies it and automatically sends it to you. Some listings are not flagged and therefore are not automatically sent to you. Sometimes the seller (bank) or the owner prefer to not have the listing flagged as a foreclosure. From the public view, it is not always obvious in the listing that a property is in foreclosure.
As the courts need to approve the sale and try to protect the owner’s interest, the seller (bank) is required to justify to the courts the price they have accepted. This usually starts with an appraisal and the home initially having a listing price a little above the appraised value. Over time, if acceptable offers are not received, the bank may lower the price, using the lack of offers as justification for this. Occasionally, if the lender is unsuccessful selling the property, and if the mortgage is insured with someone like Genworth or CMHC, the lender will turn the listing over to the mortgage insurer, which will generate a new listing with a new seller.
To determine if the foreclosure property is good value, we will need to view it to access its overall condition, and do some research. I like to look at the listing history of the home, look at what comparable homes sold for, and do a cost-per-sq-ft analysis. It can’t be assumed that because a property is in foreclosure it is a good deal. Even if it is determined to be a good deal, we must determine the maximum price you could pay that would still ensure it is a good deal, in case you have competing offers in court.
Here is where being patient can be important, but can also work against you. Over time, if an acceptable offer is not received, the property price will likely come down. However, many people are conceivably also watching the listing and if the price gets too low, it can generate more competition on the court date. It is not uncommon to see a final sale price that is higher than the lowest listed price. In 2016, this happened 65% of the time.
The first offer, sometimes called the triggering offer, is a standard offer to purchase with some modifications. The buyer can have the normal subject to clauses for financing, inspections, insurance, etc. Most banks attach a Schedule A that modifies the contract; these modifications usual identify that the purchase is “as is, where is” and limits the seller’s representations and warranties on the property, as well as their liability, and states that it is subject to court approval. A property disclosure statement is usually not provided as the seller does not know the property and will not attest to anything about its condition. Also, in the Schedule A and through the offer, the seller (bank) will not commit to any appliances being in the home, or to their condition if they are. The bank only has the right to sell the property, appliances are possessions that the owner has the right to take if they wish. As with all purchases, care needs to be taken to check the property condition carefully. Sometimes a Schedule C is included whereby you attest that you are not an employee of the seller (bank).
Once all subjects are removed the seller (bank) will apply for court approval and a court date. A location will be set up, usually in two to four weeks, and usually in the local court, though it can sometimes be in a larger centre such as Nanaimo. Once the court date is set, the realtor can publicly release the court date and location as well as the amount of the triggering offer. Often the listing Realtor keeps track of all Realtors who have shown the property and notifies them of the details. Sometimes the Realtor will also change the listing price to the offered price, if it is lower, and post the court date on the listing so that it will trigger a notification in buyer’s searches. It is the listing Realtor’s job to generate as much interest as possible.
On the court date, other buyers can present competing offers. These offers must be unconditional (no subject to clauses) and be accompanied with a secure deposit, often $5,000, or as stipulated in the Schedule A. Those competing on the court date must do their due diligence (inspections, insurance, etc.) prior to the court date and ensure financing is in order, as the offer must be unconditional for the buyer.
If there are competing offers, the standard practice is to have them submitted in a sealed envelopes. The buyer with the triggering offer can also submit a new offer if they choose to. The courts have discretion on the process and it can vary; usually the highest offer is approved, but the court may have reasons for accepting another offer. For example, the court may show favour to the buyer who put in the triggering offer, especially if their offer is not much lower than the highest offer. After an offer is accepted by the court, the possession date may be as stipulated in the Schedule A, such as 10 days following court approval or longer if the home is occupied, or the court may set this date.
Occasionally the borrower/owner or tenant is present on the court date and may have requests that the court has the discretion to consider.
“As is, where is”, as defined in the bank’s Schedule A attached to the contract, essentially means that the condition of the property when you take possession is the condition you must accept. Further, it means that the seller makes no claims on its condition (good or bad). It is important to note, that when you receive possession it may be in different condition then when you viewed it, and the bank assumes no responsibility for how or when it came to be in that condition. Although rare, it is possible that occupants (owner or tenants), may cause damage before they leave, and may not do much in the way of cleaning. Also, anything that is left (debris or otherwise) will be your responsibility to remove, and if items, such as appliances or fixtures, have been removed, you do not have any recourse against the bank.
While my home is in the Comox Valley, which includes Comox, Courtenay Cumberland, down to Fanny Bay and up to Oyster River, I do also work in Campbell River, Parksville/Qualicum, Nanaimo and beyond. Our Real Estate board covers the Island from the Malahat north and we have the ability to search for foreclosure listings. Buying foreclosures is a different process with some unique risks. Please see Is it for me to consider these differences. If you'd like a search set up for foreclosures or regular listings, or to view foreclosure listings, please see Searches.
I find this mortgage calculator to be good (scroll down and click on "Calculators"). It provides all the payment options as well explains what they are, such as accelerated biweekly. It is provided by Sher Droski, Bayfield Mortgage Professional.
Taxes became more complicated in 2016. In addition to the first time home buyer rebate for Property Transfer Tax (PTT) and the GST rebate two new taxes were added last year including a PTT rebate for newly constructed homes and the 15% additional PTT for foreign buyers of properties in the Vancouver region. BCREA has a tax calculator that should help sort things out for you (click on "here" at the bottom of the page). If not, please do contact me and I'll help.