When you purchase a home with a mortgage, you also have to renew at the end of each mortgage term, which can really impact your finances if you end up refinancing your home at a much higher rate. If you end up no longer being able to make your payments for any reason, your home could end up going into foreclosure.
What does foreclosure mean exactly? Well, once you have missed so many payments, the bank tries to recoup some of its money. Since in a mortgage, your house is considered collateral on the loan, you will no longer have possession of the home, and it will be sold.
How Foreclosures Work
When your home begins to go into foreclosure, you cannot be evicted right away by the lender. There is a process that has to be followed before you receive your eviction notice. There are actually two different methods that the lender may use in a foreclosure situation.
Judicial Foreclosure
The judicial foreclosure process is longer than the other. The lender has to go to the judicial court in order to be granted ownership of the property or the ability to sell. When this happens, you no longer have any ownership over the property, and the lender is able to sell the property to recoup their profits.
Once the property has been sold, if the lender makes more than what is owed on the property, they are able to keep it, and the borrower loses out on that money. If there is still an amount owing after it has been sold, they can then sue you for the remaining amount.
Power of Sale
The power of sale process is the fastest of the two procedures. With this method, the lender is able to seize the property without involving the courts. They can do this once the property loan has been delinquent for 15 days. Keep in mind that they can start the process once one loan payment defaults.
The lender will notify you and give you the option to pay back the money. Once you default on two payments and from there you have 35 days to pay what you owe. If you can do that, then the foreclosure period ends. If the balance owing is not paid within the 35 days, then the sale will continue.
Once the property has been sold, the money will be used to pay off any outstanding balances, including interest, legal fees, and any other outstanding amounts that are owed. With this particular process, if the lender gets more for the foreclosure home than what you owe, then you will receive the difference. If they do not receive enough to cover what you owe, then they can sue you for the remaining amount.
Buying a Foreclosed Home
When it comes to foreclosures, lenders are looking to get their money back as fast as they can. For this reason, foreclosures are often listed below market value. Foreclosures are often a bit more complicated to sell,, so this helps make them more attractive to buyers.
The exact process of buying foreclosed homes depends on the province you are purchasing in. Essentially, though, you need to follow the same steps as a regular purchase; there are just a few more legalities involved.
Foreclosures in BC
In BC, the most commonly used method is judicial foreclosure. This means that once the Supreme Court has deemed the lender able to sell the property, they can then engage a real estate agent to list it.
Once an offer has been made on a property, the deal proceeds like any other real estate transaction until there are no more subjects on the foreclosed property. Once the deal has reached this stage, both the lender and the buyer need to go through the court’s approval process to finalize it.
This is where the process can get complicated. In a traditional property sale, once you reach this stage in negotiations, no one else would be able to purchase the property., With foreclosed properties, potential buyers are still able to bid.
In court, the listing agent can still collect any competing offers on the property. In some cases, the judge may still even offer the owner one last chance to pay up the mortgage and keep their home. If they can’t, the judge will go over all the offers on the home if there is more than one. The offer that is for the largest amount of money with no subjects will, in most situations, win the foreclosure property.
In B.C., the Supreme Court tries to protect homeowners as much as possible,, so foreclosed homes normally sell for no less than 20% below “fair market value”. That being said, this can still be a large savings and isn’t meant to dissuade you from purchasing foreclosure properties.
Foreclosures in Alberta
In Alberta, there are two ways to purchase foreclosed houses/properties. The first is to go through the entire judicial foreclosure process. With this process, the title is never transferred to the bank; it will go directly to the new owner if your bid is approved. If there is no judicial sale, the title will be transferred directly to the bank.
If the home doesn’t sell and the title is given to the bank, then the court’s approval is no longer needed to purchase the home. This eliminates the risk of being outbid by other buyers after your offer is accepted.
One thing to keep in mind about Alberta foreclosures is that they often proceed very quickly. Once the first payment is missed, the lender will contact the owner to make the payment. If that payment wasn’t made and then they miss another payment, they will then send a letter of demand to the owner.
If that goes unanswered and the fees are not paid, then the foreclosure process begins. Keep in mind, though, that foreclosure can result from more than just missed mortgage payments. It can also result from unpaid property taxes, unpaid rental or condo fees, and, in some cases, even damage to the property.
Foreclosures in Nova Scotia
In Nova Scotia, the foreclosure process itself normally follows a judicial foreclosure. The borrower was warned of impending foreclosure, but failed to make their payments. They will then be formally served and given 15 days to take action. If they fail to, do so, then the legal proceedings will begin, and the lender will apply for an order of foreclosure. Once the order of foreclosure is granted, the lender can then sell the property.
Buying a foreclosed property in Nova Scotia is done differently from traditional real estate transactions. This is done through public foreclosure auctions. Once the property has been scheduled for auction, it is listed twice in the newspaper, and a written notice is given to the owner. Because of this, the home should be empty by the auction date. The home will go to the highest bidder at the auction.
Once the home is sold and the lender receives the funds, they will determine whether it is sufficient to cover the costs owed to the previous owner,, as well as the legal fees. If it is, the extra amount is given to the courts for the original owner or any other debtors to claim. If it isn’t, the previous owner can be sued for that remaining amount.
Foreclosures in Ontario
In Ontario, the method most lenders prefer when a borrower defaults on their homebuyer mortgage contract is the power of sale. This is a shorter process and involves far fewer legal implications. Buying a power-of-sale property is just like buying a traditional property.
The only thing is that you purchase the property as-is; there are no improvements, and you are limited in your subjects. You should also keep in mind that power-of-sale transactions must be made at fair market value. This is because the homeowner is entitled to any profits outside of the amounts owing. This process avoids a court order, so it isn’t as cheap as a home that goes through judicial foreclosure.
With a foreclosure purchase in Ontario, you also still need to pay land transfer taxes. The only way not to pay those or get a refund is to be a first-time home buyer.
Foreclosures in Quebec
In Canada, the foreclosure Quebec rules are much different than the foreclosure Manitoba process, as well as all of the other provinces. Lenders in Quebec must serve a 60-day prior notice to the homeowner. If they can pay the arrears in that time period, then the process will stop.
If the arrears aren’t pay, then the lender will submit a petition for sale. This entire process will be overseen by the court.
Are Foreclosed Properties A Good Investment?
Purchasing a foreclosure in Canada is is different from purchasing a foreclosure in the US. Canadian banks generally sell these at fair market value instead of at a large discount, but they can still be a good investment.
That said, you could be looking at a 10%-15% discount on bank-owned homes, and the discount could be higher if the home is deemed a fixer-upper. If you’re handy with DIY projects, it can be extremely beneficial.
However, there are some downsides to consider with these properties. These include:
- The property has to be purchased as-is.
- A no-home-inspection contingency.
- Restrictions on viewings.
- Delays due to the court process.
How to find Foreclosure Listings in Canada
If you’re looking to purchase a foreclosure in Canada, there are a few different ways that you can do so, including:
- Checking with a real estate agent
- Filtering on for sale sites for Judicial Sales, Power of Sales, and Repossessions
- Looking at bank and government posts for foreclosure listings
Home Inspections for Forclosures
While getting a home inspection done is always recommended, it can be very difficult to get one done with a foreclosure. This is because there are strict timelines, access to the home is restricted, and they’re usually sold as-is at your own risk. However, this can make it difficult to obtain a preapproval letter, and specific insurances may be required, including title insurance.
How Financing Works for Forclosed Properties
When you’re financing a foreclosed property, how it works is going to be similar to a conventional mortgage. The bank will need an appraisal and a property title search to check for any liens,, but you may be required to put down a larger down payment than you think.
Since there is more risk for a lender with a foreclosure purchase, you can’t get CMHC insurance, which is also known as mortgage default insurance. For many, this won’t allow them to take advantage of some first-time homebuyer incentives. Plus, since you’ll likely have to get a renovation loan or home equity line as well, they want to make sure you can afford it.
Once the financing process is complete, there are other matters to consider to finalize the residential real estate contract. These include finalizing the court process, addressing title issues identified in the property lien search, and paying the land transfer tax and any other closing costs.
How Long a Foreclosure Sale Takes
When it comes to foreclosure sales in Canada, whether you’re selling a distressed property or not, the process can take anywhere from 6 to 12 months. The process starts on the day of the first missed payment and is listed in your purchase agreement conditions with the bank.
After you’ve missed too many payments and the bank has started the process, you’ll receive the Notice of Sale and be given an eviction timeline. Then the property will be listed for sale or put up for auction. Homes that go to auction aren’t sold based on their market value assessment, and usually end up in a bidding war. It’s important to keep in mind that purchasing a foreclosed home in Canada is conducted under court supervision.
Getting a Mortgage on a Fixer Upper
Whether you’re flipping houses or looking for an investment property mortgage, you can get significant savings by purchasing a bank repossession or short-sale property. However, you’re going to need a mortgage pre-qualification before you start the foreclosure auction process.
To do that, you’re going to have to navigate the legal proceedings involved with the process. You’re also going to get vacant home insurance, or prove that the home will be inhabited and not be vacant property risk. The property’s condition will be assessed through the home approval process. Still, it’s up to the buyer due diligence to check for structural issues and account for any fixer-upper renovation costs.
What Happens to Liens on Foreclosed Homes
If you’re looking into getting into distressed asset investing by purchasing foreclosed properties, it’s important that you know, as prospective buyers, what happens to the liens on those properties.
With most foreclosed homes, the outstanding debts of junior liens are typically wiped out. These include:
- Second mortgages
- Judgement liens
- Unpaid contractor debts
Senior liens, also known as property tax debt, are attached to the home, become the responsibility of the new homeowner, and do not have to be covered by the seller. The first mortgage is then covered by the sale of the home, which is why you can typically get foreclosed homes at a lower price.
What to Expect in Foreclosure Auctions
If you’re looking to find foreclosure properties at public auctions, the best place to look is at real estate listings online. These local listings are typically sold using standard offers that can turn into potential bidding wars. Since these listings are foreclosed homes, it can be difficult to get thorough inspections for necessary repairs. Walk-throughs are also difficult since the house is sold through the bank.
That said, even though it’s a quick sale, you can still do thorough research on the property. This can give you valuable insights to help you determine if you should expect hidden issues if you get the highest bid.
If you do get the highest bid, it will close like a normal sale. If you already have a pre-approval, this process will be faster than having to wait to be pre-approved. Depending on where you purchase, subjects may not even be allowed. After that, you’ll work closely with a real estate lawyer in order to get your paperwork in order by the closing date.
Tips for Bidding on a Foreclosed Property
Once you find foreclosed homes to purchase, it’s important that you line up everything before you bid. This is because these bids usually need to be submitted to the courthouse on the day of the hearing. The bank is looking to recoup its money as fast as possible since they have been losing money since pre-foreclosure. Having no subjects and being ready to take possession right away makes a big difference.
Purchasing a Home with Spring Financial
Are you looking for a mortgage to help finance a foreclosure, or really just to purchase a home? At Spring, we can help! Not only do we have access to some of the best rates, but we also have access to over 40 different lenders and banks. Contact us to speak with one of our licensed agents to get started today.
