Foreclosures by Mpeake
Reading the news about the U.S. real estate market, you might come across a number of appealing ads that offer undervalued properties in attractive locations. The phenomenon behind these promising prospects of a quick and easy way to find a home is called foreclosure. But is this kind of investing in your new home really the best option? Let’s have a look at how the system works in Canada and the pros and cons of pursuing foreclosures in Vancouver.
What is a Foreclosure?
Foreclosure is a process by which a home becomes the absolute property of the lending institution because of its owner’s failure to catch up on his or her mortgage payments over the period of three months. This is called distress, which in the majority of cases leads to foreclosure. The process is usually started by the lender, who issues a notice of the missed payment to the borrower. It’s very difficult for the latter to reverse the situation and keep his or her home since the growing number of legal fees and interest charges require a large sum of money that has to be obtained within a short amount of time.
When the foreclosure process is over, the lender can sell the property and use the proceeds to pay off the mortgage and any accumulated legal costs. Moreover, the mortgagee is authorized to demand the remainder if the amount of money obtained from the sale is not enough to pay the existing balance of principal and fees.
Once the home has been repossessed by the lender, the potential buyers appear on the scene, prepared to find a good deal in the foreclosure market.
Two types of Foreclosures in Canada
There are two main ways in which the foreclosure process can occur in Canada:
- Foreclosure by judicial sale – This is the sale of the mortgaged property under the supervision of a court. In this case, the property is sold to recover the money owed instead of allowing the homeowner to sell privately and settle the debt. In other words, the lender initiates foreclosure by filing a lawsuit against the borrower.
- Foreclosure by power of sale – This involves the sale of the mortgaged property by the mortgage holder not through the supervision of a court. This process is generally much faster and cheaper than foreclosure by judicial sale.
Facts to consider before Foreclosure investment
Vancouver House by Logan S
The reason why pursuing a foreclosure carries a certain risk is that the seller of the foreclosed home is not its owner and the bank who originally issued the mortgage is. If you want to avoid some unpleasant surprises after the purchase of your home, you should definitely know about the risks and drawbacks of investing in foreclosures:
- There’s no warranty on the property; the home is sold with no cause for recourse if it has defects. In other words, you have no options to make a complaint if anything goes wrong when you move in. An inspection is always recommended for power-of-sale properties.
- The offer might need to be left open for acceptance for a longer time. You have to be prepared to wait since the whole process involves many steps that need to be taken before the actual purchase.
- There may be less flexibility in terms of negotiating price and other important points because the bank is not acting alone.
In spite of the growing number of ads that offer foreclosed properties at ultra-low prices, you should set realistic goals to avoid disappointment. The truth is that the lender has an obligation to sell the property for its “fair value.” If he or she fails to do so, the owner of the property can sue the lender, so there’s double the reason to demand a fair price for the home. The reasonable value of the property is usually determined by a professional appraisal.
Buying a foreclosed house has its specific features and it’s considerably different from a typical purchase, so I always recommend seeking professional advice. With several years of experience in real estate, I would like to provide you with the important details of buying a foreclosed home and recommend a professional for settling the legal issues so that you’ll be prepared when the time comes to make your purchase.