So, you're surfing MLS and a listing catches your attention… it’s perfect! You get on the phone to contact you realtor, and find out soon after that the home is a foreclosure!
Purchasing a foreclosure property can sometimes be a great bargain, and sometimes not! Many potential buyers are unaware of the process and risks of buying such a property. To help, we have outline the 5 steps, and major risk factors to consider when choosing to buy a foreclosure.
Your Realtor will advise you that depending on the situation, it can sometimes be a challenge to view the property, particularly in situations where the current owner or occupant refuses to cooperate, however it is essential that you see what you’re buying!
Be certain you are happy with the property since it is purchased “as is, where is”. Unlike a typical property purchase, a foreclosed property may not be in the same condition it was in when you viewed it. You should also investigate the zoning and any applicable bylaws. Ensure you have financing in place, or are pre-approved for a mortgage.
Make an offer to the listing real estate agent. It is important to note that all offers must be free of any buyer’s subjects, and only “subject to court approval”. It is very important because once your offer is accepted by the lender you are contractually bound to purchase the property. Once an offer has been accepted by the lender, the lender’s lawyer will schedule a court date to present the offer to the court for approval. Ensure that the offer is the highest price you are comfortable paying as you may only have one chance for the court to review your offer.
A few days prior to the court hearing, the offer price will become public, and other potential buyers will have the opportunity to outbid the original offer on the court date. Additionally, other creditors and even the current owner(s) may attempt to contest the sale price if they believe the property has a higher value.
All offers must be presented in a sealed envelope containing a bank draft for the deposit. The court will usually award the purchase of the property to the highest offer. The original buyer should be present in court to submit a higher sealed bid if there are other potential buyers in attendance presenting offers. Once the court accepts an offer and approves of the sale, a court order is granted in the name of the successful bidder. The completion and possession date for the purchase is usually set for 14 days following the date of the court order.
The main risk of purchasing a foreclosure property, is that it is purchased on an “as is, where is” basis. Sometimes fixtures or appliances such as lights, faucets and cabinets may have been removed from the property or are damaged. The properties are also often left unclean with unwanted trash and items left behind.
An additional risk to consider when purchasing a foreclosed property is the former owner or occupants may not vacate the property in accordance with the court order. In this situation, the vendor is legally required to make an application to the court for a “writ of possession” and receive assistance from a court bailiff to evict and remove the occupants. This could lead to a delay in taking possession of the property.
Bearing all of this in mind, don’t shy away from considering foreclosed properties, because at the end of the day, you may end up with a home you love at a potentially discounted price. It is rare that an owner occupier will hinder the sale process since it is not in their best interest to do so. Understanding the process and potential risks of purchasing a foreclosed property will allow you to navigate a purchase with greater knowledge and confidence.
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