Understanding The Ins & Outs Of Foreclosure/Judicial Sales
Often when we get calls from clients wanting information on buying a foreclosure, the background information they have is out of the US. In Canada, each province has its own set of rules and procedures and understanding how the process works in Alberta will help you decide whether the risk is worth the reward.
What Is The Difference Between A Foreclosure And A Judicial Sale?
There aren’t big differences in the end result of these two processes, but a Judicial Sale is a bit of a strange duck to be perfectly honest. In the case of a foreclosure, you are buying the property from the lender who has obtained title. In a Judicial Sale, technically, the original owner still has title but now the Court has imposed a sale process to secure a final sale that can compensate the lender whose mortgage is in arrears. The key point in a Judicial Sale is that right up to the last hour, the Owner has the right to do what is called “redeem” the mortgage – to bring in all the arrears and costs, etc. and if they do that the whole foreclosure process is halted. Any offers are put aside, and we are back at square #1.
The Risks Of Foreclosure Properties
When clients consider purchasing a foreclosure property they receive a draft offer from the Listing Realtor that looks very different. There are large parts of the standard contract crossed out because either the Court or the lender will not give the standard warranties that a Seller has to give – that is because they have never truly owned or resided at the Property – they are simply there to facilitate the foreclosure process. That means there are risks for you as a Buyer which include:
1. You must conduct your own due diligence and be thorough about it;
2. The Property might have serious compliance issues
3. There might be serious hidden defects in the Property;
4. There may have been criminal activities in the Property that render it uninhabitable;
5. The appliances may not operate or even be in the Property;
6. The Owner may have sabotaged the Property on purpose;
7. There may not be permits in place for development;
8. The Property may be further damaged between the time of your Offer and the closing; and
9. The endless list of other potential issues.
Can You Avoid the Risks?
As a Buyer you are very limited in your ability to avoid all of the risks of a foreclosure, but you can certainly minimize them. Amongst the things you can do include:
1. Reviewing the title with your lawyer;
2. Complete as many inspections as you can or are permitted;
3. Confirm whether the owner is still in possession or is the property tenanted;
4. Contact the City to determine if there have been any permits applied for and whether they are completed;
5. On closing, ask your lawyer to obtain title insurance for you;
6. Make sure your Realtor is well aware of the foreclosure process;
7. Employ legal help sooner than later; and
8. Don’t assume you have any protections whatsoever. This is a dangerous pitfall that can cause your nothing but harm
Understanding the Ins and Outs of buying a foreclosure/Judicial Sales is where we can step in and help you out. Don’t hesitate to contact us for assistance and advice. Understanding your risks right at the start can make this an option for purchasing that you wouldn’t consider otherwise. Call us at 403 245 3500 or email us at [email protected]