Unfortunately, and often due to a series of unfortunate events, some owners find themselves unable to afford their home and in some cases being forced to sell at a loss. There are a number of different ways for this to occur:
A. Short Sale with Seller Bringing in Cash to Complete
This type of transaction occurs when the proceeds of sale are insufficient to pay the mortgage, commission and fees associated with the property and the Seller is able to access other financial resources to complete the transaction by depositing the shortfall in trust with their lawyer to complete the transaction.
Of all the options for a distressed sale, this options makes the best of a bad situation, there is no foreclosure proceeding and no judgements registered against title or the seller.
B. Short Sale with the Bank Accepting Shortfall of Net Proceeds
Where the Seller is unable to make up the difference on Closing between the net sale proceeds and the mortgage payout and the Seller is in default of their obligations to the Lender, most Lenders will grant of discharge of the mortgage registered on title in exchange for net sale proceeds (less agreed adjustments) in exchange for a consent to personal judgement against the Seller and a reasonable payment plan for the balance.
The option avoids a formal foreclosure proceeding (and it is the Seller that accepts a Buyers offer “subject to being able to clear title”), but Seller agrees to a debt judgement against them and they will continue to have to pay the balance remaining after the sale to the Lender. Often when a mortgage default has proceed to this stage, there is a certificate of pending litigation on title.
C. Court Ordered Sale
As the Bank has proceeded with the foreclosure, at this stage the ability to sell the property is now subject to Court Approval. A Buyer’s offer will be subject to Court Approval and other buyers may appear in Court to bid on the property. The Seller is not involved in this transaction and registration in the Land Title Office takes place by filing of a certified copy of the court order granting the property to the Buyer (on payment of the purchase price) [Important: ensure Buyers names are correct on the Court Order!].
D. Lender Owned Property
If the property has proceeded through the entire foreclosure without an offer, the Lender may seek an “Order Absolute” and the Lender will assume ownership of the Property. In this case the Lender is the Seller (as they are the Seller on title) and the transaction proceeds very similarly to a normal real estate transaction (except that Lenders are often very reluctant to provide Property Disclosure Statements).
Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Montgomery Miles & Stone Law Firm.