Foreclosures

The roller coaster real estate market has brought with it many “non-traditional” deals for Realtors. Foreclosures have become more common (about 6% of LISTED properties in the OMREB, and much less common than in the United States) many Realtors have asked questions on how to sell these distressed properties.

The first sign that a property may be in foreclosure (aside from the lawn sign!) is that a Certificate of Pending Litigation may appear on title.

The Steps in a Foreclosure action in British Columbia are as follows:
1. Default
2. Demand for Payment
3. Filing of Petition
4. Order Nisi (final order, usually with time for Redemption (~ 6 m)
5. After Redemption Period, either:
5a. Order for Conduct of Sale (special circumstances), OR
5b. Order Absolute of Foreclosure

A Buyer can make an Offer at any stage of this process and therefore it is important for parties to ensure they are dealing with the party (either the Seller or the Lender) with “Conduct of Sale”.

In the event that a party wishes to submit a competing bid, the original contract of purchase and sale will be attached to the Lender’s affidavit and this is a public document that can be found by searching the Court Registry in BC.

Where a Lender has obtained an “Order for Conduct of Sale” the Lender’s Realtor will be required to attached a Schedule “A” to any proposed Contract of Purchase and Sale which generally states the following terms and conditions:
1. Court Approval of the Offer is required After Subject Removal
2. Court will have full discretion, the lender will not advocate for the buyer
3. Other Offers May be Entertained
4. Title Transfer by Vesting Order of Court
5. Lender makes no Warranties as to: Title, Condition of Premises, Environmental Condition

Buying a foreclosure in B.C. can be an unpredictable ride. For those investors familiar with the process, some “deals” may be had but generally, as the Court often has fair market value property appraisals, foreclosures in B.C. are not a panacea of “good bargains”.

First Time Home Buyers should not view the foreclosure market as a good way to buy their first home. The inherent uncertainty in the process, the “as-is” nature of the home, and the higher acquisition costs mean that most First Time Home Buyers are better off buying non-distressed property on their first foray into home ownership.

Discharging your Mortgage

For sellers the essential bargain in a real estate transaction is “I give you my house, free an clear, and you give me money”…

The “free and clear” part is key, it means that the Seller is giving the Buyer title free and clear of all financial encumbrances on title. A financial encumbrance includes things like your mortgage or a secured line of credit. When the mortgage is held by the bank the discharge is relatively straight forward: your lawyer requests a payout statement from the bank and on the closing date pays the money to the bank on their promise to discharge the mortgage.

When the mortgage is not held by the bank, things get a little more complicated. For example, if Uncle Buck loaned you 200k for your home and registered a mortgage, your lawyer would have to have a registered discharge “in hand” on closing and this creates a “catch-22” with the Buyer (who won’t part with the cash until he gets assurance of title). This problem is usually solved in British Columbia by the exchange of lawyers undertakings (court enforceable promises) with the lawyer holding all documents in “escrow” until everything is ready to go.