The method for buying a foreclosed house

Buying a house below market prices is possible under certain circumstances. It is often wise to search among homes located far from urban areas, for example, or to deal directly with an owner who is selling their house at an attractive rate, as it’s without real estate agency commission fees. In the same spirit, foreclosed houses also represent a sometimes interesting opportunity, as they can be put up for sale at a cheaper price compared to equivalent properties, but not affected by a banking procedure. How to buy a foreclosed house? Discover the information on the subject with your mortgage broker.

What is a foreclosed house?

This expression designates a house subject to foreclosure in Canada. Beyond this conventional formula, it is also customary to use locutions like foreclosure and for rarer cases, repossession, for this type of real estate. A foreclosure designates a real estate property whose owner shows default in repaying the subscribed mortgage. The lender’s objective in this case is to recover the amount owed on the mortgage. The creditor then exercises a mortgage remedy against the debtor. The purpose of this procedure is for the lender to exercise their right on the property in order to sell it and recover the funds granted within the framework of the mortgage.

A long process and distinct provincial regulations

This procedure can take a lot of time, as official steps accompanied by legal deadlines must be respected before the remedy finally leads to a court decision. The process includes, for example, officially a public posting of notices mandated by the lender and unofficially the proposal of various options to the owner so they can settle their payment default amicably. Generally speaking, it may happen that the entire process requires about 12 months or more to reach an outcome. The regulations being nevertheless different according to the Province where the property is located, the foreclosure may sometimes require a shorter period or on the contrary exceeding one year. Regardless, this process generally leads to the same outcome: the creditor officially takes possession of the property to put it on sale on the market and be reimbursed.

The possible causes of a foreclosure

The seizure of a house by the creditor is possible when a delay in payment of mortgage installments is noted, but not only. Other events can also lead to the opening of this procedure. These cases are sometimes specified in the terms of the mortgage contract signed between the lender and the borrower. When the homeowner fails to meet their maintenance obligations for the mortgaged property, the overall value of their house can quickly be impacted. Used as the main guarantee of the mortgage, a property whose value depreciates presents no interest either for the creditor or for the owner. In this case, a foreclosure procedure can then be triggered so that the lender can have the guarantee of being reimbursed. The seizure of a property can also occur if the borrower fails to meet their tax obligations, notably when they do not pay their property taxes.

The numerous steps of property foreclosure

With the aim of finding interesting foreclosures, it is always wise to have a global idea of how this procedure works, notably concerning the main steps of this complex process. About 30 days after the payment default, the owner is notified of a formal notice. This notice signed by a bailiff is a formal warning indicating to the owner that they are in payment default. After the following 30 days, the lender generally launches a notice of exercise, informing the owner that a remedy is in preparation if no repayment is made. A pending request can then be made 60 days after the notice, or about 120 days after the finding of default in mortgage payment. Until the introduction of the legal procedure, it is theoretically always possible to negotiate the purchase of the property directly with the owner. If applicable, once the court judgment is pronounced, the lender remains the sole interlocutor for the sale of a foreclosed house. In most cases, the property is then sold under court control, therefore by mutual agreement between the lender and the new buyer or through a call for tenders or an auction sale.

Why is a foreclosed house cheaper?

The interest of foreclosures is that these foreclosed houses are very often sold at lower prices either compared to their market value, or compared to equivalent properties. A property with characteristics comparable to those of a foreclosed house is indeed assured of being put up for sale at a higher price. The price difference noticed can be significant, even if this gap in sales values between foreclosed houses and other properties generally depends on the region or Province in which the property is located. Many reasons can explain why foreclosures are sometimes good deals. As their owner or lending institutions have a pressing need for money to deal with payment default, the sale prices generally defy all competition so that these distressed properties quickly find buyers. In such a situation, sellers are moreover more inclined to negotiate, thus giving a certain advantage to potential buyers. Parties interested in this type of property indeed have a wide margin of maneuver to discuss prices with sellers. Buying a foreclosure can also be a good operation for the buyer, when they combine the reduced price of the property with other financial advantages related to their mortgage loan. Depending on periods, regions or provinces, but especially depending on their lender, it may happen that their mortgage comes with a low interest rate or the production of a reduced down payment. The payment of certain fees, such as appraisal fees or certain closing costs, can also be optional for certain transactions on a foreclosure, which further reduces the cost for the buyer.

Where to find foreclosed houses and foreclosures?

Foreclosures and foreclosed houses presenting significant financial interest, many buyers are looking for these opportunities. Land registers record this type of property. More and more investors and professionals generally take information from instances in charge of keeping and publishing land registers. Beyond this official publication, individuals can also get an idea of foreclosures through various options.

On Centris

Centris is one of the most efficient references in terms of real estate property search in Canada. The establishment has an internet portal through which several thousand properties put up for sale are presented. Users of this solution can search by using several filters, notably by specifying foreclosure properties to find foreclosed houses looking for buyers.

On real estate agency websites

Real estate agencies are also professionals capable of accompanying a buyer to find a foreclosure property. Some of them, like Proprio Direct, RE/MAX Quebec or Kijiji directly present a list of foreclosed houses on their internet portal.

On institutional websites

Sale notices for foreclosed houses can also be visible in a sale register kept by the Ministry of Justice, notably in Quebec. Accessible online, this public book can be consulted by individuals interested in a foreclosure property.

The problems encountered with buying a foreclosed house

Even if the financial aspect is the main advantage of a foreclosure, several risks are to be considered before making the decision to buy this type of property.

The condition of the house (sale without warranty, etc.)

Buying a foreclosure property means acquiring a house without legal warranty. The property is indeed bought “as is” and therefore without the possibility for the buyer to be compensated later if hidden defects are spotted after its acquisition. This aspect also explains the reduced cost of foreclosures.

Additional fees

As foreclosed houses are without warranty, this context generally causes several additional fees before acquisition. To know the condition of the house before acquisition, it is for example indicated to resort to the intervention of a professional for an inspection for example. Besides this verification according to the rules of the art, official documents like the location certificate or the water compliance test for example can also be additional expenses to plan for.

Strong Competition

The law of supply and demand can quickly influence the prices displayed for a foreclosure property. As foreclosed houses are offered at reduced prices, buyers can quickly rush and mechanically cause an increase in the value of the property. The best advice given to a buyer looking for this type of property is therefore to simultaneously propose offers for several seized properties in order to find the best price.

The steps to buy a foreclosed house

Buying a foreclosed house requires several steps. The phases of inspection and verification of the house’s condition are essential. Regarding financing, the procedures can also be more or less long depending on the buyer’s financial situation. As before any mortgage application, it is for example recommended to obtain a pre-approval to better know the amount of funds that the buyer can invest in the purchase of a foreclosure property.

Conclusion

Buying a foreclosed house is a process that offers advantages and disadvantages. Everything depends on the condition of the property, as it is possible to come across deteriorated or dilapidated properties. When the buyer finds the property that suits them, several steps are to be planned before finalizing their purchase. Inspecting the condition of the foreclosed house is thus recommended. The purchase can be made with mortgage financing, following all the required steps, more or less similar to those necessary for acquiring a conventional real estate property.