Buying a foreclosure property in Edmonton, Alberta can be a very complex process and shouldn’t be taken lightly. I always believe that it is important to understand the “rules of the game” before you begin and here are some of the major keys to consider.
Know who owns the subject property and who is selling it. These necessarily won’t be the same.
A Lender has the right to remedy meaning that they have a right to collect the monies owed to them even if the borrower is not making the agreed upon payments. If there is homeowner’s equity in the home it is more than likely that the court will agree the lender has the right to their money but they typically will not do this and sacrifice the home owner’s equity. So they would go through the process referred to as a Court Ordered Sale.
Basically what the court does is facilitate the sale to ensure all parties’ interests are respected. With this in mind, for the court to be able to satisfy both the lender and the homeowner it is my opinion that the court will always try to sell for the highest dollar possible. This process can feel very inefficient and sometimes a little frustrating.
It is important to understand that the court is the seller and they have never owned or lived in the property. The court also cannot warrant something which they have no control of knowledge of so BUYER BEWARE. Note: the process only applies to the real estate and cannot include appliances or any other chattels that may be left in the home.
The second option that the court has that we will see is a true foreclosure. This is when the court acknowledges that by the time you take into account the cost of the process and the money owed to the Lender there is little chance that the Homeowner will have any money from the sale of the home. At this point the court typically will provide complete ownership to the Lender.
In a foreclosure the Lender owns the property but once again they have never owned or lived in the property. In this process as well you are buying it as is, where is so buyer beware.
Do you want more info on the process itself? Here is a Video that addresses the process before a home comes on the market.
The standard AREA (Alberta Real Estate Association) contract will see many modification. Many standard items are deleted so it is important that you understand what you are signing and what the ramifications of these modifications are.
One of the major area struck from the standard contract during a court ordered sale is the provisions dealing with the deposit. The deposit is paid into court and governed by the court process and not by the Alberta Real Estate Act. The rules for dealing with the deposit are covered by the court order in court listing process.
Next to go in a court ordered sale is the provisions regarding the closing process. Once again this is covered by the court order.
The last major modification is anything to do with warranties is struck from the contract. Remember the seller has no desire to warrant something over which they have no control or knowledge so they will not warrant compliance or lack of encroachments or any other item. This includes providing a current Real Property Report in support of the warranties.
Why would I want to bother assuming the risks?
The answer is fairly simple. MONEY, MONEY, MONEY.
It typically means a lower listing price. With none of the usual warranties and the Buyer taking all the risk the price is typically much lower. If it turns out there is no permit for the garage or deck the buyer is responsible for this. Likewise, any other deficiencies such as missing appliances are typically at the risk of the buyer. Take the risk, get a lower price.
You can reduce the risk by doing a thorough inspection before you submit an offer. This is not always possible but can be arranged in most circumstances.
When submitting an offer make sure it is unconditional. Most of the time the lender’s lawyers and the court will not start the negotiation process until the offer is clean or with no conditions.
Purchasing a foreclosure property can be an incredible opportunity but only if you do your homework. Select a Realtor who is very experienced in the process and select your Home Inspector early on so you can react quickly when you find that property that you really like.
Happy House Hunting!
About The Author:
Jason Beattie is an Edmonton, Alberta Realtor with Professional Realty Group. Jason takes great pleasure in assisting his client achieve their goals. Whether it is buying a home, selling a home or working with investment properties, Jason is there to help. You can find him at www.BTGroup.ca