What Else You Should Know About Foreclosures

The following is taken from the article entitled “Representing Buyers of Foreclosed Properties” by Lubos K. Pesta, Q.C., Walsh Wilkins Creighton LLP. (I have edited out portions that relate directly to agents only)


Modifications to contract

[Of great concern to the buyer] will be the modifications to the standard Residential Real Estate Purchase Contract that will be required by the court or the lender, depending on the circumstances. As most industry members will be aware, a Schedule “A” (or “B” depending on the lawyer and bank involved) will be attached and many provisions of the standard agreement, including most warranties, crossed out of the contract used for the transaction.

While the Schedule is not standardized, in most cases the bank or the court will contract out of most normal obligations that exist in a regular sale.

This includes the obligation of the seller:

• to provide a Real Property Report, where applicable;

• to address any building location problems;

• to ensure that appliances and fixtures are in normal working order; (In fact, the ownership of appliances is not warranted and the buyer could see them repossessed by a leasing company post closing.)

• to provide vacant possession on the Completion Day; (The prior owners may need to be evicted.)

• to take responsibility for any damage to the property between the time of acceptance of the offer and possession being granted; (Property is “as is, where is”.)

• to pay any applicable GST; (This will become the responsibility of the buyer if, for example, it is discovered post closing that the prior owner substantially renovated the property.)

• in condominium transactions, to provide an Estoppel Certificate (or any other condominium documents) and to take responsibility for the payment of any special assessment due after acceptance of the offer.

I have even encountered situations where the bank’s lawyers crossed out clause 5.1, which normally provides that the property remains at the risk of the seller until Completion Day! To me, this really goes too far as the buyer will not have an insurable interest in the property and will not be able to secure insurance for the risk of loss until the purchase price is paid. We have seen circumstances where the bank’s lawyers reversed their position and reinserted clause 5.1 where they were taken to task on this issue.

Conditions

In addition to unusual amendments to the Purchase Contract, in many foreclosure transactions (particularly early in a judicial listing process) the court and/or the lender will be unwilling to consider offers to purchase that contain normal conditions such as financing, property inspection and condominium document review.

Needless to say, where the buyer will be relying on mortgage financing to complete the purchase, the buyer should secure whatever reassurance that the buyer requires and is available from a mortgage lender before an offer to purchase is drawn up. In addition, a term should be inserted in paragraph 7.6 of the Contract to indicate that a portion of the purchase price will be paid by way of mortgage financing. This obligates the seller to accommodate the financing on closing.

Foreclosed properties attract buyers looking for a bargain. As you can see from this article, however, the purchase of a foreclosed property involves navigating through a minefield of potential problems. While many foreclosure transactions close smoothly and successfully, occasionally foreclosure purchases end up being a buyer’s worst nightmare. If you are not comfortable with the process or the inherent risks, then I would recommend that you simply not get involved in these types of transactions.

Lubos K. Pesta, Q.C.
Walsh Wilkins Creighton LLP
Phone: 403.267.8432
Fax: 403.264.9400

The comments expressed in this article are for information purposes only and serve to highlight general principles. Each situation is different and you should seek legal counsel before pursuing any particular course of action. These articles do not create a client/lawyer relationship and do not constitute legal advice. The opinions expressed herein are those of the author and not of AREA.

Reprinted with permission. AREA makes no guarantee as to the accuracy or completeness of this information.

5 responses to “What Else You Should Know About Foreclosures

  1. Mike but not the Mike F Mike.

    Thanks Mike! That is a lot of foreclosures. Since last year you talked abour this I seem to remember there were only 80ish? A 100% YoY increase?


    Mike Fotiou says: Back in January 2009 when I wrote a previous post on foreclosures – using the same search parameters as I did this time – there were 114 foreclosures/judicial sales.

  2. After 21 days, both SFH and condo sales are now up on a month-over-month basis; they are still down from 2009 levels.

  3. Mike but not the Mike F Mike.

    WARNING! Ignore the median/average prices, prices are dropping faster than they are reflecting. Anyone who bought last month deals I posted are now underwater with the new deals coming out prices are dropping that fast!

    My advice: If you have an ISSUE house, a problem house a hard to sell house or anything like that LIST IT NOW or you’ll have a heck of a time selling it next year for a lot less.

    Take a look at this sweetheart: Silverado, 2228sq/ft, 374k!!
    http://www.realtor.ca/PropertySearch.aspx?PidKey=841661957&SearchStatus=2

    Or this one:

    Taradale: , 1822 sq/ft, $299k!!
    http://www.realtor.ca/propertyDetails.aspx?propertyId=9886344&PidKey=238893763

    Valley Ridge: 1920 sq/ft, $409k!

    http://www.realtor.ca/propertyDetails.aspx?propertyId=9957064&PidKey=430610559

    HOLD OFF BUYING and wait this one out or you’ll lose your money FAST in this market. Vs just 30 days ago these deals are tens of thousands LOWER and thousands lower than just 7 days ago.

    Even at these prices, DO NOT BUY, next week, you’ll pick up the same for less.

  4. The following article was written regarding US real estate, but can be applied to the Canadian market.

    When Will Real Estate Prices Rise? Ask the Feds

    Every single significant increase in home prices in the last 100 years was immediately preceded by government intervention or stimulus. The evidence is irrefutable. Every time the government works to make housing more affordable, prices rise.

    This actually makes perfect sense. Buyers always have, and always will, buy as much home as their banker tells them they can afford. If you make home financing more affordable, you increase the amount buyers can pay. But instead of getting more home for their money, prices simply rise to reflect the change.

    Read the entire article here

  5. I had a browse through those foreclosures in my area that I am familiar with in terms of what a good deal is for a townhouse or basic house. Not good value on the foreclosures from what I can see. I don’t understand how you can ask someone purchasing a foreclosure to pay full retail for it.

    Mike do you think these banks or whomever is in an ownership position of the foreclosure would be more agreeable to low offers?

    thanks


    Mike Fotiou: The average SP/LP ratio in the past 60 days for the foreclosures/judicial sales was 95%. Highest at 107%, lowest at 85%. If you’d like to send me an email with your community, I’ll get you some more info.

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