by Ed Machart
on Friday, February 26th, 2021 at 1:10pm.
Finding a foreclosed property for sale is not easy—it takes patience and a lot of searching. But the thought of finding a gem for a great buy is a dream for any investor, making foreclosed homes an appealing option!
Having said that, purchasing a foreclosure is definitely not for the inexperienced. And in order to handle the process best, you will need to have a strong team of real estate professionals on your side. Let’s take a deeper look into foreclosures and see if you’ve got what it takes to purchase a foreclosed home.
Buying a Foreclosed Property
Great Price - Perhaps the biggest appeal to buying a foreclosed home is the chance to purchase a great property for less than market value. This is a very real possibility, since lenders are often marking down their list prices in the hopes of a quick sale.
Property Problems - All foreclosed properties are sold “as-is”, creating an even larger risk of buying a property needing some major repairs. And since it’s a buyer beware situation, there will be no recourse if you end up with some surprises. You are allowed to have inspections done on foreclosed properties, but if the inspection finds an issue with the foundation, moisture problems, mold, asbestos, or any other high cost defect, the majority of sellers are not going to re-negotiate the price, due to the “as-is” condition.
Confusing Contracts - As I said before, foreclosed properties are sold “as is,” and the seller requires the buyer to sign a document called an addendum. The addendum can be quite lengthy, containing multiple clauses, making it extremely important to have an experienced REALTOR® assist you with your contract.
Judicial Sales vs Power of Sales
Lenders have two options to sell a foreclosed property in Canada
In the case of a Judicial Sale, the lender is forced to petition the courts for permission to sell off the property, which can be expensive and time consuming. The borrower will be provided with a statement of claim for debt and possession, at which point they have 20 days to file a statement of defence. If the borrower loses their case or fails to respond, the lender may be granted permission to sell the property.
In the case of a Power of Sale, the lender has the right to sell the property and avoid the court process. This power of sale would have been included in the homebuyer’s mortgage contract. Typically, the lender may repossess the property if the borrower defaulted on four payments. However, a redemption period may be given to the borrower to cover their missed payments, outstanding taxes, late penalties. and other fees.
How to Purchase a Foreclosed Property
1) Watch Listings. This will take some patience on your part—you are looking for a diamond in the rough. You will need to be diligent watching for new listings as they come onto the market. You can find foreclosed properties in multiple-listing service (MLS®) periodicals and websites, via online real estate searches, bank offices and websites, and through local newspapers. In the local MLS®, properties that are being foreclosed upon may not be highlighted and only be stated in the property description. Lenders increasingly are selling their seized assets through real estate agents, so don’t hesitate to ask your REALTOR® to watch MLS® listings for foreclosed properties, and notify you when they come on the market.
2) Make an Investment Plan. If you’re going to buy a foreclosed property, you or someone you know should have extensive knowledge of homes inside and out, from foundations to structure, plumbing, electrical, insulation, and more. You will need to determine if the home has any serious issues that you will need to take into account when you are making your investment plan. Work with your real estate agent, your home inspector, and even a home designer to make a plan and a budget. After all, in most cases, you are looking to make a profit on this property.
3) Do Your Research. You should know everything about your prospective property, as this will help you decide whether it’s worth pursuing or not. Location, current market values, and market predictions will all affect your investment.
4) Hire a Professional. Foreclosure contracts are not your typical residential contracts. Not only should you work with an experienced real estate professional, but you should also work with an experienced lawyer who will help you with all of the contract details.
5) Expect Competition. As with any market, whenever there’s a chance to acquire something at a discount, demand will be high. Increased interest and competition is inevitable when dealing with worthwhile foreclosed properties. Very often, a foreclosed home can be priced attractively lower than other homes in the surrounding area and when word gets out, numerous offers can come in rapidly, and a bidding war ensues. So what was once an underpriced home in a great neighborhood can rapidly become a costly property.
Finding and purchasing a foreclosed property will be a lesson in patience but with the right team on your side, it can be a great opportunity. The entire process will begin with finding the right one. I would be happy to work with you in this process keeping my thumb on the market so that you can know about these properties as soon as they are on the market. Contact me today to start your search!