Saturday, December 31, 2011

Sat Post #1: Foreclosure Process in British Columbia

Yesterday's post prompted a discussion about the Foreclosure Process in British Columbia so as the second last post of the year let's make that the topic.

Ever popular downtown realtor Ian Watt has a site that specializes in Foreclosures and some info on the topic.  This info is from his site. 

Buying a foreclosure in BC is somewhat different from buying a regularly owned property and it is certainly different from buying a bank owned property in the United States. 

First of all, please understand that in BC the courts will ensure the homeowner is protected and their property is marketed and sold for an amount as close to "Fair Market Value" as possible

Whereas in the US, the laws protect the banks and properties can sell substantially well below market value, buying a foreclosure in BC could get you a deal and save you some money on the purchase price, but rarely does a property ever sell less than 20% off fair market value.
The Foreclosure Process in most cases works like this:

After a lender has been given the right to sell the property by the BC Supreme Court, the lawyer acting on behalf of the lender hires a realtor to market the property. The property can still be owner occupied and showing may be limited and sometimes difficult due to the nature of the circumstances. 

When the foreclosure property is listed on the MLS, the listing agent will showcase that property to as many purchasers as possible in hopes to get an offer that is suitable to the lender.

When a buyer submits a written offer, which includes a Schedule A (which amends the regular Contract of Purchase and Sale), to the listing agent, the listing agent will present that offer to the lender's lawyer and he or she will act of behalf of the lender during the negotiation. During this period the lender and the purchaser will negotiate a price they are both satisfied with. 

Upon accepting the offer, the purchaser will have 5 business days (in some cases) to do all their due diligence. After the buyer is satisfied with her due diligence and she has her financing in order, she then prepares a certified deposit cheque or bank draft and remove all subjects in regards to the lender. This is now a subject free offer as far as the buyer and the lender are concerned. However, there is one last subject which is "Subject to Court Approval". 

The lender's lawyer will now set a court date and this could take on average 2 to 4 weeks time. A few days before court, the listing realtor will disclose the price which the offer was accepted for. That will give any other perspective purchasers the ability to decide if they want to come to court and outbid the original offer or not.

Unlike a regular property for sale, the first offer that comes in and is accepted by the lender is not necessarily the person who ultimately ends up owning the property at the end.

At Court the listing agent will collect all, if any, competing offers which must be subject free, contained in a sealed envelope, include a schedule A addendum, and be accompanied with a certified deposit cheque or bank draft. 

When the judge has this property address file in front of her, the judge may give the owner one last time to redeem the owner's mortgage and any other outstanding debts. If there is no attempt to pay off all the debts she will proceed with the offers to purchase the property.

Should there be mulitple offers, whoever has the highest subject free bid in the sealed envelope will most likely be awarded the property. Depending if the property is vacant or owner occupied, the completion and possession could be after the court date will be somewhere between 2 to 8 weeks.

It is strongly recommended that the purchasers are in court to either up their bid or be present to initial any changes that the judge may request. There are no second chances for anyone after the judge has made her decision and there is no chance to back out of the contract.

The property is now sold and all documentation is forwarded to the parties involved for conveyance.


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  1. What will be interesting to watch is whether a falling market combined with a rash of foreclosures impacts the determination of "fair market value" by the courts.

  2. I have a feeling that a lot of foreclosure properties here will sit completely bidless. It will be interesting to see how the torrens system will handle ownership issues in a collapsing RE market. I have a feeling we will emerge from this with a completely new set of property laws here in Canada. The property laws we have now are very weak, and if we get into a foreclosure mess that will be made glaringly obvious.

  3. This piece does not mention the possibility of the judge finding that the highest bid is not high enough. It also fails to address the elephant in the room, which is CMHC insurance. What does it mean for the lender and purchaser to negotiate a price when the lender is fully insured against loss? Is the CMHC involved in this negotiation process? If so, the whole concept of mortgage insurance might come to resemble credit default swaps on Greek sovereign debt: Of course your risk of capital loss from sovereign (mortgage) default is fully insured. All that needs to happen is the minor detail of the ISDA (CMHC) agreeing that the default event was not voluntary (accepting that the property is sold for fair market value). As soon as we satisfy that condition, your losses will be paid in full.

    I'm not saying this is how it will go down. I have no idea how the system works, or is designed to work, in a market downturn. I suspect that nobody really does.

  4. The rules seemed to be designed to protect the homeowner against being victimized by the mortgage holder (and the realtor appointed by the mortgage holder) who may not adequately try and obtain the "best price" for the property.

    That's why the judge can refuse to accept an offer for the house.

    I suspect that when foreclosures dramatically increase, and the courts have rejected a number of offers for properties and those properties return with even lower bids, you will see the arbitrary "fair market value" standard lowered dramatically.

  5. I hear what you are saying that the logical response to lack of fair market bids is to lower the amount deemed to be fair market, but seriously. Bureaucracies often fail logic. I work for one, though it is not related to housing policy. If we ask the question "who benefits?" from lowered property values, we may find a remarkable lack of incentive for reforming our inefficient foreclosure process. The process does not only protect hapless mortgage defaulters. It serves to prevent foreclosure sales from making the market. This benefits existing homeowners, banks/investors who hold mortgage portfolios, the CMHC that would have to pay out way more money than it has, politicians who would look bad explaining their failed policies... Anyone else?

  6. Can CMHC not recoupe some of their losses, and go after the borrower who defaulted, I know squeezing water from a rock is a waste of time, but it may be worth the cost to persue some of the people who default and recoup some losses, this would also deter others from just sort of walking away from mortgages.