Buying A Home A Lender Is Foreclosing On
People hear a lot about buying foreclosures. A lot of what they hear is US based. Some is Canadian based. Most people lack an awareness of the risks of buying a foreclosure in Alberta. As Kahane Law Office in Calgary includes both real estate lawyers and foreclosure lawyers, we often assist clients with foreclosure related matters. Most important, property yourself before you sign any contract.
What Is A Foreclosure?
Before understanding the risks of buying a foreclosure, understanding foreclosures is key. A foreclosure is when someone who borrowed money secured by a mortgage on real estate stops paying and the lender wants to realize their security. Essentially the lender applies to the court for an order transferring the security (the property) into the name of the lender. The lender may then sell the property to pay back the loan.
What Is A Judicial Sale?
People frequently refer to a judicial sale as a foreclosure. There is a key difference. With a judicial sale, the court sells the property. The proceeds of the sale then pay off the loan (or as much of it as possible). The court attempts to secure a sale as close to fair market value as possible. The title to the property never transfers to the lender.
The Difference Between A Foreclosure And A Judicial Sale
When considering the risks of buying a foreclosure, the only key difference for a buyer is whom they purchase from. That said, the fact that in a judicial sale, the borrower retains a right of redemption. This means that they have the opportunity to bring the mortgage current and keep the house. This ends any ability to buy the property. As this post intends to point out several of the risks of buying a foreclosure, the term foreclosure will be used throughout, however most of the risks exist equally in both situations. Always call your real estate lawyer to get legal advice on any specific situation.
Specific Risks Of Buying A Foreclosure
The contract used for selling a foreclosure generally excludes any representations or warranties. This means that the seller makes no promises about the property when you enter the contract, at the time of possession or any time after taking possession. The possible risks are limitless, however below are several regular risks encountered. For example, the risks of buying a foreclosure include:
- Structures on the property encroach onto a neighboring property;
- An encroachment onto a right of way exists;
- The property includes a violation of a restrictive covenant;
- A prior owner failed to ensure proper permitting of development of the property;
- The property may not be habitable;
- Chattels (stove, fridge, washer, etc.) missing or broken on possession;
- Key components (such as alarms, hot water tanks, furnaces and A/C units) may be missing or broken on possession;
- Property not in substantially the same condition as when viewed;
- Material latent defects exist;
- The property is stigmatized;
- Health hazards exist IE: issued by Alberta Health; and lastly
- Delay of possession.
Is It Worth Buying A Foreclosure?
All buyers must determine for themselves the value of a property the want to buy. This means they determine what price is worth paying for what they actually get when they pay for it. In the United States, foreclosures sell for well below the fair market price. The reality in Canada is that many foreclosures sell for around fair market value. A potential buyer needs to assess the price they pay for the risks they assume to ensure they receive good value.
Minimizing Your Risks Of Buying A Foreclosure
The only way to reduce your risks of buying a foreclosure is to complete due diligence before entering into the contract. Alternatively, if the vendor allows it, add buyer conditions to both secure the ability to buy the property and have time to complete your due diligence. Often conditions are not permitted on offers to purchase a foreclosure or judicial sale. In terms of due diligence, for example, many options exist. These include:
- Buying condominium documents and having them reviewed;
- Reviewing all permits a municipality has with regards to a property;
- Review title and any encumbrances on title;
- Complete all inspections of the property as necessary (for example, home inspections, electrical, plumbing, engineering, asbestos, radon gas, a sewer scope, independent measurements, etc.);
- Speaking and asking questions of the neighbours about the property; and lastly
- Purchasing title insurance as part of the purchase.
Legal Help With Buying A Foreclosure
Our team of real estate and foreclosure lawyers help when people buy foreclosures. We help explain the risks of buying a foreclosure. We also explain how to mitigate that risk. Always seek this information and advice before signing any contract to purchase such a property in Alberta. Connect today! Email your questions here directly. Also feel free to call us at 403-225-8810 locally in Calgary or toll-free at 1-877-225-8817.