The general impression about foreclosures is that they are a great opportunity for Buyers to get a good deal on property.  This may be true but it is not always the case.  It's important to understand what a foreclosure means and understand the process in order to evaluate the risks and opportunities.

 

 

 

When a property owner is no longer able to make his mortgage payments, under the mortgage contract the lender can take legal action to protect the lender's interest.  The process is called Foreclosure.  The objective of the foreclosure proceeding is to liquidate the asset that was given for the mortgage loan.

 

When property owners are in trouble lenders have procedures in place to try to "save the loan".  These may  include new lower payment schedules that the property owner can live with as a temporay relief.

 

When these procedures fail lenders trigger the foreclosure process. 

 

 

 

Once the terms of the mortgage are in default the foreclosure process can begin.  This is usually a failure to make the mortgage payments, but it can also be a default in payment of taxes, strata fees or other terms that have been described in the mortgage agreement.

 

 

 STEP 1 - THE DEMAND LETTER:

 

The first step in the foreclosure process is a Demand Letter sent by the lender to the property owner(s) whos name(s) appear on the mortgage.  It is usually sent by registered or certified mail.  The Demand Letter will include the name of the borrowers, the identity of the asset, names of the lawyers acting on behalf of the lender, the reason for the letter and the actual demand for payment.

 

The demand for payment is either the arrears or acceleration to bring the account up to date or a combination of both.  The letter will outline how to reply to the letter and include a deadline.  It will also include a "threat" that if it is not adhered to that foreclosure proceedings will start after the demand period expires. 

 

 

 

To start a foreclosure action, a formal application is made in writing to the court requesting judicial action.  This declaration is called a Petition.  The Petition contains a list of what the lender wants the judge to do including the following:

 

 Once the Order for sale is received the property is usually listed on the market

 

 

 

An affidavit is a sworn written declaration made before the court outlining the facts in the petition.  In a foreclosure, it sets out the facts of the default under the mortgage.  There may be more than one petition in support of the petition and are submitted as the foreclosure plays itself out.

 

 

 

An Appearance is a court document which outlines whether the owners of the property plan to defend or participate in legal proceedings being filed against them.  They should mail or deliver a copy of the Appearance to the lawyer handling the foreclosure.

 

 

 

This sets out the details of the hearing.  It will specify the court date, the time, and place of the hearing.

 

 

 

About a month after the petition and affidavits have been served the lender can apply in court for an Order Nisi.  This is a tool that will become absolute if the affected party can justify why it could be put aside.  The Order Nisi usually asks for a judgement against the borrower, legal costs, & the conduct of sale.  States that the property owner(s) may redeem the mortgage by paying into the court the amount owing under the mortgage within a specified time frame.

 

 

 

The certificate of pending litigation is filed at the land title office and the court registry.  Its purpose is to prevent any dealings of the property until the foreclosure action has been completed.

 

 

 

Usually 3 - 6 months depending on each case.  If the house is rented or has an agreement of sale registered the redemption is usually 3 months, if it is owner occupied it is usually 6 months.  These times may be adjusted, reduced or extended depending on each unique situation.

 

 

 

Once a property is in foreclosure proceedings, anyone who may be potentially affected by the foreclosure action may apply to court for conduct of sale.  This allows the court to instruct that the property be listed for sale and it prevents anyone else from listing the property, even the owners.

 

 

 

A Vesting Order is an order that approves the sale of the property - that gives to a person, possession, control or title of property.

 

 

 

If payment has not been made into the court by the property owners and the redemption period has lapsed, the lender  then goes back to court for an Order Absolute.  The ruling is absolute and it bars the interest of all the respondents in the property, orders that the lenders have possession of the property, and extinguishes the judgement.

 

Once obtaining the Order Absolute the lender can make an application to the Land Title Office for the title to the property.  This will allow the lender to deal with the property as the registered owner and keep any profit upon the sale (if applicable).

 

 

 

The process is well defined however potential buyers of foreclosures have little or no protection. 

These properties are sold as is, where is.   Buyers have no recourse once they buy these properties.  Financing must be in place as offers on these foreclosures are presented in court "subject free" in order to be considered.

 

Also bidding wars in court could drive up the price over what the property is actually worth.  Foreclosures are not recommended for first time home buyers as the properties are usually in need of repairs, are former grow-ops, or are stygmitized and usually require financial resources to bring them back to good condition.

 

Foreclosures are attractive to investors or individuals who are very familiar with the neighbourhood's value.

 

If you have any questions about foreclosure properties do not hesitate to contact Alan M. & Associates.