Foreclosed homes are typically homes put on sale by lenders after the previous buyer defaults on their mortgage. Foreclosures are rare and usually happen only when a homeowner can no longer afford their mortgage and fails to sell the home before the lender takes over. Foreclosures are uncommon, and lenders are usually in a hurry to sell the property and recuperate the loss. They can sometimes even sell the house for a price lower than the market price, which could be a good opportunity for potential buyers.
Mortgage defaults and foreclosures can increase due to an increase in mortgage interest rates, with some homeowners no longer being able to pay their mortgages. According to the Canadian Social Survey on Quality of Life and Cost of Living conducted in the Fall of 2022, 35% of the participants reported that their households found it difficult to meet their financial needs over the 12 months preceding the survey. The year 2023 began with much higher interest rates and inflation rates than in previous years. This could lead to a further increase in unaffordability, eventually leading to a higher mortgage delinquency rate.
After a missed mortgage payment, lenders can legally sell the mortgaged home to recover their losses. Usually, the lender gives the borrower time and some options to get their mortgage payments back on track before proceeding with a foreclosure. Foreclosures are usually the last resort for a lender, and lenders look to avoid this situation as it can be very time-consuming and expensive.
Apart from the legal process, many other hassles are attached to foreclosure, such as auctioning the house or listing it for sale. Many lenders sell such houses for a lower price than the ongoing market prices to speed up the procedure. There are two ways in which homes are foreclosed in Canada, generally depending on the province of the property’s location.
In Ontario, Prince Edward Island, New Brunswick, and Newfoundland and Labrador, the lender commonly tends to have a legal right to sell the home when the mortgagee defaults on the mortgage. This is known as a power of sale, and this process does not require the involvement of the courts. After the sale, any money left after paying the debt, fees, and costs goes to the borrower. They are also responsible for paying off any debt or expenses left over after the sale.
If the home is in British Columbia, Quebec, Alberta, Manitoba, Saskatchewan, Nova Scotia, and the three territories, judicial foreclosure is generally carried out. In this process, the lender approaches the civil court and files a petition seeking a judicial order for foreclosure. This process takes much more time and money than a power of sale. With the court’s order, the title is transferred to the lender, which gives them the right to sell the property. As opposed to the power of sale, the borrower is no longer responsible for the mortgage amount. They neither get any profit from the sale nor are they required to cover any loss.
|Foreclosed homes may be cheaper||High competition|
|You may be able to bargain||You may need to pay upfront|
|No past liens||Home is sold as-is|
|Potential to renovate||Complicated paperwork and legalities|
Foreclosure homes may be available at different stages of the foreclosure process and by different types of sellers. Listed below are the potential foreclosure properties you may come across.
Foreclosures are rare in Canada, and you may not be able to find a foreclosed property very easily. One way to find such a property is to contact a realtor who works in the area where you wish to purchase a foreclosure home. Real estate agents know the market and can potentially tell you if there are any foreclosure properties available in the market.
Some websites offer a list of foreclosed properties or ask you to fill out a form to get a list of foreclosed homes. However, you should always get help from a real estate agent or advisor to vet such homes and ensure the listings are genuine.
Buying a foreclosed home is tricky, and there are potential risks involved in buying such a property. The following steps can help you minimize the risk of buying a home that is foreclosed.
Consult and Hire a Real Estate Agent
Real estate agents are professionals who are experts in the housing market and can offer you sound advice regarding buying a foreclosure home. They can help you decide if buying a foreclosure home is right for you. Buying a foreclosure home can be much more complicated than buying a conventional home, and having a real estate agent by your side can be very beneficial. They can answer all your questions, walk you through the steps of buying a foreclosed home, and prevent you from making any mistakes. They can also help you find foreclosure properties in your area and help you through the entire process. The seller typically covers the real estate agent’s commission, just like in conventional sales.
Set a Budget
A standard step in buying any home is to set a budget. You would generally have to move fast if you want to buy a foreclosure property, and thus it is better to be prepared with the budget and finances before starting the process. When you set a budget for a foreclosed home, you should note that you may have to pay the full amount upfront if participating in an auction. Even if financing is accepted, you would have to put down a deposit if you win the bid. Additionally, you should include the following costs in your budget:
There may be other potential costs that the property inspector or a real estate agent could advise you about after looking at the property.
Prepare for Application
Preparing for the application beforehand can increase your chances of being approved for a foreclosure property. The following steps can help you:
Find the Right Property
Once you have your finances in place, you can find properties that fit your budget and expectations with the help of your agent.
Inspection and Appraisal
The next important step is to inspect the property to uncover damages and potential issues with the property. As foreclosure properties are sold as-is, you must fix any problems yourself. Inspecting the property can help you understand how much you will have to spend on the same so that you don’t incur unexpected costs later. A property appraisal will tell you the property's actual value, which can help you make informed decisions.
Make an Offer
Once you have ensured that the property is worth buying and fits your budget, you could participate in the auction if there is one or make a direct offer through your real estate agent if the property is listed on the MLS.
Complete the Formalities and Take Possession
If you win the bid or are approved for the sale, you would have to put down the deposit and complete all the formalities. The paperwork can be complicated, and you should seek legal help to ensure there are no errors. This can be a lengthy process, but it is essential to be thorough. Once all the paperwork is submitted, and the home is vacated, you can take possession. You should note that you may have to get the utilities switched back on and make some repairs before moving in.
Buying a foreclosure home can seem to be a daunting task. Still, you can benefit from buying one if you seek professional counsel and make informed decisions. Potential risks are attached to buying foreclosure properties, and you should avoid buying one without proper guidance if you don’t know much about the process.