Ken Pazder of Pazder Law Corporation joins Matt and Adam for a look into the process, as well as the positives and negatives, of buying a foreclosure.
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Ken is a lawyer in Vancouver. His practice has been around for 25 years and is largely involved in real estate. They are approaching their 100,000th transaction this year.
On what a court-ordered sale is and how it happens:
There are many types under different acts, but the foreclosure is the most relevant for this discussion. A foreclosure occurs when you sign a mortgage and can’t make the payment. At a certain point, usually two to three months, the lender’s lawyer accelerates the mortgage (i.e. the whole amount) if you aren’t making payments. They apply to the BC Supreme Court for a foreclosure order, which can take six to 12 months if you have equity in your home or about three to six months if you don’t (this is the case with most foreclosures).
On the process to buy a property under a court-ordered sale:
The court will grant an order for conduct of sale. This is when the lender is allowed to list the property on MLS and put it on the market, like any other property. Once the lender’s lawyer gets a reasonable offer, they apply to the court to accept that offer.
On how a “reasonable price” is determined in Vancouver and whether buyers have a real opportunity:
They don’t. The courts supervise foreclosures in BC and Alberta, so the property must sell at the market value and no lower. An appraisal is made, which is about what the property will sell for. There are no deals to be had. Plus, there are very high risks on foreclosure properties. The biggest is the first bidder can make it whatever they want under various conditions, if accepted. The lawyer may agree but then say when the offer goes to court, it must be subject-free. The issue is, the court is a public forum and other potential buyers may show up to bid. Just because someone makes an offer doesn’t mean the court will accept it, regardless of it being close to appraised value. There is no advantage to being the first offer, other than the fact that you can hope nobody else shows up to court. But in today’s market, there are usually four to six other bidders. To make it an equal playing field, the court has the additional bidders make their offers in private, so they don’t get an advantage by knowing the original offer. In the case of a tie, those bidders would be sent out of the room again to make a new offer.
On getting the property as-is and where-is:
This is another risk. Foreclosure lawyers will prepare a six or seven-page schedule to the standard offer of purchase and sale, which addresses every liability imaginable. The property could be in any shape, such as contaminated, and there is no warranty. The lists are onerous. Most people do not read the lists and end up quite disappointed.
On if the original owner doesn’t leave:
The bank’s lawyer will get a “writ of possession”, which can take a couple of days, and send a sheriff out to forcibly remove the person from the property. So, buyers need to consider that they may not get to take possession on the sale date and that the previous owner or tenant could be trashing the property or removing things prior to the deal closing (such as cabinets or appliances).
On ways to mitigate risks:
The only way you should consider a foreclosure property, unless you’re only buying for land value, is if the property is already secured by the bank. If a previous owner or tenant was forcibly removed, a property manager would have taken over and secured the property—only they will have the keys and you will be assured the state of the property remains the same as when you made the offer.
On if there’s potential to purchase the property back from the court, if you are the original owner:
Yes, you have the chance to do so until a third-party offer is accepted. It’s unlikely though, as the reason properties foreclose is because the owner cannot pay off their mortgage, which is worth more than the property itself.
On how effective our model is with dealing with foreclosures:
We have one of the best models for consumers (the person being foreclosed). Courts bend over backwards to give people a break where possible, to redeem the property. If there is some equity in the property, there’s generally a six-month redemption period where the court grants a foreclosure order and puts it on hold while the owner finds a buyer or financing. It could be more efficient, but the lawyers are pretty good at their job. Fees run at about $6,000-7,000, which is very cheap.
Ken’s nightmare story:
A woman bought a foreclosure property a couple of years ago and her realtor did not know it wasn’t secured by the lender. When she took possession, there was nothing left—floorboards, cabinets, fixtures, and toilets were all removed. The place was completely gutted. So, rather than the $10,000-15,000 renovation she’d planned, the entire property was a write-off.
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