JUDICIAL FORECLOSURE DEFINITION
A judicial foreclosure, by definition, is a foreclosure where the lender goes through the legal system to obtain a judgement — usually either title to the home or the right to sell the home to recoup the balance of the mortgage and other costs.
Normally when people borrow money to purchase a property, the bank has a lien against their property. If they do not make their payments on time, the loan is considered “in default” and the lender may exercise their lien against the home. Normally this happens after several notices are mailed to the homeowner telling them they must bring their payments current.
If the property owner makes no attempt to bring the payments up to date, the lender starts the legal process of foreclosure, which usually ends with the lender either legally owning the property or having the legal right to sell it.
Overall judicial foreclosures are much slower than a non-judicial foreclosure (known as a Power of Sale) and often take more than six months to complete. In British Columbia, Manitoba, Saskatchewan, Alberta, and Nova Scotia, judicial foreclosures are the norm.
Usually at the end of a judicial foreclosure the lender obtains a Certificate of Foreclosure by court order and takes ownership of the property. In this case the homeowner may not have any claim to capital gains resulting from the sale of the property. In other situations the lender obtains a Conduct of Sale, which is the right to conduct the sale without taking ownership.
How Judicial Foreclosures are Different In Canada
If the owner has equity in the property, the bank or lender is required by the Canadian Securities Act to protect that equity. As a result, they are required to sell the property for “Fair Market Value.” In the US, banks can sell properties at a significant discount just to get the property “off the books” — not so in Canada.
If the foreclosure proceeds to the point where the lender either takes ownership of the property or takes control of selling it, they usually hire an agent in the area who conducts a Comparative Market Analysis and an independent appraisal. The appraisal price is usually used to set the asking or list price.
Since the bank often must prove in court that they sold the property for fair market value, they cannot simply accept offers which are substantially below list price. Instead, if there is very little interest then the lender will drop the price every 30 days (based on a new Comparative Market Analysis conducted each month) until someone makes an offer.
In some cases, the court may also be required to approve the sale.