What does foreclosure mean to a buyer? For many buyers, it means a chance to get a good deal on a property. When a house is foreclosed, it means the homeowner defaulted on their mortgage payments and was not able to pay off the mortgage despite receiving a notice of default. The lender then starts foreclosure proceedings in court, putting the home up for sale once all the legal documents have been put in order.
Canada and the US have similar mechanisms for buying foreclosure but provincial or state laws can change certain aspects on the procedure. Buyers interested in picking up foreclosed homes as an investment need to be aware of these nuances in order to do so successfully.
Buying Canadian Foreclosures
Canadian foreclosures happen either using a process of judicial foreclosure or via a Power of Sale.
A judicial foreclosure, sometimes called a judicial sale, means the court is involved in selling off the home. With the foreclosure under jurisdiction of the court, the lender has to sue the borrower-in-default in court to get a court order allowing them to sell off the property. Judicial sale is standard in the following provinces:
– British Columbia
In Nova Scotia, the process is called a Mortgage Foreclosure but the process is almost identical to a judicial sale.
A Power of Sale is the second type of foreclosure used in Canada. Whereas a judicial foreclosure or judicial sale requires court intervention, a Power of Sale proceeds without involving the courts (at least initially). If the borrower defaults on the loan, the lender simply follows the steps set forth in the loan documents to sell the home.
The lender’s right to “foreclose” this way is set up in the mortgage documents — rather than the homeowner holding the deed to the house, a “deed in trust” is held by a trustee who takes action to sell if the homeowner defaults.
Power of Sale is used in these provinces:
– New Brunswick
– Prince Edward Island
It’s still important to remember that even if a given province uses a judicial foreclosure or a Power of Sale, the actual procedure may be slightly different in each different province. Steps must be followed in a certain order in order to authorize the sale of a foreclosed property.
Take A Second Look Before Buying
Buying foreclosures may be a great way to make money with real estate but “caveat emptor” still applies. If a homeowner has defaulted on the mortgage, this means he did not have the ability to make payments, which means he may also not have been able to maintain the house.
Therefore, getting a good return on investment means it’s important to make sure the property is in good condition. On the other hand if the house is in poor condition but the location is excellent, investors may still be able to get a good bargain. Similarly properties in deteriorating neighbourhoods are reason to be wary — no amount of renovation lets you recoup an investment 100%.
When a house goes into auction, it has not been inspected. As a result the property may require more renovations than you have budget on hand. Not all foreclosures are priced at bargain rates, either.