Opportunities for equity hunters
Many people assume that foreclosures are the most desireable property for sale. Popular media has fed the image of the underdog real estate investor becoming wealthy through the acquisition of foreclosures. The courts are obligated to help the foreclosed owner receive as close to full market value as possible.
In Canada, wholesale prices are usually limited to severe downturns in regional economies. When markets are hot, wholesale prices may only reflect the uncertainty of court approval, and if the offer is market value, that might be a very small discount.
Court-ordered sales generally absolve the lender of all risks from latent and patent defects. There are absolutely no representations or warranties with foreclosures so it’s critical that a buyer conduct due diligence to the highest standard. All risks fall to the new owner including liabilities for zoning, environmental, and permit issues. Inspecting a foreclosure can be difficult if the power and water has been turned off.
If you reach the stage of an accepted offer, the bank must refer it to the courts for approval. A court date may be set within a few weeks but it can be much longer. Other interested buyers sometimes attend the hearing with the hope of making a bid for a small amount over the accepted offer although it must be for ‘cash’ with no conditions. If nobody contests your bid, you win! Now it’s time to conduct due diligence to make sure it is the property for you.
Some tips on buying foreclosures
- Hire an experienced sales representative to ensure you have representation
- Follow your agent’s advice on inspections and due diligence to reduce risk
- Accept the limitations of foreclosures and adjust your expectations
- Work with your agent on a contingency plan for the court process
- Be prepared to receive the home ‘as is’ in need of cleaning, fixtures, and appliances
Questions? Contact us for more information on foreclosure properties.