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The foreclosure process is a mystery to many people. There are many misconceptions about purchasing a foreclosure property. It is more complicated than making an offer on a home that is not in foreclosure. I want to shed some light on the process and what buyers can expect. Also, if you have found yourself in a situation where you are nearing foreclosure, this will help you figure out what to do to avoid a judicial sale or foreclosure.
Judicial process begins with a demand letter sent to the borrower which gives the borrower a short amount of time to pay off the mortgage. Once the demand letter is sent to the borrower a petition is filed in the BC Supreme court which starts an action called the Order Nisi that gives a redemption time to the borrower. The redemption period, which is usually six months, is given to the borrower to redeem the mortgage. This can be done by the borrower attempting to sell the property.
After the Order Nisi, one of two things will happen. The petitioner will chose to have the property listed for sale by the court by way of a Judicial Sale through a Realtor. At this time, the lender will receive an order approving sale where the borrower will be responsible for any shortfalls between the borrowed amount of the mortgage and the sale amount.
The second option for the courts is an order of absolute foreclosure. If the redemption period has expired and if:
1. The property is worth the same amount as the mortgage debt or more,
2. The respondent borrower is judgment-proof (i.e. no assets or money to apply towards deficiency) or
3. There are no offers under a judicial sale; the lender can seek an absolute order of foreclosure, under which the lender becomes the new registered owner and all borrowers are wiped off title. No further action can be taken against the borrower after the court has granted the order absolute.
Once a judgment is placed against a property it is placed on the market with a Realtor. At this point a buyer can make an offer on this property. The purchase process for a foreclosed property is not like a property that is normally listed that is not under foreclosure. What happens is:
1. The buyer makes an offer to purchase the property and there is a subject period where the purchaser removes subjects such as home inspection, title search etc.
2. The subject free offer goes to court. Once in court the vendor’s lawyer presents the offer to the judge. (known as the Master in Foreclosure proceedings)
3. The Master asks if there are any other parties in the courtroom who want to submit an offer. If not, and the offer is market value, the Master will approve the sale. If there are competing offers the Master will instruct all parties including the original purchaser to leave the courtroom and resubmit their final subject free offer in a sealed, envelope to the vendor’s lawyer.
4. After all offers have been submitted the Master reviews the offers and approves the best offer.
All offers made at the court level must be subject free offers. As you can see, buying a foreclosed property is not as simple as many think. Even if you have an accepted offer on a foreclosed property, there is a high likelihood that there will be other offers once you reach the court proceedings.
I have not seen many foreclosures or court ordered sales come on to the Kamloops market recently. I do believe however, that we will see an increase in foreclosures and court ordered sales in 2009 and into 2010. Many home owners are over extended with debt not only in their homes but also personal credit card debt, personal loans and loans on vehicles.