Foreclosure Investing – Not as Profitable as You May Think
A foreclosure is when a bank or lender gains ownership or control of the right to sell a property in order to pay off the mortgage as well as legal fees, commission, property taxes etc. There are no warranties with a foreclosure sale and properties are sold in “as-is” condition.
In Canada financial institutions also need to protect the owner’s equity and attempt to get fair market value under the Canadian Securities Act. So buying at a huge discount typically doesn’t happen like it does in the United States.
Below are the steps in the foreclosure process:
Bank is in communication with owner when mortgage payment is missed.
If after 30 days bank does not receive the mortgage payment, lawyers will send demand letter stating the entire mortgage balance needs to be paid.
If the mortgage is not paid within this time, the bank will then start the foreclosure process.
Property owner then has a redemption period of up to 6 months where they can refinance the property to payoff outstanding mortgage, interest and legal fees.
If the matter is not settled during the redemption period the bank takes control of the property either through title or by court order.
Bank will get a comparative market analysis and appraisal as the basis of the asking price.
Furthermore, the bank must also be able to prove that they tried to obtain fair market value for the property in court. If a lender sells for less than the fair market value and the owner can prove it, the lender can be legally liable. On the other hand if the lender can prove that they sold for fair market value and it’s not enough to cover the mortgage, the lender can hold the owner liable for the shortfall.
Lastly, if there are no offer close to list price lenders will usually do a comparative market analysis every 30 days and lower the price accordingly till they get an offer close to asking, and if the bank is selling by court order the offers must be approved by the court.