Buying a house in foreclosure
Author: Denise M. Hendrix
Posted: October 10, 2017
If you read news or watch house-hunting TV shows, you may hear about people buying houses at a great deal, “fire sale” price because they bought a house in foreclosure. While home buyers in other jurisdictions may be able to snag homes at rock-bottom prices, the situation in Alberta is more complicated.
Alberta foreclosure law aims to balance the interests of the foreclosing lender with the interests of the homeowner being foreclosed on, and, in some cases, the interests of that homeowner’s other creditors. The foreclosing lender wants to sell the house quickly and for enough money to fully repay the mortgage and its costs. The homeowner, however, wants to see the house sell for as much as possible to recover their equity. If the homeowner has other creditors, those creditors will also want to see the house sell. The purchaser looking to buy a house in foreclosure is caught in the middle.
In recognition of these competing interests, Alberta law does not permit a foreclosing mortgage lender to unilaterally approve the sale a home. Rather, the lender must apply to the court and have the court approve the terms of the sale, including, most significantly, the purchase price and the date of possession.
A party interested in purchasing a home in foreclosure starts by making an offer. While this is similar to making an offer in a regular purchase situation, the purchaser will be required to make the offer unconditionally and will be required to agree to extra terms. These will include terms that the sale is “as is, where is” and no guarantee will be provided about the condition of the property, or that any appliances or window coverings will stay with the home. Documents that are normally exchanged in a real estate sale, such as a Real Property Report, will not be provided. The purchaser may or may not have the opportunity for a home inspection.
The offer will then be presented in court for consideration. The master (a specialized type of judge who makes most decisions in foreclosures) will decide if the purchase price is reasonable in all the circumstances. This will include the appraised value of the property, the amount of the mortgage debt, how long the property has been on the market, and the amounts of any other offers made on the property.
If the offer is accepted, the master will then determine the closing date. If the house is vacant, there is more flexibility in setting the closing date. If the current owners or tenants are still living in the home, then the closing date is usually set at least 30 days away to allow them time to move. Purchasers must be prepared that the court could grant additional moving time which could make closing even further out than 30 days. This is more likely to be granted if the current occupants are elderly or disabled, or if the property is a rural one with livestock.
Once the court makes those decisions and grants the order, the purchase process will be substantially similar to any other real estate purchaser. The purchaser will need a lawyer for the transaction. As already noted, in a foreclosure sale, there is no guarantee that the house will be in the same condition when the sale closes as it was when the purchaser viewed it. Some purchasers are afraid to buy a house in foreclosure out of concern the previous occupants will damage the property when they move out. While this is rare, it does happen, and the purchaser is still obliged the complete the sale and will have to make the repairs. Foreclosure purchasers need to weigh this possibility when deciding how much to offer for a home.
With all of these complicating factors, it may not seem worthwhile to buy a home in foreclosure. Despite all of the above factors, it is still possible to purchase a home at a fair price from foreclosure. A purchaser will want the advice of a good realtor and good legal counsel.
Hendrix Law would be pleased to assist purchasers with buying home in foreclosure with the exception of those cases where we represent the foreclosing lender.
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Calgary, Alberta Canada
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