Buying a foreclosure is more complicated than buying a regular listing given the legal complexities. The foreclosure process in BC is much different than in the United States. The banks and the courts in BC (and the rest of Canada) move very carefully to ensure that the process is fair to all parties (more on that in my next blog).
When Janet and I purchased a foreclosure in 2002, the property had only been listed for about a month. It was not considered a “hot” real estate market. The bank priced the property based on their formal appraisal that took into consideration the current condition of the home. There was also a developer who had twice viewed the property and was doing some due diligence on development before putting in an offer.
We chose not to lowball an offer, as the chance of success of this strategy was low. The more time this home was on the spring market, the more it would open us up to competitors for the property. Many potential buyers had been turned off by the knee high grass and abandoned appearance. The bank had not been permitted access in the house, even to do minor yard work. This kept buyers at bay. If our offer was not accepted in the first go around in court, it may be that the banks get access for maintenance in the second round. We didn't want them to perfume up this pig and attract more buyers.
We decided to get our own independent appraisal of the property done, to confirm and/or challenge to the bank's valuation. Our valuation came back at 2.5% lower than the banks. Perfect, we now had support for a somewhat lower offer, not a lowball, but lower. We decided to present an offer in the amount of the appraisal we had done. The offer was accepted and a date with the Supreme Court of BC was set for two weeks later.
Even though the bank accepted the offer, it still needed court approval. If the offer had been significantly below the appraised value, there would need to be extenuating circumstances. In our case, we provided a second appraisal which gave the court a defendable position for our price. There were no extenuating circumstances to support anything lower. The condition of the property was already reflected in the appraisal, the house had been on the market for only a short period of time, and the house was in a desirable area. A lowball offer would likely result in rejection by the court, and a suggestion for a longer listing period before a significantly lower offer would be accepted.
The court date is public and the listing realtor is obligated to tell all interested parties about the offer and the court date. Anyone interested can show up at court with a competing offer. When the date arrived, we went to the downtown Vancouver courthouses at the 10:00 am start time and waited for the docket number of our property (hopefully our property) to come up. The process moved quickly and within half an hour our property was before the judge. There was indeed another proposal being submitted. The judge had a quiet sidebar with a lawyer for a moment and our docket number was moved to the back of the list. What did that mean? Well that meant, we were in for a long long day.
What we found out during the next hour from the bank’s lawyer, was that the previous owner (before it became "bank owned") who had been foreclosed on, had shown up in court to reclaim the property. We didn't foresee this and it was major event in the courts' eyes. Even though the six month redemption period had expired, courts want to keep BC families in their homes. If financially feasible, they will err on the side of the owner and try not to displace property owners. We would have to wait for the proposal from the previous owner, but the purchase by us was looking less likely.
Given the number of foreclosures before the court that day, our docket would not likely come up again until after 3 pm. We were advised not leave the court, just in case the process moved faster. We needed to be present in case there were other bids besides the previous owner. There may be a situation where we would have to submit a sealed counter bid. (only the original accepted offer gets to resubmit new offer in court)
My wife and I were able to spell each other off and get a bite to eat. We nervously sat on the hard bench seats for five hours and 45 minutes. When the docket finally came before the judge, she asked for the previous owner to stand before her with his proposal. He just said that the home was being sold for lower than he had purchased it for many years ago and he wanted to buy it back for the price we were offering. He has no paperwork to present. He did not bring a cheque. He didn’t have a payment plan.
You could hear a pin drop for about 30 seconds while the judge collected her thoughts. When she spoke, it was clear that this was not a scenario that in her mind warranted special consideration. The judge “threw the book at him” so to speak. She sternly reprised him ... he did not live in the house, it had been abandoned for months, he did not maintain the condition of the house, he did not allow the bank to maintain the house, he refused to respond or communicate with the bank.
Her voice then softened and the gist was .... regardless of all she just said, the courts are very reticent to displace people where there is a concerted effort to keep their home. In this case, the judge found that there was no such concerted effort. In fact, she told the previous owner that if he had shown up with a payment plan, post dated cheques and even a certified $1,000 towards the back debt, she MAY have given some consideration to bridging the relationship with the bank. BUT to allow a house to fall into such disrepair, blocking all attempts to maintain it, and then trying to buy it back at a lower value was distasteful to her. No deal. Our offer was accepted, and the house was ours. We looked at each other and blinked. Did that just happen?
It was definitely not an easy way to go about purchasing a home and not for the faint of heart. In fact, we both walked away from the process feeling somewhat confused. We were elated to get the house but felt a little heavy hearted about it being at someone else’s misfortune. The possession date came quite quickly and once we were in the house we cleaned, added plants and opened the windows to fresh air (and so much more – see my September 9 blog). We made it our own and did not feel that it carried negative energy.
Since purchasing our own foreclosure, I have been through the process many times as a realtor with clients. I have encountered bidding wars, but never the courtroom drama of the previous owner showing up. That is very unusual, given the long redemption period before foreclosure.
If the property you wish to purchase is a foreclosure, the process is generally not as complicated as it was in our situation. I've gained so much experience over the years, I now find the process quite straightforward.