Buying a Foreclosure/Court Ordered Sale

Many people wonder about the process of purchasing a foreclosure home.  These are complicated transactions and are quite different from a standard home purchase.  I have been involved in several of these kinds of transactions and can provide details on what you can expect.

When a home owner stops making their mortgage payments for a certain length of time, the bank will ultimately take over the home and sell it to recover money they are owed.  This is a long process that the bank and the home owner go through.

Once the property is listed for sale, the marketing is usually the same as any other home.   Prospective buyers will view the home and if they are interested in purchasing it they will have their real estate professional draft an offer.  When an offer comes in on a foreclosure property, it is most often the legal representative for the bank who will decide what terms and conditions to accept.  Once terms have been agreed to by the bank and the buyer, there is an accepted offer in place.  The buyer may have subject conditions on the contract.  For example, they may want to have a home inspection done or ensure they can arrange necessary financing.  Once they have removed all of these conditions and are fully committed to the purchase, a court date will be set.

Here is where the process gets complicated.

Now that a court date is set, the purchase price that has been agreed to becomes public knowledge.  This means that if anyone else is interested in buying the home, they can show up in court on the date of the hearing and make an offer; most of the time with full knowledge of what the original buyer has agreed to pay.  Any additional offers must be subject free as the judge will only accept offers with no strings attached.  In my most recent foreclosure sale, no other interested purchasers arrived in court.  When that is the case, the original buyer usually gets the home at the price agreed to in the contract, and that is what happened with my clients recently.  In rare cases though, the judge may decide the home has not been on the market long enough to get the best price, or that the price accepted by the bank is lower than market value, and the court will be dismissed with no sale of the home.

In other cases, multiple purchasers will arrive in court to bid on the home.  When this happens, the judge will usually ask for sealed envelopes with each purchasers offer inside.  The buyer who made the first offer will have the opportunity to change their offer if they want to at this time.  The judge will then pick which offer will be awarded the sale.  In all of the cases I have attended, the highest price gets the sale.  It is not unheard of, however, for a judge to choose a lower offer if it is felt that it is better in some way.

The risks associated with a foreclosure are high, because the court will not give any kind of warranty on the home.  If you move in and find serious problems with the home you are stuck with them.  The court also cannot sell any chattels with the home, they do not own the chattels; they only have the rights to the house and property.  So appliances, furniture, and anything else that the home owner wants to remove or damage can be gone or destroyed by the time you get to move into the home.  For these reasons, many foreclosure homes are sold at bargain prices compared to current market value.

If you have any specific questions or comments on this subject, feel free to email me directly (brandypeterson@shaw.ca), I am happy to chat!

And if you think that buying a foreclosure property is a good fit for you, I would be happy to help you in your search and walk you through the process step by step.

Brandy Peterson: “Reliable answers to your real estate questions.”