Buying a Property in Foreclosure in Victoria, BC

Buying a home that is in foreclosure is different than any other purchase.

When a property is in foreclosure, at a certain point in the foreclosure process, the lender who is foreclosing takes charge of selling the property; so effectively the lender is the seller.

Normally, in a non-foreclosure purchase, buyers insert certain conditions for their benefit in their offer. In a foreclosure situation, the most common buyer’s conditions are financing and inspection and, in the case of a condo, a condition allowing the buyer to review and approve the strata documents. The party who makes the original offer to the lender normally has such conditions in their offer. In addition, all offers made on a property in foreclosure must contain a condition for the benefit of the lender making the offer subject to Court approval.

Once the lender accepts an offer on a foreclosed property and all of the buyer’s conditions are removed, then the lender’s lawyer applies for a Court hearing and typically any other parties who have shown an interest in the property are advised of the price at which the lender has agreed to sell the property. The timing of the Court hearing depends on how busy the Court is at the time the application for a hearing is made.

Just before the Court hearing, the original buyer and all other parties who wish to present offers to the Court assemble outside the Courtroom. The lender’s lawyer then orchestrates a two stage process. First, all parties wishing to make offers lay out their offers for all other parties (including the party who made the original offer) to review.  Then, all parties take back their written offers and have an opportunity to change their offers if they wish (including the party who made the original offer). All offers are then put in sealed envelopes and given to the lender’s lawyer.

The Court reviews all offers and orders the acceptance of whichever offer the Court considers the best. So, the party who made the original offer which was accepted by the lender may not end up being the buyer. Normally, the offer accepted by the Court is the highest offer, but the Court will sometimes exercise it’s discretion and accept the original buyer’s offer, even if it is slightly lower than another offer presented at the Court hearing.

Unlike the original offer accepted by the lender which usually does have conditions for the buyer’s benefit, all other offers presented at the Court hearing must be unconditional offers. Most people need to have a financing condition and want to have an inspection condition, so buying a property in foreclosure is not practical for most people. (It is sometimes possible to do an inspection and have an appraisal done in advance of the Court hearing, but many people don’t want to go to this expense when they don’t know if they’ll end up getting the property.)

Another anomaly with buying a foreclosed property is that the buyer has to sign a “Schedule A” which is attached to the offer. The Schedule A normally overrides anything written in the body of the offer. Each lender has its own form of Schedule A, but they all contain terms that are very much in the lender’s favour and detrimental to the buyer’s interest.

In a typical Schedule A, the buyer acknowledges that there are no representations whatsoever. In addition, the typical Schedule A provides that the buyer agrees to take the property in whatever state it is in on the possession date. If the person being foreclosed is living in the property (as is often the case) and causes damage to the property, the buyer typically has no recourse. It doesn’t often happen that the person being foreclosed causes damage to the property, but it has been known to happen.

Another common term in many lenders’ Schedule A deals with vacant possession. In a conventional (non-foreclosure) purchase, a buyer who contracts for vacant possession is entitled to vacant possession on the possession date. If the seller doesn’t deliver vacant possession, the buyer can look to the seller for damages. (For example…if a tenant doesn’t leave by the possession date, the buyer may have to incur the cost of renting other accommodation and paying to store all their furniture and other belongings.) In the case of a foreclosure, the Schedule A often provides that if the property occupant (which could be the owner or a tenant) does not vacate on the possession date, the lender’s sole obligation is to apply for a Writ of Possession and the buyer has no recourse against the lender for failing to provide vacant possession.

One other thing that should be noted is that on a foreclosure, the property purchased does not include any chattels. Broadly speaking, chattels are things in the property which are not affixed. This would include appliances. So, when you buy a property in foreclosure, under the Contract of Purchase and Sale, you typically do not get the appliances.

The Schedule A needs to be read over carefully by the buyer as it typically contains a number of other terms that are prejudicial to the buyer. So, buying a foreclosed property definitely carries risks not found in conventional purchases.

People who buy properties in foreclosure are well advised to speak to their lawyer so that they are aware of all the potential risks.

Buying property in foreclosure is not for everyone, but it can sometimes work out well for a buyer.  If you have questions about purchasing a foreclosure property in Victoria, Oak Bay, Saanich or Sidney contact us here.

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