In Canada we have an extremely low foreclosure rate compared with other parts of the world. By most estimates we currently hover at around 0.30%. The U.S. is closer to 1.2%, and Greece is hitting as high as 33%.
Credit our tightly regulated lending environment for that rate not rising past 0.40%, even during the 2009 economic crisis. At our loosest, Canada was still much tighter than most other nations.
Also Canadians do not easily give up on their homes.
This said, if shopping for a new home or an investment property, there are usually one or two foreclosure properties worth considering in your target market. It is true that foreclosures often sell at a discount from current market value, but typically not that significant of a discount.
Things to consider: writing the initial offer you can insert ‘subjects’ such as appraisal, inspection, and financing and have a comfortable length of time to prepare a budget based on detailed quotes for any work that needs to be done to restore the property.
The offer will be written to the lender, not the original homeowner who is now just the occupant.
The former homeowner/current occupant may be able to occupy the property right up until the day you take possession.
There is no guarantee that they will not take the appliances, furnace, lighting fixtures, or anything not nailed down when they leave. There is essentially a (perhaps bitter) third party occupying the home that you are buying in as-is condition. Not ‘as-is’ when viewed, as is standard in a transaction, but ‘as-is’ the day you are handed the keys. For this reason a vacant property is often preferable, as there is reduced risk of further damage to the property.
The alternative is preparing your financing in advance of writing an offer and showing up on the assigned day in court and making a competing sealed bid.
The judge will determine if the property is selling close enough to fair market value, which it must, and the homeowner has an opportunity to dispute any ‘lowball’ offers as being unreasonable. In Canada a lender cannot sell the property simply for what is owed. It is all about fair market value.
A lender has also likely been without payments for anywhere from 12-24 months, as the system is heavily biased towards Canadians not losing their homes. This means the property may have been occupied by somebody at no cost to them for nearly two full years. Count on very little maintenance or upkeep having been done during that time.
An excellent plan is to knock on doors and ask neighbours questions about the property and its history. Was it a rental property with a string of bad tenants? Were there illegal activities on site? All good things to know.
Determine the maximum purchase price in advance. Factor in the appraisal, the inspection, and the budget for repairs. And in the calm of your own office or home, well in advance of entering the heated atmosphere of the courtroom, settle on that maximum figure. Then stick to your maximum bid as planned.
The foreclosure process is a segment of law that truly allows socialist roots to shine through. It is based on giving every opportunity to homeowners to not only recover their property, but also to see it sell for a reasonable price.
It is not quite as lucrative an arena for investors as it is in the U.S.A. but opportunities do exist. Be sure to enlist the services of your mortgage broker to assist you through the process.
Jean-Guy Turcotte is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.