This is the fifth and final post in our series on foreclosures written by Stan Galbraith of Galbraith Law. The previous parts in the series were Foreclosures Part 1, The Redemption Period, Court Ordered Sale and Mortgage Insurance.
Buying a Foreclosure Property
Buying a foreclosure property is a complex endeavor. Four points to remember:
- The court is the seller.
- The court has never owned or lived in the property.
- The court cannot nor do they have any desire to warrant something over which they have no knowledge or control.
- The foreclosure process only touches the real estate.
The standard AREA (Alberta Real Estate Association) contract is subject to severe modification. Many standard items are deleted.
The first to go is any reference to chattels. In other words, any reference to freestanding items such as fridges, stoves and garage door openers is deleted. The foreclosure process only relates to the land and that is all that can be offered for sale. Since this sale is not under the control of the owner, chattels cannot be included.
The second major area struck from the standard contract is the provisions dealing with the deposit. The deposit is paid into court and governed by the court process. The rules for dealing with the deposit are covered by the court order in court listing process.
The next item to go is the usual provisions regarding the closing process. Once again this is covered by the court order.
Finally, anything to do with warranties is struck from the contract. Remember the court has no desire to warrant something over which they have no knowledge or control so they will not warrant compliance or lack of encroachments or any other item. This includes production of the Real Property Report in support of the warranties. Often, if the lender has an RPR on file they will produce it. If they don’t, they won’t. If the property has changed they will not provide an updated RPR.
This all goes back to this single point: who is selling the property?
What about the price and the offer?
So, what does a foreclosure property mean for any potential buyer or their Realtor ?
First and foremost, it means a lower price. With none of the usual warranties the price is typically much lower. If it turns out there is no permit for the garage or deck or even the house the buyer is stuck. The buyer must deal with this. Likewise, any other deficiencies such as missing appliances are typically at the risk of the buyer. All of this dictates a much lower price.
Before making an offer make sure you know that if there is no permit in place for the garage or deck you cannot force the seller to get one. If the basement is leaky there is nothing you can do.
Make sure, if you are the buyer or Realtor, your inspection is thorough. In many cases you will have access to the property to allow a professional inspector opportunity to look at the property. In many cases you will not. As a buyer or Realtor look more carefully than you would otherwise.
When submitting an offer make sure it is unconditional. The court and the lender’s lawyers will not engage in a negotiation process. Their first preference is a clean unconditional offer.
Finally, pay attention to the court order when drafting and submitting an offer to buy. Purchasing a foreclosure property can be a great opportunity, however, it is a potential landmine for anyone who is not careful.
About the author: Stan Galbraith is a lawyer with over 25 years of experience. He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.
