Know the Risks When Buying a Foreclosed Property

What to Know When Buying a Foreclosed Property in Alberta

There are many misconceptions about a foreclosure being a great deal. Indisputable some could be a fair or a good deal, but in most circumstances, they sell at market value. Often these homes are not well maintained and could be cosmetically damaged. An appraiser determines the value of the property in "as is" condition. And the reduced price typically reflects the cost required to make the home habitable.

It is essential to understand that if there happens to be appliances in the home, they will not be included in the offer or part of the contract. Let say the night before possession; all the appliances are stolen from a break-in, you are just out of luck. And the same can be for any other damages that might occur up until possession. So a quick possession is typically in your best interests if you still decide to pursue a foreclosure property in Calgary.

As a buyer, you might have an interest in the property and decide you may wish to pursue an offer. A lender (in this case, also the seller) may or may not allow for you to have conditions as part of your offer. So if you want to do a home inspection, that is not a problem, but you will want to have one done prior to writing the offer to present to the lender or Court is some more rare occasions. The house is usually winterized to avoid any potential issues. So you need to keep in mind that a home inspection will not show any water leaks, as you cannot turn the water back on until you own it. The Bank will not provide any warranties for the property, and you agree to take the property on an "as is" basis.

If you are buying a condo, you will not be provided with the condo documents for review. Typically they will accept an offer that is conditional to the review of these documents, but you must order and pay for them yourself, which could cost you about $300 or more. The same is true for a single-family house purchase; to acquire a mortgage, you will need an RPR or Real Property Report. Typically the seller provides this to the buyer. Still, in such cases of a foreclosure property, it is the buyer's responsibility to provide this documentation at an average cost of $500 or more dependent on the outcome of the report. (if it does not comply with the city additional remedies may be required). As well, there are no guarantees as to any construction on the property has proper permits. 

There are many things to consider before purchasing a foreclosed property. You must understand all the risks involved in a Calgary foreclosure purchase, and it is also essential to understand the process in which they become foreclosed. 

Judicial or Court Sales – In Foreclosure: These real estate sales are governed by the "Court Of Queen's Bench Alberta." No conditions of any kind may form part of the purchase contract. Possession dates are determined by the courts. In many cases, a court date is set once an acceptable offer has been presented. In some cases, the person in foreclosure may still live in the property, making things difficult for viewing. 

• A court date can be a couple of weeks from submitting an offer.
• All offers should be unconditional. It is best to have access to funds prior to any offer.
• Property is "as is where is."
• The judge will make the ruling on what offer wins. In some cases, multiple offers.
• There will likely be no counter offer.
• Land surveys or condo documents will NOT be provided.
• The Court will determine the possession day. Usually 30-40 days after the offer is accepted.
• Appliances may be left at the property but are not part of the contract.

 Bank Owned Properties: Property owned by the banks are often listed and sold using the MLS. 

• Offers may have conditions. You may bring in a licensed home inspector and have a condition of financing.
• Most institutions will respond within 2-5 business days.
• Land surveys, real property reports, condo documents are NOT provided.
• Appliances do not form part of the purchase contract.
• Possession date is negotiable, but these homes are often vacant, so a long possession is not ideal.
• Purchases are "as is where is."

 Civil Enforcement Sales: In some cases, a bailiff or civil enforcement agency has been hired to collect debts, resulting in a real estate sale or partial sale. What a partial sale?! The enforcement agency collecting debts can only sell the debtors share of the property resulting only half of a home, or the debtors share being for sale. The Civil enforcement agencies have their own purchase contract that is different from the most common one used by an Alberta REALTOR®. 

 These real estate listings sometimes can be challenging to understand and deal with, and it is wise to contact a REALTOR® on whether or not this type of real estate is best for you. As experienced Real Estate Agents, we would be able to guide you through this process.