Everything You Need to Know About Buying a Foreclosure in Alberta
The real estate market in Canada has been on an upward trend over the past 2 decades, pricing out many locals in the major cities of Toronto, Calgary, Ontario and Alberta.
Many buyers are now on the lookout for great real estate deals, and some of them are turning to foreclosures.
With the Canadian household debt on the rise, many are finding it hard to keep up with bills, mortgages, car loans, etc. As a result, ending up losing their homes due to foreclosures.
The situation is not being helped with interest rates at an all-time low, encouraging many to accumulate more debt. With more homeowners servicing more debts, the rate of foreclosures is likely to increase.
How Common are Foreclosures in Canada?
Compared to countries like the USA, foreclosures are quite rare in Canada. This is because lenders prefer to avoid the foreclosure process altogether and work with homeowners to establish appropriate payment plans.
In addition, in extreme cases, lenders usually launch foreclosure proceedings after 4 months' worth of payments are missed. Homeowners can still negotiate with lenders during the foreclosure period.
The foreclosure process can be costly and very hectic. Lenders usually have to deal with:
- Legal costs.
- Legal processes.
- Lots of time spent on the process.
- Holding an auction.
- Listing the house for lower than the original price.
How Do Foreclosures in Alberta Happen?
In Canada, there are two types of foreclosures, Judicial Sale and Power of Sale. A judicial sale is common in British Columbia, Quebec, Alberta, Saskatchewan, and Nova Scotia. Power of sale is common in Prince Edward Island, Newfoundland, Ontario and New Brunswick.
A Judicial Sale involves court processes before a lender takes possession of the house whereas in Power of Sale, through a clause in the mortgage contract, the lender has the power to sell the house after the default of 4 mortgage payments.
Foreclosures through a Judicial Sale can be a lengthy and hectic process for all those involved. In this process, lenders have to file a petition with the judicial court for permission to sell the property.
Although highly unlikely, lenders can file a petition as soon as the first mortgage payment defaults. The number of payments missed before a foreclosure procedure commences varies from lender to lender.
Steps in the Judicial sale procedure include:
- The lender starts the foreclosure process after a certain number of mortgage payments are missed.
- The lender files a petition with the judicial court to sell the house.
- The homeowner is issued with a "Statement of Claim for Debt and Possession".
- The homeowner is allowed 20 days to file a response in the form of a “Statement of Defence”.
- If the defaulter loses the case or fails to file a Statement of Defence, the lender is allowed to sell the home.
- The defaulter is given 30-35 days to vacate the home.
During the foreclosure process, most lenders are willing to negotiate with their borrowers. If convinced of the borrower’s ability to fulfill payment obligations, a lender can close the foreclosure process and allow the borrower to continue with the mortgage payments as before.
If the borrower defaults again, the lender will restart the foreclosure process. The house will then be sold through an auction or traditional property sale.
Should You Buy a Foreclosed Home?
Foreclosures, while quite rare, usually happen from time to time. However, the buying process may be different from buying a normal home. So it's crucial to be aware of the risks and potential benefits of buying a foreclosed home.
- The lender may list the house at a lower price or you may get the house for a great deal at auction.
- Foreclosed homes may be a great investment opportunity if bought for the right price. Landlords and flippers can make a good profit.
- Liens and arrears in taxes and mortgages are removed to allow for an easier sale process.
- Foreclosure homes are sold as-is, meaning the bank won't be responsible for any repairs due to water damages, non-functioning appliances, etc.
- Putting an offer and waiting to be accepted may take a long time as the offer must be approved by the court.
- No warranties are guaranteed so issues such as zoning, foundation, will be yours to deal with.
- With ballooning real estate prices in Canada, the house may sell for just below its real estate value.
- In-demand properties located in ideal locations may attract competitive offers, therefore outpricing many and selling for expensive prices.
- You'll be responsible for the land transfer tax and land title transfer tax. Luckily, these are not expensive in Alberta compared to other provinces.
Recommended Steps to Purchasing a Foreclosed Home
1. Inspect the House and Get an Appraisal
Foreclosed homes may present their own issues. If the previous owner had fallen on hard times, chances are stuff like maintenance, cleaning, landscaping, repairs and utilities may have been abandoned.
So it's best to do your own inspection or pay for an inspector who can check everything from plumbing, heating and all other issues. This will help in estimating the total cost of repairs.
Carrying out an appraisal to value the home will gauge the appropriate offer to put on it. You want to offer a competitive price that can be accepted but also one that is not overvalued.
In the case of an auction, an appraisal may help you remain objective during the bidding process and not bid what you cannot afford or something way above the market value.
2. Get Pre-Approved
Unless you're paying for the house completely out of pocket, you may want to get pre-approved for financing. So it's best to get your financial affairs in order and check with your lenders the total amount they can lend you.
In addition, sellers prefer working with buyers who present pre-approval letters. Remember, you can still take out your mortgage with another lender even after being pre-approved.
3. Check the Listings
Avoid settling for one particular listing before conducting thorough research of the real estate market. Browse through listings on newspapers, real estate magazines and Sign Up for an account to receive notifications on your email whenever we find the right foreclosure listings for you.
4. Get a Real Estate Agent
A good real estate agent will go a long way in helping you buy a foreclosed home. Get someone who is experienced in selling foreclosed properties within the local area. They can help in deciding whether the property is a steal or discovering pitfalls you hadn't considered.
The agent can also help in finding foreclosure properties you had missed. In addition, they may help with dealing with stuff like regulations and procedures that have to be followed, since rules differ from province to province.
Buying a foreclosure home for the right price can be the best thing to happen for anyone looking for a home or investment property. However, exercising caution and conducting the necessary due diligence is important to land a good deal.