What you Need to Know about Court Ordered Sales
Court Ordered Sales (also known as a foreclosure) are a rare, but interesting type of sale in Vancouver’s Real Estate Market. The process is very different from a typical sale, and you’ll definitely need professional guidance during the purchase. There are a couple very key differences when it comes to a court ordered sale vs a typical sale, so read on to get a general idea of the process.
Marketing a Court Ordered Sale
A court ordered sale is initiated when someone defaults on their mortgage to the point where the bank/lender appeals to the BC Supreme Court to take over the property in order to recover their mortgage loan (through a sale). The property is listed with a real estate agent as a Court Ordered sale, and is marketed like a normal property through an MLS Listing with photos, showings and open houses (as required by the Court). The listing agent will have the strata documents available for any interested Buyers.
If a Buyer likes the property, they can submit an offer. This offer can be negotiated. Once the offer is accepted by the Lender, the Buyer can proceed with their typical due diligence (inspection, financing approval, documentation review). Once the Buyer has satisfied these conditions, the final condition – court approval – is initiated. At this point, the Buyer cannot back out of the contract (unless the court denies the sale). The Lender needs to show the court that the property was properly marketed and that the offer is consistent with fair market value. So, a court date is set to grant court approval, which is usually a few weeks later. This court date becomes public information, as does the agreed upon sale price.
The listing agent is allowed to continue to show the property to other potential buyers until the court date.
The listing agent will have a document called a “Schedule A” which lists instructions every buyer needs to know about the sale.
Schedule A and “As is, Where is” for Court Ordered Sales
One of the most important parts of a court ordered sale is the fact that the property is sold “as is, where is”. Since the Lender isn’t the property owner, they don’t know anything about the property and won’t offer any guarantees. This means that there’s a good chance that the appliances may be taken, and just about anything that isn’t fixed to the property (yes, this could include sinks, toilets, etc) make not be there upon possession. Keep in mind that the property may have been very poorly kept, which can lead to other issues like mould, grow-ops, poor maintenance, etc. The Buyer assumes all of these problems.
The listing agent will have a document called a “Schedule A” which details pertinent information about the sale, as dictated by the Court, including the Seller names, details of the completion date, instructions from the court, etc.
The Court Date
On the court date, the listing agent and lender must provide the court with information detailing the fact that the property was properly marketed and accepted at a fair market value (appraisals, property comparables, etc). If the court decides the property was’t marketed enough, they can deny the sale. The original owner will be notified of the sale and has the opportunity before the court date to pay off their mortgage and cancel the sale.
Other interested Buyers can also show up for the court date and submit a competing offer. Yes, this means that the original Buyer with the accepted offer may not actually be the one to purchase the property! There is no limit to the number of offers that can be submitted. If there are multiple offers, the original Buyer can submit a new (higher) offer.
The caveat is that every offer must be free of any conditions, must meet the terms detailed in the “Schedule A” and must include a bank draft for the deposit (this deposit is returned if the offer is not accepted).
The Court will then review every offer and choose the best one (in foreclosures, it’s often the highest offer though the deposit amount and completion dates may come into play). If the court deems that none of the offers are good enough, they can deny the sale.
If the court accepts an offer – it’s a done deal. The court releases instructions that allow the property title to be transferred to the new owner on the agreed upon Completion Date. The Lender and the Strata are paid what they are owed via the sale proceeds.
Risks of Court Ordered Sales
Court Ordered Sales (Foreclosures) are definitely risky for Buyers, though they are just about the only chance you’ll find a “deal” in Vancouver Real Estate, and even then, a “deal” isn’t guaranteed, especially if the property saw multiple offers, proved to be a bigger hassle than it was worth, or worse, is in horrible condition upon possession.
Make sure you’re educated when it comes to court ordered sales. Contact us for more information.