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Buying Foreclosures in Canada – The Process

Once upon a time, I was a landlord and owned a couple rental properties.  As this may be old news to some of you, what you may not know is that I purchased one of the properties via foreclosure or bank sale.

As I’ve been a capitalist for as long as I can remember, it was a natural progression to look upon real estate to build wealth.  After graduating from Engineering school, I had the vision of owning multiple properties and creating a large amount of cash flow.

With this vision, I was on the hunt for real estate bargains.  One method which intrigued me was purchasing foreclosure/bank sale properties.  What I liked about this strategy was that there was a potential for a rather large discount on a property without having to insult the owner with a low ball offer.

Here is the process of buying a foreclosure in Canada.  Actually, this is the process I went through in Newfoundland which may be similar in other provinces.

Finding the Properties

In the local paper there should be a place where they announce properties that are being foreclosed on.  In our local paper, it’s just after the classified ads.  Within the ad, it should have the house location and the details of when the auction will take place.  On the bottom of the ad, there should be a lawyer contact should you require more information.

When I was on the hunt, I took note of houses in decent neighborhoods, and called the lawyer regarding the details.  As St. John’s is a relatively small city, I know the neighborhoods pretty well, so it was easy to spot a potential lead while quickly browsing the paper.

View The House

One thing to note about these properties is that not all of them are available for viewing.  More of a take it or leave it deal.  In my mind, it makes no sense at all to spend hundreds of thousands of dollars on something that you can’t inspect, so I cut these off the list.  However, the lawyer contact will confirm whether or not the home is available for viewing, and when the “open house” will be.  For the not so handy person, I would recommend taking an experienced  carpenter or home inspector along for the viewing.  Note though, these houses do not have any warranty.

I’ve done a couple walk through of foreclosed properties and they can be all over the map in terms of condition.  I’m not an especially handy person, heck I hired a painter for a bedroom, so I gravitate towards newer houses that are in good shape.

Attend the Auction

This is where it gets interesting.  The auction was held at the lawyers office boardroom with all the potential owners gather around the table.  It’s what you imagine where they announce the starting price and people around the table bid in the hopes of winning the house.  Before they start the bidding however, they disclose all the rules.  In the auctions that I’ve attended, the winning bidder is expected to have a 10% down payment on the spot, or within a couple hours of auction closing.  Some auctions have a “reserve” where if a minimum bid is not met, they do not have the obligation to sell the house.

Closing

Once the down payment is out of the way, it is expected to close the house within 30 days.  From there, an appointment is setup with a real estate lawyer who takes care of  the title search and closing the house.  As mentioned, the house is taken “as is”, so it’s extremely important to view the house before hand.

In a future article about foreclosures, I’ll get into more detail about the specifics of my purchase.

Do you have any experience with the foreclosure process in your province/jurisdiction?







10 Comments, Comment or Ping

  1. My experience is that a good home inspection can take hours. How much time do you get to do the viewing (with an Inspector in tow)? Do you use them to just try to find the blatantly obvious issues?

  2. @SPF, yes, inspections are the major risk which is why I stick to newer houses (and I find out who the builder is). The open houses I’ve attended have been for a couple hours.

  3. 3. saveddijon

    I bought my first principal residence as a power-of-sale.

    Ground was broken on the condo in 1989, and most units were purchased by investors. By 1995 the market had retreated a bit, and many of the investors had thrown in the keys. The mortgage holder therefore set out to sell the affected units. I can’t remember if a realtor was used, or if the seller went directly.

    There was no auction. Buyers simply contacted the selling agent (again, either an employee of the seller, or a realtor, I can’t remember), viewed the unit, and made an offer much like you would make an offer on a house regularly for sale. The resulting legal work was interesting – there was a LOT of paperwork to make 100% sure I had clear title to the property, and not the former owner. Interesting reading.

  4. 4. RK

    Great article, thanks for all the great info on the site I’ve been following for quite awhile always an interesting read !
    Any chance you would do an article on buying real estate in Florida ? I find myself browsing the many deals to be had down there quite often latley, but have little info on what the process is like ?

  5. I haven’t come across any foreclosures sales in Victoria, BC which is where I reside. I’ve never heard of any being publicized either.

    With the average single family home price in Victoria BC being around $600,000 any chance there was of getting a discounted sale here in Victoria would be snapped up pretty quick.

  6. 6. Future Money-Bags

    I have been looking into foreclosure purchases for a little while as well, but have never been to inspect any homes. It is possible to make great profit by being lucky to have money when others don’t. Also, some peoples garbage is anothers treasure, but you have to be careful as a ‘good deal’ could also be a huge waste of time and money.

    How long will it take you to fix it up?
    How much will the paper work cost?
    Are you able to rent it out right away, or do you have to fix it first?

    I think the next best thing would be looking for ‘for sale by owner’ and just making a low-ball offer on each property you like.
    Eventually one will be desperate enough to give you a minute to look at it.

  7. 7. QEW

    Well I purchased a rental property in Buffalo NY. It is 2 unit detached house with 2 BR & bath in each unit. Each unit has separate entrance. This was foreclosure home that went under the hammer to investor for $20K. He fixed it and brought it up to code and I had home inspector review it. As part of sale agreement he had both units rented to tenants for at least 3 months and all maintenance calls in first 90 days are free of charge.Thats when I bought it for 42K. Zestimate is 55K. Both units are rented. I like Buffalo over Florida for few reasons. It is near to Toronto. Rental market is strong in Buffalo with lot of section 8 tenants. You pay non-resident taxes in Florida which is as high as 8% of property value. It is tough to find a decent place in an ok neighborhood for this price in Florida.

    Point I am trying to make is if you are flipper they you can buy directly. But I neither had the skills nor the inclination to fix it myself. I am not expecting escalation on property value.ROI from rental income is typically around 10-15% per year. I am hoping in 5-6 years I will recover my investment. At the point I can continue renting it or sell the property.

  8. Before I bought my first home, I was scouring everywhere for some foreclosures to be found in Vancouver. I found that a lot of them weren’t as heavily discounted as I had hoped for.

    Thanks for clarifying the process- it seems a bit more straightforward now that you describe it.

  9. 9. ross

    I bought a bank owned foreclosure 2 years ago (in the US). Its my first house, but from what my real estate broker brother told me – buying a bank owned property is alot different that a traditional property.

    I was pretty much at the banks mercy the entire time. They had a clause in the contract that my brother told me was borderline illegal. It said that even after we were in escrow, they could get out of the contract for any reason.

    But things did go my way in the edn, and i got it for a great price. I could resell for a nice profit if i wanted, but i think i’m gonna be here for a while.

  10. 10. Worth the Risk?

    I am interested in purchasing a foreclosure in Campbell River, BC. It is owned by the lender and we have a Realtor. The previous owner is still in the home. We viewed it twice and although it needs updates there is no serious damage. If the transaction is successful and the occupants (tenants) damage the house/property between now and when we get possession do we have any legal grounds to seek compensation from either the bank or the occupants?

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