Two days ago I attended a 1 day course on foreclosure for my PDP (Professional Development Program) credits. I really didn’t expect to learn anything particularly new since I had been involved in several foreclosure procedures as the buyer’s agent. However parts of it still proved to be worthwhile.
Many people think that they can get cut-throat good deals at foreclosures. Why? Simply because owners have to sell, they are forced to. Unfortunately, that is not usually the case. So far, all the foreclosures at court that I had attended ended at a ridiculous selling price. Overpaid? Hardly. But they are definitely close to market value. The prices are ridiculous because many people will, in the heat of the moment, get carried away and overbid. In other words, they paid more than what they actually wanted.
But let’s assume that every bidder is rational thus every bid is in the low bracket, the court will still have to evaluate whether the bids are close to market and whether reasonable marketing has been done by the assigned sales agent.
In a nutshell, once you get to court, the chances of getting a great deal are slim.
The best deals usually come during the redemption period (usually 6 months) before any judiciary actions would be involved. Of course since most owners would be embarrassed if their financial woes were publicized, the knowledge of a case in default is usually restricted to the lenders, the agents involved and the borrower. So for the general public with no access to the lenders and agents, tough luck, they would simply be left out of the loop till the matter has gone juridical.
Since people are forced to sell, there must be good deals around. Yes there are, but you shouldn't expect to take your chances in court. For high leverage, there are insurance agencies such as CMHC that would undertake the risk for a premium. They will buy the properties when defaulted and pay off the lenders. In such cases, any property sale is at full discretion of the insurance agencies and does not need to involve the court. This simplifies the complex procedures somewhat and shortens the time involved. More importantly, since the court is not involved and therefore less restriction on price, there would be cases where the properties will be sold at much lower than market price simply for liquidation.
While the course I took pertains to Canadian foreclosures, I find it reasonable to assume that most courts would not be permitted to sell at any price they deem fit without justification. All in all, the foreclosure process will be long, tiresome and complex with little likelihood for a great deal.
Is it worth it?
Many people think that they can get cut-throat good deals at foreclosures. Why? Simply because owners have to sell, they are forced to. Unfortunately, that is not usually the case. So far, all the foreclosures at court that I had attended ended at a ridiculous selling price. Overpaid? Hardly. But they are definitely close to market value. The prices are ridiculous because many people will, in the heat of the moment, get carried away and overbid. In other words, they paid more than what they actually wanted.
But let’s assume that every bidder is rational thus every bid is in the low bracket, the court will still have to evaluate whether the bids are close to market and whether reasonable marketing has been done by the assigned sales agent.
In a nutshell, once you get to court, the chances of getting a great deal are slim.
The best deals usually come during the redemption period (usually 6 months) before any judiciary actions would be involved. Of course since most owners would be embarrassed if their financial woes were publicized, the knowledge of a case in default is usually restricted to the lenders, the agents involved and the borrower. So for the general public with no access to the lenders and agents, tough luck, they would simply be left out of the loop till the matter has gone juridical.
Since people are forced to sell, there must be good deals around. Yes there are, but you shouldn't expect to take your chances in court. For high leverage, there are insurance agencies such as CMHC that would undertake the risk for a premium. They will buy the properties when defaulted and pay off the lenders. In such cases, any property sale is at full discretion of the insurance agencies and does not need to involve the court. This simplifies the complex procedures somewhat and shortens the time involved. More importantly, since the court is not involved and therefore less restriction on price, there would be cases where the properties will be sold at much lower than market price simply for liquidation.
While the course I took pertains to Canadian foreclosures, I find it reasonable to assume that most courts would not be permitted to sell at any price they deem fit without justification. All in all, the foreclosure process will be long, tiresome and complex with little likelihood for a great deal.
Is it worth it?
2 comments:
Does Canada work the same way US does? The foreclosure courts in US limit the auction prices to start at 90% market value, so naturally, the outcome of the auction will be really close to market value if not higher. (If I didn't remember wrongly).
In California, lenders can pursue judicial or non-judicial action towards foreclosure. Most lenders chose non-judicial foreclosures because it takes less time and costs less money. Under judicial foreclosures, borrowers/home owners can get a one-year right of redemption period after the house is auctioned off (isn't that just crazi?). The non-judicial foreclosures only give 90 days from the notice of default as the redemption period. So essentially, the good deals have to be found within those 90 days.
Fundamentally, Canada and US foreclosure courts both work to protect the value of the foreclosed property. But different cities will have different laws, as expected.
I have heard of the one year redemption, but Canada limits it to 60 days which is quite reasonable.
At the end of redemption period, the lender can decide whether they want to pursue order absolute or continue trying to sell the property.
90 days? Hmmmmm... why don't you aim for those who haven't been foreclosed but would definitely be unable to support loan payments in the long run.
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