What is the process of a Court Ordered Sale?
There are a number of reasons why a property would be a Court Ordered Sale. Perhaps a person has lost their job and or is unable to meet their financial obligations with respect to mortgage payments; or an unhappy couple decided to get a divorce and are unable to come up with equitable terms of the separation; or taxes were defaulted on and the government steps in to get its money; or “Proceeds of Crime” legislation allows the government to seize the property; the list goes on.
The most common type of Court Ordered Sale is a foreclosure. The process of how a property is placed under Court Order can often take a fair amount of time. A Court Ordered Sale is often the last effort taken by banks and/or government to get monies owed on the property. The registered owner of the property will be given a select amount of time to pay the monies owed, and if that does not happen in the designated time frame, an application to the court is made and a judge may rule to sell the property.A REALTOR® will be hired to sell the property. The banks, or whoever is in charge of the Court Ordered Sale, will want to get the best possible price for the property. However, the motivation is likely higher than many homeowners and as a result, we can potentially see softer prices. If the property is listed much lower than market value, multiple offers and bidding wars can ensue, leading to a higher purchase price. That will often depend on market conditions and pricing.
Court Ordered Sale
So, is a Court Ordered Sale that much different from a tradition Sale? Yes and no. When you are searching for a home, you will want to see every property that is on the market that is in your price range, location, and desired needs (size, parking, etc.). If you walk into a home that is a Court Ordered Sale and you get the warm feeling in your stomach that says this is the home you want, you should not feel scared because it is a Court Ordered Sale. Just ensure that you are working with a knowledgeable Real Estate Expert who can guide you through the process and you will do well.
If a client says to me, “This is the home, I have found it and I am ready to make an offer!” I initially rejoice with glee that our hard work of research and seeing everything on the market has provided us with positive results, then we get to work. I will research the recent sales in the building or neighbourhood of the subject property to make sure that it is priced competitively and create a game plan for negotiations. This process remains true if it is a Court Ordered Sale, or any other type of Sale.The next step will be to sit down with my client and go over these numbers. There are a couple other steps taken during this sit down meeting to prepare for successful negotiations, which set me apart from my competition and you will discover that when you choose Leslie McDonnell to represent you.
Does an Offer have to be Subject Free?
Sometimes there is confusion over a Court Ordered Sale needing to be a subject free offer. This is not necessarily the case. An offer has to be free of subjects before the court will provide a court date, but that does not mean the initial offer must be free of subjects. Ask me for details.
Foreclosure versus Traditional Resale
When dealing with a Court Ordered Sale, you are able to create a very similar Contract of Purchase and Sale that would be made in any type of Real Estate Transaction, however, some clauses would need to be amended and closing dates are unknown. You are welcome to have typical subjects, such as Subject to Financing, Subject to Inspection, Subject to approval of documents (specifically with strata properties), etc. However, the key difference is there will be a Subject to Court Approval and a Schedule Amendments that outlines various terms and conditions of the sale, which will form part of the contract.
“As is where is”
The property is sold on an “as is where is” basis. This means, there are no guarantees of the condition of the home when you get it. There is a chance the Registered Owner, whom the property is being foreclosed upon, is disgruntled with the situation and would like to take their frustrations out on the property. In extreme cases, holes have been made in walls and property has been tampered with. Additionally, if you were to view the home and see there was nice stainless steel appliances, brand new washer and dryer, etc., there is no guarantee those items will be in the home when you take ownership on possession. This is one reason why you want to work with a Real Estate Expert who can find out the reasons the property has been foreclosed upon and try and see if we can estimate what the property’s condition will be at the closing date. There are risks associated with buying a home, any kind of home, but determining what those risks are and calculating them on a risk versus reward basis is a foundation of business.Once an offer is prepared and submitted to the bank, or whoever is representing sale, there are three potential responses – the offer could be accepted, it could be rejected, or it could be countered. If the offer is countered, we have the same three potential responses. After negotiations, if the offer is accepted, the subject removal period begins (given there are any).
Once we have an Accepted Offer
If it is a strata property, we will want to get the last two years of Strata Council Minutes, Engineers Reports, Depreciation Report (if any), and review these documents prior to scheduling the home inspection. The reason behind this is because if we find that the subject property is going to have to replace the roof in the next two years and the Contingency Reserve Fund is very low, there is a possible large assessment coming to the new owner. If the property is valued low enough to offset this potential, we may still be interested in the property. Or perhaps we go back to the negotiation table and request a hold back or lower purchase price. At the end of the day, when you are purchasing a resale property, you will always find something wrong with the building and you have to determine whether the value is there to take it on. Sometimes in Court Ordered Sales, the listing agent will not produce these documents. I want you to have every confidence when purchasing a home and I will purchase these documents for you, if necessary.
Provided all of documents, including the Title and Property Disclosure Statement, are approved by myself and my client, I will recommend booking the home inspection. I will provide my clients with a selection of top notch home inspectors they are welcome to use, or if they have a person they have worked with in the past, which they know, like and trust; I am happy to work with them. I will arrange access to all of the necessary areas of the building and be present for the home inspection.
Once everything has checked out, financing has been approved and everyone has confidence in moving forward with the property, the deposit cheque will be made and we can remove the subjects. In a typical Real Estate Transaction, this is where we break out the champagne and celebrate! However, we are talking about Court Ordered Sales and there is still another step to the process. Once the subjects have been removed and the Court Date has been set, all of this information becomes public knowledge. What this means is anyone can find out the price of our offer, the amount of our deposit and the dates of the court proceedings. In order to find this information out, someone would have to contact the listing agent and ask them for the information.
On the day of the Court Proceedings, anyone interested in putting in a subject free offer for the property is welcome to. This person will take on considerable more risk if he/she has not done their proper due diligence on the property. If three people were to come to the court proceedings prepared to put a bid on the property they are welcome to. Only the person who submitted the original offer is able to change their offer and make it more attractive. It is unlikely the judge will share with the court what all of the bids are and it is like a silent auction scenario. Considering there are no subjects to the offers, the price and the size of the deposit are the determining factors of the strength of the bid. It is very unlikely there will be a back and forth with offers, one final submission and that is it – the strongest bid will win.Now there is a strong chance that no one will show up the Court Proceedings and your bid will be the only one on the table. In this scenario, it is most likely the judge will approve the offer and this is the time to break out the champagne – you just bought a new home!
This guideline is for information only and does not constitute legal advice. For more information or a list of Court Ordered Sale properties in the lower mainland of Vancouver, please do not hesitate to contact me, Leslie McDonnell at RE/MAX Select Properties – email@example.com