Buying a foreclosure

[metallicat]

There is a house in Edmonton I am interested in, and it has been foreclosed. I have contacted a realtor, and he got my parents in to see it, as I'm out of town right now. Our plan was to buy it together to fix up, and sell. It has been in the hands of terrible owners for a while now, and since it's right across the street from my folks' place, we want to buy it to sell.

Our realtor suggested offering X amount for it, but is there a way to find out from a bank exactly what they want for it? Can you generally haggle down more from that figure? It is in rough shape, is dated, and needs a lot of work, so it isn't really worth what it should be right now.

Where do I go from here?

[Sinny Darino]

Good luck with a bank... They will probably not drop the price at all. They are only looking to make their money and if not more... Unless you offer them cash on the spot, I really doubt it... Or mortgage it through them!

[WilsonFourTwo]

If only a kind, smart, hard working member of CP would sponsor an entire Sub-Forum about Real Estate.....

This will get you started for sure.

http://forum.calgarypuck.com/showthread.php?t=98776

[Kjesse]

Go to a provincial registry, do a historical title search. That will give you the names of the people who were foreclosed upon. Then go to the court house, and do a search of their names at the clerk's counter. You will get the foreclosure case action number. Ask for a procedure card of that action. You will see there are a number of affidavits. You might want a copy of most of the affidavits. At a minimum you will want the Affidavit of Value and the Affidavit for the bank employee telling how much the mortgage was. This will tell you how much the bank was telling the court property was worth, and will tell you how much the bank had tied up in the property. There might have been competing appraisals, you should get copies of those, they'll be attached to affidavits. You will also want the Final Order for Forclosure, that will tell you at what price the bank took it over for. This information will help you set a proper price with confidence.

Or, hire a realtor. I'm sure they'd be happy to do this for the commission they'll earn if you purchase. But if you go in without a realtor and the knowledge of the above you'll probably get a better price if the bank doesn't already have a realtor involved. If the bank has a realtor involved already, just hire a realtor, they'll split the commissions.

EDIT: I just saw you already had a realtor. If they weren't doing this for you already, they're not doing their job IMHO.

[Deegee]

Great post Delgar. Deserves more then a thanks, but I don't really have much else to give you, sorry.

[metallicat]

Can I just hire you Delgar?

Thanks for the info. I really don't know if the realtor has done any of that, I will try and find out. Impressive stuff.

[onetwo_threefour]

To slightly simplify Delgar's process, rather than doing historical title searches and action searches, pulling the current title will almost certainly show a Certificate of Lis Pendens on the title. At the registry, you can then get the CLP printed for you on the spot. The CLP itself should identify the owners and should have the court file number on it. May save you a bit of cost and be slightly more efficient to go at it that way. The historical search is overkill. With the court file number from the CLP you can pull the porcedure card as Delgar suggested but save the cost and delay of an action search. Everything else I agree with bang on.

[metallicat]

Thanks.

So basically this process is to try and figure out how much is left owing, and theoretically try and buy it from the bank for as close to that as possible? Sure wish the bank would just tell me that! LOL.

[onetwo_threefour]

You've got your idea right. The problem that you have is that the foreclosure is a court supervised sale, and the court has a duty to the debtor to not allow the bank to sell at an unreasonably low value. What is meant by unreasonably low is a matter of debate, but if you find out that the bank is owed say 75% of the fair market value, that doesn't necessairly mean the court will approve the sale at that number. As a result of this your realtor's advice as to what to offer may be informed more by considering what the real fair market value is and discounting from there given that it's a foreclosure which may give you a number that's more acceptable to the court than what you get from working backwards from what the bank is owed. The other issue is that the property may actually be worth less than what is owing on the mortgage and if you use amount as a starting point you might actually overpay for the property.

I would suggest a combination of the approach the Delgar and I discussed along with your realtor's input as to the fair market value to work out what you should offer.

Ps. In follow up to my earlier post, if you have a realtor, you shouldn't have to go to the registry at all. Your realtor should already have a copy of title iif you're considering putting an offer in and ahould also be able to print off the CLP for you. You or he/she would still need to go to the Courthouse to get the procedure card but hopefully you can skip the registry altogether.

[Travis Munroe]

I'm a bit late to the punch but will give you some insight...

Find out if its a court of queens bench foreclosure or a financial institute.
If it is a bank institute there is a strong change they had the list agent do a CMA (comparative market analysis) on the property as well as an appraisal. The bank will take the higher of the 2 and typically calculate around 95% to be their bottom line. This is as of day 1 on the market. After a couple of months the bank will drop the price and drop their bottom line once again.
Knowing what is owed on the property is 100% irrelevant to what you will buy it for. You can pull titles on Spin II online all day long and it will not help you out..

If it is a court of queens bench listing then you can or have your Realtor go to the court house and pull the file on that property. Within that file will be a Market value appraisal and a forced sale value. If you offer a tad more than the market value then chances are you will get it.

Some things to note:
Financial institutes typically require 3-5 business days to look over an offer. During this time other offers can be submit from other potential buyers.
Court foreclosures can take weeks. The lawyer will either reject your offer or set up a court date. Once the court date is set you or your realtor will show up in court to watch things play out. A couple weeks ago I was in court with an offer for a client and had 4 or 5 back up offers. We started out low but knew there was a chance that another agent would stand up and offer a greater amount. I had to be prepared to offer just a tad more than that. (I thought i was in court to do this and it turned out to be several hours of just trying to evict the current occupant.)

The courts are not going to be fond of conditions where as a bank will be fine with them. You will need to have the property inspected or purchase and review condo docs, have financing lined up etc all before you submit your offer. I have a couple strategy's i use with clientele that allow us to submit right away and still work on conditions later but these stay between me and my clients.

FYI
If it is with the courts then chances are there is 30-40k equity in the property. The bank has foreclosed on the place because the owners are not paying the mortgage however the owners will still walk away with a bit of coin. If it is with the bank then the owner had no equity at all and the bank is just trying to recover whatever possible.
You need 30-40k in equity to have the courts deal with your foreclosure because real estate commissions, property management of the vacant unit, legal fees etc will all add up to be close to that value.

Feel free to ask me any questions. I thoroughly love working on foreclosures as many agents do not realize how simple they really are and it leaves a larger chunk of the pie for me. While there are risks associated it is possible to eliminate most of these by using an agent who as experience. In the past few months I have handled numerous foreclosures on the list and sale side!

PS: would love to have this topic in my paid for sub forum section. Thanks to Wilson for pointing this out!!!

[Deegee]

Speaking as the final institution for a second, when we do a foreclosure, we don't care how much we make in comparison to the appraisal value, just as long as our debt gets covered.

The quicker it's unloaded, the better, as far as we're concerned.

[metallicat]

Wow, information overload! That doesn't mean I don't appreciate all the advice, I certainly do, it's just a lot to take in (especially for someone who is on vacation!).

My concern with the figure our realtor to us to offer, is once we do the necessary work in order to he able to actually sell it, I don't know if we'd male any money. I know that is always a possibility, it's just that his price seems too close for comfort. I'll have to talk to my parents and see if they know what the realtor did in terms of the things you guys suggested.

And by all means, move this to the realtor section. The only reason I didn't put it in there is I wasn't sure how many people viewed the forum as often as they do the off topic.

Thanks again for all the input guys!

[Travis Munroe]

If it's been on the market for under 2 months 95% of list is reasonable. More than 2 months, inquire on any price drops and shoot for 91% of original ask or 95% of new asking price.

I do not understand what you are saying deegee. Your debt is never going to be covered. Wrote 2 offers in past 2 days where balance owed was nearly double what the place was selling for. Banks look for fair market value minus a bit for the lack of warranty/representation.

[metallicat]

It's actually not even on the market yet in this case, although the realtor thinks it will be soon. The reason we're trying to move quickly on this is because another neighbour of my parents has said he wants to buy the house as well, and we emphatically don't want that to happen. I've had my eye on this place for years, since the old couple who used to live there died, so I don't really want this newish neighbour to scoop us.

[Kjesse]

Thanks for the thanks, everyone.

When you said "foreclosed" (as opposed to "in foreclosure") I take that to mean that the foreclosure was completed. If that is the case, a new title will have been issued and there will be no CLP (and no mortgage) on title. If the foreclosure is ongoing, I agree with onetwo_threefour that current title search will get you to the CLP which will get you where you need, and quicker. I also agree with the rest of his comments, they are spot on. If the foreclosure action is ongoing, different considerations apply. I agree with much of Realtor 1's comments in that regard, he's talking about an ongoing foreclosure not a finished one, but I disagree with a few of his comments too.

I also missed a step, which is, you can't go to the registry with the municipal address and get the legal description to do the search. First you take the municipal address and do a municipal tax search (in the City or Municipal District where the property is) and that will give you the legal description, which you then take to the registry.

This isn't really something I'd take a retainer on, but if you PM me the municipal address I'll have my assistant obtain the procedure card for the foreclosure action. Law firms are plugged into the registries so its pretty easy for my assistant to do. From there I'll let you know which documents you should get from the court house, but to get the documents you're on your own. You'll have to go to the courthouse and order the documents, and they'll charge a buck per page. Some appraisals can be quite thick. You can also just ask to look at the file and take notes.

Finally, look at Deegee's comment, this is key. He said the financial institution doesn't care about the value of the property as much as they do about how much money they have tied up in it. I think Deegee works for a bank based on his comment, and while I don't, my experience is the same, banks aren't in the business of making money off property, they make money off the loans for property. This means, there might be a deal to be had, and a really good one if you can get to them before realtor commissions kick in. The bank will consider the commission in addition to the money they have tied up when evaluating offers. Also, if you finance the purchase through the bank you buy the property from, they'll be even more willing to make a deal.

[metallicat]

My apologies if I wasn't entirely clear. Obviously I'm new at all of this, so that's why I may sound as if I don't know what I'm talking about!

Thanks again for the latest update Delgar. Apparently my dad is making an offer today with the aid of our realtor, so who knows, maybe it'll all go good. I haven't had direct contact with the realtor in a couple of days so maybe he's done the due diligence that you guys have been talking about. I hope so anyways.

If I need any assistance Delgar in regards to what you've said, I'll send you a PM.

[Deegee]

Originally Posted by Delgar

I think Deegee works for a bank based on his comment

We're a Credit Union, not a bank, however still a financial institution so your comment is close to correct.

Originally Posted by Realtor 1

I do not understand what you are saying deegee. Your debt is never going to be covered. Wrote 2 offers in past 2 days where balance owed was nearly double what the place was selling for. Banks look for fair market value minus a bit for the lack of warranty/representation.

We have several properties where we are going through "the process" where we will be okay and not lose any money. We have sold several through a bidding process through the court and came out clean. Maybe we just have really solid lending practices that enable us to do this? Must be all the great employees we have on board, myself included!

I know as a general rule of thumb, unless the Mortgage is CMHC insured, we usually ask for an actual appraisal report by an accredited appraisal firm and will only finance 50% off of a Market Evaluation or Tax Assessment. There are very few exceptions to this rule, and as a result we are very well off as far as security position goes.

This is why borrowers cannot obtain 80% financing on riskier ventures, like Hotels, through traditional means. I know we don't really like to finance more then 50% of the value/purchase price, whatever is lower on hotels.

However, if our security is impaired then we will look to try and get as much as possible (or run the business ourselves) to avoid a big loss. If we are well secured though, we are not looking to sell a property for fair market value, just enough to cover our debt.

Hope that helps clarify my statements earlier.

[onetwo_threefour]

Originally Posted by Delgar

Thanks for the thanks, everyone.

When you said "foreclosed" (as opposed to "in foreclosure") I take that to mean that the foreclosure was completed. If that is the case, a new title will have been issued and there will be no CLP (and no mortgage) on title. If the foreclosure is ongoing, I agree with onetwo_threefour that current title search will get you to the CLP which will get you where you need, and quicker. I also agree with the rest of his comments, they are spot on. If the foreclosure action is ongoing, different considerations apply. I agree with much of Realtor 1's comments in that regard, he's talking about an ongoing foreclosure not a finished one, but I disagree with a few of his comments too.

I also missed a step, which is, you can't go to the registry with the municipal address and get the legal description to do the search. First you take the municipal address and do a municipal tax search (in the City or Municipal District where the property is) and that will give you the legal description, which you then take to the registry.

This isn't really something I'd take a retainer on, but if you PM me the municipal address I'll have my assistant obtain the procedure card for the foreclosure action. Law firms are plugged into the registries so its pretty easy for my assistant to do. From there I'll let you know which documents you should get from the court house, but to get the documents you're on your own. You'll have to go to the courthouse and order the documents, and they'll charge a buck per page. Some appraisals can be quite thick. You can also just ask to look at the file and take notes.

Finally, look at Deegee's comment, this is key. He said the financial institution doesn't care about the value of the property as much as they do about how much money they have tied up in it. I think Deegee works for a bank based on his comment, and while I don't, my experience is the same, banks aren't in the business of making money off property, they make money off the loans for property. This means, there might be a deal to be had, and a really good one if you can get to them before realtor commissions kick in. The bank will consider the commission in addition to the money they have tied up when evaluating offers. Also, if you finance the purchase through the bank you buy the property from, they'll be even more willing to make a deal.

I agree with your and Deegee's perspective that once the bank actually has title the sale price decision is more driven by what is owed than fair market value.
You were paying a bit closer attantion than I was, I think. I was assuming the property was 'in foreclosure' as that is what I deal with 99% of the time and most laypeople don't distinguish between 'in foreclosure' and 'foreclosed'. However, if the neighbour has got wind of the situation woithout there being a realtor's sign on the lawn, it's just as likely that the foreclosure is complete as you say. In that case I would agree that a historical title would be necessary to get the parties names, but I believe the CLP would show up on the historical title,no? If so, you can still skip the name search.