I have been receiving numerous questions lately from investor clients of mine about the foreclosure process in BC. The first thing to note is that foreclosures are treated very differently in the US than they are in Canada. In the US, the laws protect the banks and not so much the defaulting homeowner. The opposite is true in Canada where the laws will give the bank the power to sell the property but the defaulting owner receives more protection under the law.
The internet is awash with foreclosure ‘get rich quick’ schemes. These schemes generally sell manuals instructing how to pick up real estate at one tenth of its true market value and then flip it for easy profit. Generally speaking this does not happen in Canada. The foreclosure process in BC will require that the property in default is marketed at a price that reflects as close to fair market value as possible. The price is not set based the banks willingness to cover an outstanding balance on the mortgage over which they hold first charge. Properties sold through foreclosure in BC will generally sell within 20% of their fair market value.
This is not to say a savvy investor cannot get a good deal buying a foreclosure. The opposite can be true but knowledge of the process is really helpful to ensure a successful outcome. Below is look at some of the steps involved:
Step One: Demand Letter
To initiate the foreclosure process, the lender mails a letter to the borrower informing them that the balance of the mortgage is now due in full due to delinquency. This is also known as ‘calling the loan’. This letter will inform the borrower of the total amount of the remaining balance of the original loan, and the period of time that is available to make payment. This shortened period of the terms of the mortgage is referred to as the “acceleration” of the mortgage.
Step Two: Petition
A petition is filed by the lender with the British Columbia Supreme Court registry. Henceforth, the lender is referred to as the “petitioner,” and the borrower and other charge holders on the mortgage ar referred to as the “respondents.”
Step Three: Order Nisi
The petition that has been filed with the British Columbia Supreme Court registry prompts an action that is known as an Order Nisi. This order outlines the amount that is required to keep the mortgage, and the time period during which payment can be made. This time period is usually referred to as the redemption period, and is typically six months from date of notice.
Step Four: Two Possible Outcomes
Depending on what action is taken, two different outcomes can occur after the Order Nisi has been ordered by the court:
Judicial Sale – The lender, or petitioner, may have the property listed for sale by the court upon the expiration of the redemption period. Upon the successful sale of the property, the petitioner may collect the difference between the proceeds of the sale and the borrower’s mortgage debt. If the sale proceeds do not satisfy the amount that is owed to the petitioner by the respondent, the petitioner will then seek the remaining balance from the borrower in an additional court action.
Order Absolute Of Foreclosure – When the redemption period has passed and if:
□ the disputed property is valued equal to or more than the
amount of the mortgage debt;
□ the borrower, or respondent, can’t have a judgment placed
against him – i.e., he has no money or assets to satisfy the
deficiency; or
□ no offers are made under a judicial sale, then:
The petitioner, or lender, can try to obtain an absolute order of foreclosure. In such an instance, the petitioner effectively becomes the new, legally registered owner; all other respondents and borrowers are erased from the title. Once the order absolute of foreclosure has been granted, no additional actions may be pursed against the original borrower or respondent, and the matter is considered closed.
While we have not experienced anywhere near the level of foreclosures that the US did, my feeling is that they will slowly start to rise in Vancouver and the Lower Mainland. The reason being that a certain percentage of borrowers who did take out sub-prime loans in Canada might be facing unemployment. Without an equity cushion to fall back on, these borrowers will be unable to make their payments.
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