This month I have personally come across four foreclosure listings. That is a lot in terms of what I have seen in the past. There is definitely more to this story as we come out of COVID financial times and back into the mainstream finance world.

Banks, Mortgage Finance Companies and Credit Unions (lenders) quickly stepped up to help home owners during the uncertain times when COVID caused our society to close down and open up more times that Elizabeth Taylor has been married. Canada’s Banks are Standing by Canadians (cba.ca)

Arrears (3 months or more of missed payments) are still at a record low. Of the 704,488 mortgages in British Columbia, only 852 of those are showing as “in arrears”.  Here are my thoughts on this.
  1. No lender wanted to foreclose during COVID as the optics would have looked terrible. During the Financial Crisis of 2008 I used to be a director at a US Subprime Company that came to Canada. We never wanted to lend money to people who, if we foreclosed, would make us look bad in the eyes of the consumer.
  2. The CERB was a great stop-gap that helped some people who were inevitably going to be foreclosed upon anyway. At some point the lender is going to make their move to ensure they cut their losses.
  3. Each lender would have recorded their mortgage arrears through COVID differently. Once these late payments are moved to the standardized ledger the number of deferrals should be higher than 852 arrears out of 704,488 mortgages.
     
The Good The market is very strong, so someone who is about to be foreclosed upon has the opportunity to sell their home themselves and have control of the transaction. The lender, lawyer and courts do not have to be involved. If someone is behind on their payments and is intending to sell, a lender will likely hold off if one can prove the house is listed with a Realtor on the MLS.
Also good, is that in British Columbia, the lender is legally obligated to sell the house for the most money they can get in the market.  A lender is unable to just cash out the house for what is owed to them.

The Bad If, for some reason the property moves forward with foreclosure proceedings, the lender will instruct a Realtor to list the property on the MLS.  The Realtor will market and show the property until an offer comes in. Once an offer comes in, they will send that offer to the lenders lawyers who will consult and respond with an acceptance or rejection of an offer. Once the offer is accepted, then a court date is set. Before this court date, other potential buyers are allowed to bid on the property, so although the original bid was accepted, it may not be the final offer. That will be determined by the courts a few weeks to months down the road.

The Ugly Firstly, someone is losing their home. Secondly, the property is being sold “as-is, where-is” and the day you get the keys is really the day you know what you are buying. For example, you may have seen the property with a fridge, stove, washer, and dryer, however, when you get to the house, that is all gone. These items were expected but in a foreclosure situation there is nothing you can do about it. You also waive any legal recourse for environmental issues you may discover later such as a leaking underground oil tank. The heat pump, hot water tank and toilets could all be missing and legally there is nothing you can do.

Many people get excited about the thought of getting a “deal” while purchasing a foreclosure. If you are holding out for a “deal” you are often better off to find that diamond in the rough before it gets into the lender’s hands. Foreclosed homes can be deserted for years, sometimes they have fallen into extreme disrepair, but most of the time a foreclosure is due to several unforeseen circumstances (death, divorce, job loss) that have caused trauma on a member of our community. Be cautious, be educated and be aware.