While going through a foreclosure proceeding is never an enjoyable experience it is prudent to understand how the steps work if it is happening to you. If you are an investor or a home buyer who is looking to purchase property at potentially less than market value seeing what properties are being foreclosed on in our marketplace might provide a vehicle for this.
Today we will delve in the steps in a foreclosure proceeding and also examine how purchasing a foreclosure property differs from a normal sale.
First lets layout the steps in a foreclosure proceeding;
- Demand Letter
The demand letter is the first step in the foreclosure proceeding, it is made on all of the owners of the property, all of the people who are named in the mortgage and the guarantor if there is one.
To start a foreclosure action, a formal application is made, in writing, to the court requesting judicial action. This declaration of facts is called a petition.
The petition is also served to anyone who’s interest may be affected, examples would be; the registered owners, tenants, guarantors, and any other mortgage or insurance holders. Included in the petition is a request for an order for sale.
The affidavits are sworn written declarations and proof that the mortgage is in default, that the Mortgagee served the mortgagor the demand letter etc. The affidavit is registered at the same time as the petition
If the owners of the property or the people being foreclosed cannot afford to redeem the mortgage, they should file an Appearance at the courthouse. An appearance is a court document by which individuals indicate they will defend or otherwise participate in legal proceedings against them, or in which they have interest, which might be affected by such proceedings. There is no cost to file an appearance in the courts however if there is equity in the property the owners should hire a lawyer to help protect them.
- Notice of Hearing of Petition
This sets out the details of the hearing. It will specify the court date, the time, and the location of the hearing
- Order Nisi
The order Nisi is the first order of the court. It establishes, among other things, the amount required to redeem the mortgage and the time given to the borrower to redeem. Generally, the more equity someone has in their home the longer the redemption period will be.
- Certificate of Pending litigation
Once the order Nisi has been granted a certificate of pending litigation is filed in the land titles office. The purpose of this is to prevent the current owner from selling the property before the foreclosure action has been concluded.
- Redemption period
The court grants a time frame for the owner to redeem their property. Generally, this period is anywhere between one day and six months depending on how much equity the owner has in their property.
- Order for conduct of sale
Once a property is subject to foreclosure proceedings anyone who may be potentially affected by the foreclosure action may apply to the court for an order for conduct of sale. This allows the court to instruct that the property be listed for sale and it prevents anyone else from listing the home (even the owners). It also lays out how much Real estate commission can be paid.
- Order Made After Application
A court order that approves the sale of the property
One last option is an Order absolute where the lender actually takes ownership of the property and the sale can proceed as any other sale.
As a consumer your opportunity to purchase a foreclosure property starts when the order for conduct of sale has been granted and the home is listed for sale.
The biggest difference in the way the offer is structured a little differently. Basically, the property is sold as is where is meaning that one the possession day the purchaser has little to no recourse if things are damaged or taken away. You also can’t ask for chattels to be included (Fridges, stoves, window coverings etc.)
The next part is completion and possession. When purchasing a foreclosure, the offer won’t specify a completion and possession date, generally this is written as 28 days after court approval if the home is occupied, if it is vacant it will be 10 days after court approval. The court may specify a longer period if they see fit.
The first offer that is accepted may have conditions on it i.e. home inspection, fire and property insurance, title search etc. Once conditions are removed a court date is set. If the first offer is the only offer the court will decide is it is reasonable and will accept it. This being said there can be more than one offer show up to court and there could now be a multiple offer situation. All offers on the court date must be condition free.
So basically, even if you are the first offer accepted you may get outbid at court and be left with nothing.
I hope this gives you some insight into how a foreclosure works. If you have any questions about this process please feel free to give me a call, text or email.