Foreclosures:Understanding the Process
I cannot count the number of times people have asked me if know how they can buy foreclosure property or power-of-sale deals. " You must have inside knowledge from that bank you act for " they say, and by the way, we don't have inside information . My answer is always the same. Everything in life is worth what you pay for it. It is only rarely that one of these deals turns out to have a big upside; that is not to say that a careful, prudent and experienced purchaser cannot find a good improvement.
To buy from a vendor under foreclosure or power of sale you need to first understand what this means and how the properties got there. Both the mortgage and Mortgages Act provide methods of dealing with default. When a mortgagee goes into default the mortgagee ( the lender ) usually wants to realise their money as soon as possible.
Generally, the quickest method is to follow the procedure that allows the issue of a Notice of Sale Under Mortgage. This notice has to be sent to very specific people in a very specific manner. Then there is the issue of time periods. They are different depending on how the process originated. In all cases the mortgagor ( the borrower ) has time to pay the mortgage and current costs to "redeem" the property. Even that has inherent questions.
In a foreclosure action the mortgagee ( the bank ) can sell the property on the market to realise its outstanding loan;or, there is another option available to the mortgagee which is called " foreclosing the property". Under this method the mortgagee can keep the property and the title is transferred to it. The mortgage disappears and the mortgagor ( the borrower) no longer owes any money but the property is lost.
This all sounds confusing, and it is . There are huge pitfalls when buying property this way. Most of the time, when purchasing distressed property everything is "as is " - so any defects in the property, the taxes and the title are your responsibility. Lawyers have to spend extra time and conduct a lot more searches just to ensure you are getting a good and marketable title. Title insurance may not cover the situation or have so many exclusions as to be pointless.
HERE IS LIST OF SOME POWER-OF- SALE QUESTIONS YOU'LL WANT TO ASK
1. Is the redemption period 35 or 45 days ?
2. Is the default period 15 days or three months ?
3. Who has been served with the notice ? Have they served all the right people and were they served properly ?
4. There must be assurance that no steps were taken during the notice period or the sale will be void .
5. Have reasonable precautions been taken to ensure market value has been realised ?
6. Can the mortgagee give vacant possession ?
7. Does the mortgagor have a right of redemption after the offer was accepted ?
8. Do the conditions you need in the offer to satisfy yourself as to the nature of the property, place your deal in jeopardy for redemption ?
So there you have it, a never- ending list of things to watch out for and then, of course, there is the whole question of finding a lawyer familiar with the issues of purchasing subsequent to a mortgage default.
Now, this is not a lecture on not to buy distressed properties; rather it is simply an article on the fact that anything that looks too good to be true, probably is. In other words, remember that famous Latin legal maxim, " Caveat Emptor" - " Buyer Beware" . The purchase of distressed property can be rewarding from a financial position, provided that as a buyer, you are careful, prudent and surround yourself with professionals capable of assisting you in obtaining the property without traps of any kind.
Good Luck !
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