Strange Risks & Rewards of Buying Foreclosure Properties in Alberta

Foreclosure properties seem to be an interesting area.

More and more people are borrowing money to buy homes. Properties are over-mortgaged today than in the great depression. While it creates distress for one, it becomes an opportunity for the other and can present significant opportunities for vigilant investors.

“Make sure your ‘great investment’ doesn’t lead to your great downfall.”

However, much of the hype and conception around “great deals” on foreclosed properties comes from the US. The laws in Canada are significantly different, and the foreclosed properties are not sold out randomly.

In fact, in Alberta, as per the laws, foreclosed properties get sold at market price or only slightly below. You may be less likely to hit the lottery jackpot. Still, if you consider the certain suggestions we are going to detail in this writing, your profits may not be less than a jackpot.

What is Foreclosure?

The foreclosure of a mortgage is one of the remedies available to a mortgagee to enforce the payment of his debt.

In general terms, one can define it as: the process by which the mortgagee acquires or transfers to a purchaser an absolute title to the property of which he had only been a conditional owner.

What is Mortgage?

A mortgage is a legal agreement by which a financial entity lends money to a borrower in exchange for retaining the title of the latter’s property.

History of Foreclosures:

Some writers find this concept among the ancient Israelites.

The Civil Law of the Roman lawyers is the earliest system of jurisprudence in which the rights associated with pledges find their full and accurate definition.

The law has found its present form over the course of history through contributions of Anglo-Saxons, English jurists and others.

Foreclosures in Alberta

Foreclosures are on the increase in Alberta. According to the provincial government of Alberta, every year a 25% increase in foreclosure applications is seen. It is important to consider the risk involved so that an opportunity does not change into a liability.

Judicial vs Non-Judicial Foreclosure

A judicial foreclosure is one in which the court orders the sale of the property directly from the homeowner to the buyer, without the bank taking over the title first.

It is a more supervised sale and is inclined to protect the interests of the homeowner.

On the other hand, a non-judicial foreclosure is one in which the property title goes to the bank first, which then puts it up for sale.

What Happens in a Foreclosure?

Many people think foreclosure occurs after a homeowner misses a payment or two and the bank immediately takes possession of the home, turns around and puts it up for sale at auction. However, the more realistic account is like the following:

History of Foreclosures:

Transparent financial disclosure might assist parties in establishing trust and decreasing conflict. Both sides can achieve an acceptable agreement when they are convinced they have all of the relevant information.

Who Benefits from a Foreclosure?

Generally, the purchasers. In Canada, hardly anyone.

For the homeowner, it wipes out almost all the equity.

Injures his credit rating. It also forces him out of his home.

For the bank, it causes a loss of years of interest that it was to receive in future.

For the purchaser, it is not a lottery either.

If there is any upside to foreclosures in Canada, it is the following:

The bank can recover its loans.

The homeowner can salvage some of his equity.

You may be able to purchase the home at a slightly discounted price.

Risks

Lenders don’t generally want to foreclose on properties. They prefer that homeowners pay their dues.

At any time before the sale materializes, the lender may offer a payment plan acceptable to the mortgagor and avoid foreclosure.

This will be a private deal which you will not know about.

When you buy a property from an owner, you get guarantees. This is not the case with foreclosure properties.

This means you do not have the same assurance regarding the property’s condition.

What should you do?

Purchase Title Insurance

Conduct thorough inspections of the property

With judicial sales, you cannot ordinarily attach conditions to your offer. This lack of flexibility can enhance difficulty in obtaining finances and conducting necessary inspections.

You may face delays that you do not face in ordinary purchasing. The foreclosure process inherently brings complications.

The legal procedures are long and time-consuming.

Some red tape can also play its part.

Some Other Risks

The property may have serious compliance issues

Then maybe some hidden effects in the property

The property may have been involved in criminal activities

There may be no or dysfunctional appliances

The owner may be sabotaging the property on purpose

There may be no development permits

The property may undergo further damage between the time of your offer and the closing of the deal

Benefits of Purchasing Foreclosure Properties:

One of the main reasons investors are driven to foreclosure properties is the possibility of securing an asset at a lower cost.

The prospect of lower costs arises from the fact that, many times, the bank’s priority is to recoup its expenses.

Though foreclosure regulations of Alberta preclude that properties are sold much below their market value, you can still find a deal that does. For instance, in a competitive market, a deal may be available which is at a lower rate, regardless of the regulations.

At times, buying a glinting property may not bring you as much as a property not in good condition can.

The reason is simply the profit margin.

If you buy a property that already looks good, you may not be able to make a lot of profit because there is no room to improve it a lot.

As the saying goes:

“The More Changes You Bring; The More Rewards You Get”

Therefore, if you buy a property that has a lot of room for improvement, you can improve it a lot and make bigger profits.

Distressed foreclosure properties are just the right kind of properties to fall into this category.

Both novice investors and professionals can see in foreclosure properties the potential for significant profits.

They can buy distressed properties, repair them, embellish them, improve them, and sell them for a good profit. Such properties bring even more profits when located in desirable locations.

Some foreclosure properties can have liens, Back Taxes, loans, and other costs removed by the lender. This can lead to additional benefits and a rewarding deal.

To-do List for Foreclosure Buyers

Identify Opportunities
Conduct Preliminary Analysis
Inspect Property
Conduct Secondary Analysis
Arrange for New Financing of Property
Market and Sell for Profit

Some Considerations for You Before Delving into Foreclosures

It can take some time before the market recovers, and you could make bigger profits from your foreclosure investment.

You should familiarize yourself with the tax implications of buying a particular foreclosure property before you invest.

You might not be able to arrange financing at the eleventh hour. So, prepare it beforehand.

Don’t assume that you have any protection. You have none.

A lawyer is normally the first person whom someone facing foreclosure contacts. So, if you stay in contact with a lawyer, he might be able to steer a seller toward you.

Advertise with punchlines like, “We Buy Ugly Homes.” It might push distressed homeowners in your direction.

Bottomline

Buying foreclosure properties can be advantageous. However, like everything else, it requires strategic planning and calculation. Therefore, you should equip yourself with the right tools before you make your investment.

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* A registered trade name of Warren T. Smith Professional Corporation

Strange Risks & Rewards of Buying Foreclosure Properties in Alberta

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