Understanding foreclosures can be complicated. If you’ve made the decision to purchase a bank owned property, it’s important to educate yourself on the unique types of foreclosures that are commonly practiced throughout the process. Between Judicial vs Non-Judicial along with pre-foreclosure, bank auction foreclosure and bank owned foreclosure, there’s plenty to go over. To help give you a better understanding, we’ve outlined the unique types below:
A judicial foreclosure is the legal process in which a home owner continuously fails to pay their mortgage and therefore, is brought to court. The process begins with several notices and warnings to the borrower. If there is still a failure to pay the amount in arrears by the notice date, the mortgage loan goes into default and a lien on the property can be exercised. Once a court decision is made, the lender has the ability to sell the property in order to obtain the loan capital as it would now be in their legal possession.
Non-Judicial Foreclosure (Power of Sale)
A non-judicial foreclosure (in Ontario known as a power of sale) is a much quicker process than a judicial foreclosure. The non-judicial method is when court action is avoided and a deed of trust is initially distributed instead. The deed of trust can also include a power of sale clause on the property which allows the mortgage holder to sell the home without supervision of a court. If the home owner continues to miss mortgage payments, a notice of default is sent out on the property. After a certain amount of time, a short sale can be made in order to speed up the process or allow the borrower to pay their amount owing on the mortgage.
A pre-foreclosure is when the property owner still has time to stop the process and pay off their remaining debt on the mortgage. Additionally, they can also choose to sell the home during this time. If you’re interested in purchasing a property that is in this state, express your interest to the owner and make them an offer. Do your research about how much you’re willing to pay and if the house is truly something you’d be willing to commit to buying. When trying to contact the owner, it’s crucial to keep in mind that this part of the process can take several months. After all, their house isn’t necessarily up for sale, and they’re most likely attempting to figure out options on their end. Although, a reasonable offer from a prospective buyer could help them make a decision.
In order for a lender to get back their loan capital on a foreclosed property, they place the home into an auction. At a property auction, prospective buyers will sit before a court and bid on the home they wish to buy. Sometimes, only one person will attend the hearing and other times, many people will attend. Prices will usually start at the remaining balance of the mortgage from the time it was repossessed. If someone places a higher bid, you’ll have one more chance to bid higher. However, it’s important to keep in mind that the highest bidder on the property doesn’t always win. There are many factors that the court considers when choosing a successor including the price, the deposit and the completion date.
Sometimes, property auctions prove unsuccessful. Either there were no attending bidders or the minimum bid wasn’t met. When this occurs, the repossessed home becomes a bank owned property. In order for them to get back their capital gain, they must start selling the property through a brokerage firm.
If you’re choosing to purchase a bank owned home, be aware that the process is vastly different than the more common method of buying real estate. Although they require more extensive research as well as an added learning curve, purchasing a foreclosure is worth it when you’re saving money on your investment. If you have questions about purchasing a repossessed property, fill out the contact form and we’ll be happy to answer them for you.