The objective of the foreclosure system is to make sure that these properties are sold at fair market value or above.

• When someone goes into foreclosure, it means that they were unable to meet their mortgage agreement to make those payments, and it can technically start the day after the owner misses a payment.

• Right now, we’re not seeing a huge influx of foreclosures in the market, but when someone is approaching a foreclosure, we feel they could use some coaching, as it is so different than the regular process of purchasing a property.

First, when you make an offer to a regular property, listed by someone who lives in it, you’re probably going to get a response to your offer same day. In a foreclosure on a property, it’s probably going to take a few weeks.

• The offers with regular properties and foreclosures tend to be different. Foreclosures are mostly “not guaranteed”, meaning that there could be somebody out there who offers full representation and warranties on foreclosures, but that’s not very common.

• This means that when a large entity, like a bank or an insurance company, goes and forecloses on a property, they don’t know a lot of the history of that place. You can’t know if the permits are up to date, and all the other obligations — which would be a part of a regular sellers experience — are fulfilled.

There is one thing that we all know to expect when we’re making an offer on a foreclosure: the seller is not going to provide regular representation or warranties related to things like a property report, obligating themselves to municipal compliance, or making there there are no material latent defects to the property.

• Someone who is a good fit to approach a foreclosure should be someone who has a construction background, or a large budget, and is expecting some problems that they can’t see.

• When it comes to home inspection, thats where you’d get to see a lot of this information, and that would be present in most of the regular properties, but not necessarily on most foreclosures.

• This means that all entities that are foreclosing on are working through a lawyer, who is working through guidelines. If you add a home inspection clause to your agree agreement to purchase that place, they’d have to be able to review that, which means that they would possibly have to book time in court, which would be a huge expense.

• Therefore, that situation is done in a different process for foreclosures. There are ways to take a detailed look at what you’re purchasing, but it’s a bit different than the regular process where you can tie the property up, have a home inspection, and then remove conditions.

The other thing you should realize is that real estate is valued on its characteristics, location, and condition.

• Foreclosure properties tend to be low-condition, and the reason is that the people tend to stop paying their bills in a specific order. From the things they need less— like maxed out credit cards— to the things they need more— like car payments— and finally, the last thing they tend to miss on is their mortgage payment.

• That means the family or person owning this property could be in a financial struggle for a long time, meaning that the property is not getting the regular maintenance that it would with someone who is living comfortably.

• In this case, you should definitely get a better deal on a foreclosure. Meaning that you’re not getting representation and warranties, and if you’re able to overcome that you’re part of a smaller pool, where there is less demand for properties like this.

Second, If you’re taking more risks, you should get more rewards!

• Since there aren’t representations and warranties, there aren’t ways to necessarily get home inspections, and sometimes they wouldn’t even allow financing conditions. You’re in a smaller group, and you’ll notice that these smaller groups have parameters to buy these houses at a lower price.

• That is not always the case though. Keep in mind that these offers are reviewed first by a lawyer, and then in court to make sure that the properties are sold for fair market value, or the most the market would pay at that time.

• If the amount owing on the property is less than the amount the property sold for— including dispersement cost and so on— the amount remaining is actually given back to be person being foreclosed on.

• This is very different in Alberta compared to different places we see on TV throughout the USA that have fewer consumer controls. That’s where you see a $700,000 property sold for a nickel and a song.

Bottom line: First you need to know market value, then you need to get a deal on these properties to make sense in most cases.

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