You probably heard a lot about U.S. foreclosures lately, but Canadian foreclosures?
Actually we have a significant number in Canada, but that information has not become a mainstream news item. Mortgages north and south of the border are very different, as is the foreclosure process.
There are two main differences, which mean that:
- Buying a foreclosure property in Canada is not easy.
- Special financing arrangements are required (details of which I can provide).
The idea of obtaining a foreclosure property for a song in Canada is a myth and nothing like the way it works south of the border.
1. U.S. mortgages have traditionally been “without recourse.” Thus a U.S. home owner could walk into his or her bank, hand them the keys to their home and walk away.
You can do the same in Canada, but if the bank cannot secure the amount of the mortgage funds advanced against the property, you still owe the bank the difference.
(The bank will also add-on any costs associated with the foreclosure and sale of the property, including all expenses incurred, together with appraisal fees, realtor sales commissions, administration fees, interest on the unpaid amount, legal fees, and court costs).
In the U.S. the banks will foreclose and dispose of a property by any means to get as much as they can. It doesn’t matter to them how this is done; they simply want to get what they can, as fast as they can, and put the money to work again in other ways.
2. By contrast, the Canadian Securities Act requires that the bank, or other lender, protect the homeowner’s equity to the degree that it’s possible. Therefore, the lender must attempt to obtain fair market value for the property upon disposal.
The important thing is that this condition applies no matter how much is owed on the property, or the method used to sell it, and may have to be proven to the satisfaction of the courts.
So picking up a “bargain” from the bank is not as likely to happen in Canada as it does in the U.S.
We have all seen the TV images of the sheriff’s deputies showing up at the door of a home in the U.S. and telling the owners they are in default and must get out.
The Canadian process can take up to a year or more depending on a number of factors. This is an involved process with many variables and I will not go into it further since a number of recent articles have been written on the topic, including an excellent one in the May issue of Canadian Real Estate magazine.
If you wish to pursue foreclosure properties, the easiest way is to simply contact a local realtor in the area you are interested in, since invariably, the sale of these properties will be handled by a realtor whether authorized by the bank or the homeowner directly. And, she or he will also be familiar with the process in that particular province.
So…. please be aware that due to the differences, between the U.S. and Canada outlined above, buying a foreclosure in Canada is not easy; special financing arrangements are required; and the idea of obtaining a foreclosure property for a song in Canada is a myth and nothing like the way it works in the U.S.
Here’s a link to a very scary view of U.S. foreclosures, shown as a satellite tour…
(I am not sure how long this link will remain valid.)
E&OE
(Copyright Dara Fahy. All rights reserved.)
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