In tougher economic times, we see more properties on the market being sold by mortgage lenders or mortgage insurers – this means the owner defaulted on the mortgage payment, went into foreclosure and the lender/insurer took back the property.
We often get inquiries about these properties because they always look like such a good deal!! And they can be a good deal! But there are a few things to know about them.
These properties are sold “as-is” which means the normal warranties that apply for resale properties (i.e. everything is in good working order, no material latent defects, everything complying with municipal bylaws, etc) aren’t in effect here.
There are often a dozen or more clauses that are scratched off of our standard purchase contract, which means you have less legal protection in the event something goes wrong.
The appliances or other unattached goods are not guaranteed to still be present in the home when you take possession.
In addition, the lender does not carry house insurance on the property, so if it burns down before possession, it can cause some big headaches. This risk is minimized in condos where the condo corporation carries the insurance policy, not individual unit owners.
We have also enlisted the help of Sharlene Scott of MortgageLine to tell us a few things about trying to get a mortgage on a foreclosure property. If you have any questions for her, she can be reached at sharlene@mymortgageline.ca or 403-807-5204.
“Lenders typically do not have an issues if a property is in foreclosure (whether it be judicial, court-ordered or already owned by the bank) as long as the property passes the appraisal and the proper documents as noted below are received:
- Offer to Purchase with Schedule “A” attached, signed by the Court (if applicable) confirming acceptance of your offer. Schedule “A” forms part of the Offer to Purchase and includes additional terms to your Offer. Amie or Bob will work with you to obtain these documents.
- An Appraisal Report is always required and the cost may be charged to the buyer.
If any property is described in the listing as “as-is”, “handyman special” or “fixer-upper”, lenders will still consider these properties for approval. However, an appraisal will be required to confirm the property is in good condition, livable and no other major issues exist. A lender can decline a mortgage on a property for a variety of reasons, including defects to the house.
Each mortgage application is on a case-by-case basis and is subject to lender/insurer approval. However, if you get approved for a mortgage on a foreclosure, you will be able to obtain the same interest rate as on any other purchase.”
All this to say that a foreclosed property might be right for you – but you need to make sure you are getting enough of a discount that all of the risk is worth it!
