The Foreclosure Process
Buying a foreclosure or other distress sale property can be a great way to build some immediate equity. If you buy right and have the elbow grease to fix it up (most foreclosures need some TLC), these distress sale properties can be a great way to make some quick cash.
However, buying foreclosures in British Columbia is not for the faint of heart. They can be risky and uncertain. There are a number of things you must know about the foreclosure process before you embark on a mission to buy one.
The first thing to know is how the Foreclosure process works.
Foreclosure proceedings begin when the borrower defaults on the mortgage payments. Any of the mortgage holders, if there is more than one mortgage registered against a particular property, can apply to sell the home through the courts. This process is called “conduct of sale”. This means the Foreclosure sale will be carried out under the supervision of the court and is referred to as a court ordered sale.
The lender will give a redemption period, usually six months, for the borrower to redeem the mortgage (i.e. pay up, including all owing interest plus legal fees, etc.). If the mortgage is not redeemed and the redemption period has passed, the lender can go to the courts and apply for conduct of sale. If the lender gets the approval of the court, the lender can sell the home and in Canada (unlike the US), the lender is entitled to recover the difference between the sale proceeds and the mortgage debt from the borrower. As usually these properties sell for less than what is owing to the lender, this can be a very large number.
Once the lender has been granted conduct of sale by the court, the lender can market and sell the home subject to approval of the court.
Many think that the bank will just “dump” the property, and sell it for whatever they can get, in order to get their money out. However, if you refer back to the previous paragraph – the borrower is on the hook for any difference between the sale proceeds and the mortgage debt. So for example – the mortgage owing on a property is $300,000. The Borrower stops paying. By the time the 6 month redemption period is up, the amount owing has increased to approximately $306,000 (assuming interest payments of $1,000 per month). Plus legal fees of let’s say $10,000. Now the new balance owing is $316,000. If this property sells for $300,000, the original Borrower will still be on the hook for $16,000 plus interest until the actual closing date. This is where the court gets involved to protect the Borrower and will strive to heed the advice of appraisers and Realtors to ensure the property is sold within a reasonable margin of fair market value.
As you can see, the process is complicated and we recommend enlisting the services of a Realtor experience in dealing with the foreclosure process when considering such a purchase.
Stay tuned for our next article, Part 2: 6 Steps to Buying a Foreclosure.
As an owner of lakefront real estate, I’ve been curious as to how waterfront homes and lots have performed over the years as an investment. I speak from my own experience as well as the experience of my family when I say the results are amazing.
We purchased our personal lakefront property in 1998. We were in a multiple offer situation at the time, therefore we offered the Seller nearly full price at $348,500, and were the successful bidders. The kicker for us was the house was sitting on two lots with a little old house that physically only sat on one lot, while the garage and septic field lived on the other.
At that time, lakefront lots were running around $180,000-$200,000. There was and is no question in our minds that we got a great deal at the time. So for sake of argument, let's take out the “good deal” factor and look specifically at market value of lakefront, and let's value each lot at $200,000.
Now let's compare to the average non-lakefront lot price in Vernon in 1998. At that time, looking at MLS sales for 1998, the average lot price was $58,006.
If we fast forward ourselves to the year 2013, one of these same lakefront lots we purchased in 1998 was appraised for $700,000. In 15 years, this lot increased by 250% or $500,000. In comparison, the average non-lakefront lot price at year end 2013 was $169,335. An increase of 192%. Or $111,336.
It is obvious which investment was the better investment. Would you rather have an increase of 250% or 192%? Or more importantly, $111,336 or $500,000??
I have one more example that spans a much longer period of time, just to highlight the investment potential of owning lakefront property in Vernon.
In 1954, my parents purchased a waterfront lot on Okanagan lake for $2500. They built a house, wharf, retaining walls, plus landscaped it for a total of approximately $17,400. Today, the tax assessed value according to the City of Vernon is $1,060,000, with current market value arguably around $1,300,000. However let’s take the lower number for this example to be ultra conservative. Even using this number, this is an increase of 60 times the original value, and a dollar value increase of $1,042,600! Not bad, especially if it’s your principal residence and capital gains tax on the sale does not apply!
In comparison, the average house in downtown Vernon in 1954 sold for $11,400 (I know this as my parent’s put an offer on this value of house that year, missed buying it, and purchased the waterfront lot instead). The average house price according to the Okanagan Mainline Real Estate Board at year end 2013 was $326, 261, resulting in an increase of only 27.6 times, or $314,861.
Once again, the lakefront investment wins by a landslide – 27.6 times increase versus 60 times, and $314,861 versus $1,060,000.
As these examples show, over time, lakefront is always an excellent investment and certainly in my experience, the best investment you can make.
It’s not easy to downsize what is often a lifetime of possessions. It takes time and it takes hard work. However, there are five basic steps to start the process. If you follow these steps in order, it will make the process that much easier when it comes to making your move.
STEP 1: RESEARCH – This is where you call the real estate professional. It’s important that you know what you’re going to be paying out for what you purchase, and what is going to be coming back in. Here are the questions you will want to ask your real estate professional when they visit and view your home:
- How much is my home worth? How much equity do I have once I sell?
- How long will my home take to sell? When should I list it?
- What can I do to make my home more saleable?
A true, full time, full service real estate professional will be able to give you this information at no cost, and with no obligation.
STEP 2: DECIDE – This is when the family comes in. If you have kids, they can help you with this decision as it is a big one. Is this really what you want to do? Are you physically prepared to move to a smaller space, and more importantly – are you mentally ready to make the move?
STEP 3: MAKE A PLAN – Make a plan and follow the plan. Your chosen real estate professional can help you with this, as well as your family. You want to decide what the steps are that you need to take in order to make this move happen, and what a reasonable timeline is to accomplish these steps.
STEP 4: START THE DOWNSIZING PROCESS – How do you eat an elephant? One bite at a time. And it’s no different with your lifetime of possessions. Give yourself time and give yourself space to get this done bit by bit. Start with one room, one closet – even one drawer. Give yourself permission to take it slow. As they say, slow and steady wins the race!
STEP 5: PUT YOUR HOME UP FOR SALE – Eventually it will come to this. As per the plan you set with your family and your real estate professional, put the home up for sale with a time frame that is acceptable to you. The real estate professional will also come back at this point and give any final tips as to what should be done to have the place merchandised and ready for the open market.
Downsizing is a big step in your life and can look as difficult as climbing Mount Everest when you think of everything you need to do. But know there is help out there and people who can make this easier on you. Don’t go it alone. Follow the steps, one by one, and you will get there.
Part of my job as a Realtor® is to educate my buyers and sellers on the impact of renovations to their home. Even if your home is not currently on the market, the possibility that you will sell in the future is likely. Making smart, informed decisions on what improvements and changes to make to your property can greatly affect its market value—and how quickly it will sell. I’d like to share with all of you a few simple, yet important pointers to help you in your decision of where to spend your renovation budget.
As a homeowner and future seller, think about your home as if you were the future buyer.
First, invest your time and money on the aspects of the property that hook and bait. Your home’s curb appeal offers the first impression to potential buyers, and making a few simple changes can have a dramatic effect. Easy-to-maintain gardens and potted plants add charm and ambiance, while at the same time are typically as simple as a weekend “do-it-yourself” project, however, remember to keep it simple. Excessive or overly ostentatious landscaping can deter many potential buyers plus you will see a negative return on your investment.
Secondly, think about where the average family spends most of their time. The kitchen is the heart and hub of every home. Making tasteful renovations to your kitchen’s finishes and appliances can offer one of the highest returns on investment (approximately 44% on average) when compared to most other home improvements*. Similarly, updating a bathroom can add modernity and sophistication to an otherwise traditional home, while at the same time offering an enticing 56% higher average return on investment*.
Finally, simple all over changes to a home can be greatly beneficial when done thoughtfully. Refinishing or changing flooring is a good choice that can offer a 22% greater return on investment *, however consider your market when deciding how much to spend on these changes. An inexpensive overall improvement is paint colors. Choosing an attractive, neutral paint scheme is your best choice for resale.
When deciding which updates and renovations your home would most benefit from, think of renovations as an investment in your home; choose practical investments such as a kitchen or bathroom remodel, and avoid more extreme and expensive updates like a pool installation, unless you plan to live there for years and years.
As you embark on future home renovations and improvements, I hope my tidbit of guidance can help you to decide which changes are best for your family and home. Never hesitate to contact me directly for complimentary information on ideas that may improve your home’s value in today’s highly competitive market.
* Information from RE/MAX Smart Renovator Guide
Lisa Salt and her husband Gord Fowler are among the Okanagan Valley’s exceptional full time, full service real estate professionals since 1993. To learn more about Okanagan real estate, contact the Salt Fowler Team and “Just Add Salt”!
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