Foreclosures - are they a good deal?

Foreclosures are on the rise in BC, but many potential buyers are not aware of the procedures or the very real fact that foreclosures may not be the deal they thought it would be.

In Canada, when a mortgagee (the borrower) misses a mortgage payment by even 1 day, they are technically in default.  Most financial institutions, however, will have a ‘Grace Period’ up to 15 days with no late fees and no reporting to the credit bureau.

Depending on the lender and applicable jurisdiction, foreclosure or other default proceedings are often initiated after approximately 90 to 120 days of default.

Once these proceedings have been initiated the banks will offer a redemption period – usually 6 months – for the borrower to catch up on the missed payments plus late fees, interest and any other costs (legal fees).  If the mortgage is not redeemed, the lender may apply for conduct of sale which allows the lender to attempt to sell the property.

In Canada, bank appraisals are required and the lender will usually market the property at the appraised value.  The reason the banks do not market the property at a deeply discounted price is because – in Canada – any offer to purchase must be ‘subject to court approval’.

This court approval condition is ostensibly to protect the borrower’s equity in the property. The Judge will ask the bank (bank’s lawyer and realtor);  what the appraised value is, how long the property has been on the market, how the property has been marketed, how much activity has been generated, any other offers etc.  If the offer price is substantially below the appraised value and it has only been on the market for less than 1 month, the judge will most likely not approve the sale – unless the borrower has no equity in the property even at appraised value and the lender is willing to accept the loss at the low offer price.

 In light of this and the prospect of incurring extra court costs and legal fees to take a low offer to court, the lender will not accept such an offer.

If there has not been any offers generated in the first 30 days, the price is typically reduced by a small amount.

Here is a real example of an apartment foreclosure in 2026. Note the price reductions are roughly 1 month apart;

March – Listed for sale at       $400,000

April – reduced to                   $390,000  - an offer was written for $350,000 (not accepted by the lender)

May – reduced to                   $380,000

June – reduced to                   $370,000

July – reduced to                    $360,000

September – reduced to         $349,000

If one were to look closely at foreclosure pricing and property condition/ location, it would be apparent that foreclosures are not discount priced unless they have been sitting on the market for a long time.

Several risks to buying a foreclosure;

1.     If your offer to purchase is accepted by the lender, all of your conditions must be removed/satisfied before the court date is set. Therefore financing must be arranged (incurring the cost of your bank’s appraisal), the building inspection must be done (costing $300- $700), and your deposit must be in place (cashing in a RRSP? Term deposit?)

2.     Once your contract conditions are satisfied and removed from the contract, the lender will then set the date for you to appear in the BC Supreme Court for court approval. BUT, the price on your offer is now a matter of public record and any other interested buyer will know what your contract price. As a result, it may generate additional offers to be presented to the judge on the court date.  You will have a chance to revise your offer price, but now you are in a bidding war in court.

3.     All lenders will require that you agree to their “Schedule A” to be attached to the contract – which basically states that they are not responsible for anything other than clearing the title of financial liens and transferring title to you.  You will bear the risk/cost of anything else;

a.      - appliances are considered personal property so they may or may not be there when you take possession – the lender will strike out their inclusion in any contract.

b.     – the term ‘as is where is’ ( in the schedule A) – means that whatever shape the property is in on possession day is on you. If holes have been kicked in the walls, fixtures have been removed etc. Too bad, but the lender is not responsible.

c.     – if the former owner is still residing in the property, do not count on getting vacant possession on the contract possession day – always have a back-up plan. If the foreclosed upon mortgagee is still residing in the property, you have to now go back to court and get a Writ of Possession – and then a bailiff will forcibly evict the resident. If that occurs, imagine the potential condition of your new home when you finally get in.

d.     – further complicating possession is when it is tenant occupied which may involve the Residential Tenancy Branch. Most landlords know those potential tenancy problems.

e.     – an even greater risk is if the mortgagee is a non-resident. In this case, the Schedule A will also state that the buyer will indemnify the lender against other costs such as those incurred by the mortgagee; unpaid capital gains taxes, speculation and vacancy taxes, empty homes tax, etc.  The lender may not know where the previous owner is living and/ or what the use of the property was – rental, principal residence, vacant……  As such, the buyer takes on that risk and must do their due diligence to minimize that risk.

 Considering the risk/reward trade-off, foreclosure may not be the ‘steal’ one may think.  If you want to know more, or get a list of foreclosure properties, give me a call.