March/April 2009 AREA Update An Urban Myth: Foreclosures Are Always a Bargain For Canadians, it’s mind-boggling to hear about the prices foreclosures are going for in the United States. Fifty thousand dollars for a 5-bedroom, 3-bathroom, single-family, semi-detached home with enough closet space to hold fifty thousand pairs of shoes_ Where do I sign?! Busted! Typically, foreclosures aren’t as glorious in Canada as they are south of the border. Why? In Canada, there are two methods for lenders to recover mortgage debt: 1. Judicial Sale – Lenders must receive the court’s permission before they can sell the property. 2. Power of Sale – Lenders can sell the property without the court’s involvement. Judicial sale is the primary debt-recovery method used in Alberta. Two other important factors differentiate Canadian foreclosures from those in the United States. In Canada: v Properties cannot be sold under market value v Properties must be accompanied by an appraisal. Risks Aside from the likelihood that the foreclosure isn’t a great bargain, purchasers of foreclosure properties face several other risks. For example, banks have the ability to sell or dispose of property “as is”. This means that, before putting a property on the market, banks don’t have to remediate or repair structural defects, environmental or health hazards, or homes that have been condemned. The Bottom Line Before packing their shoes or reaching for their wallets, buyers should be advised to seek professional assessments. It’s never wise to buy something sight unseen. And if profit is the motivation behind purchasing foreclosures, Canadian buyers may be disappointed. |