Hangout with Paul Toffoli

Foreclosures - What are they, how does it work in BC, is it a good idea?

Mark:  Hi, it’s Mark Bossert from Top Local Lead Generation.  We’re here with Paul Toffoli.  Paul’s actually been voted the best Realtor in Vancouver, four years in a row and he’s going to talk to us today about Foreclosures.  So, how’re you doing today Paul?

Paul:  I’m great, thanks Mark.

Mark:  So, foreclosures, the good, the bad and the ugly.  What is a foreclosure?

Paul:  So foreclosures are properties that are being, have been, I’m going to start that again.  Foreclosures are properties that are being sold.  Usually the sale is being conducted by the bank or the finance company that’s had a loan or mortgage on the property that is not being paid back by the owner.  The courts, the banks have applied to the courts for the right to sell the property to get their money back and the courts have awarded the banks Conduct of Sale.  So it’s a long and complex process to get it to where the banks are actually selling it but once it’s there that’s where the real estate community gets involved.

Mark:  So, how does that, how does that process work in BC?

Paul:  Ok, so, were actually, we have quite a, I don’t know if it’s a unique process in BC, but it’s quite a straight forward process once you understand it.  The trick is understanding it and that’s why it’s good to be working with an expert who has been through the process multiple times.  Basically, so say that John Smith has a mortgage on their house. Something unfortunate has happened to John; he’s lost his job or he had too large a mortgage in the first place and he can’t pay the bank back.  So he stops making his payments.  The bank will notify him and ask for him to make the loan good.  If after several months, John hasn’t come up with the money, the bank can then go to the courts and say, say to the judge we need to get our money back.  The only way we can see clear to this is through the sale of the property.  The judge will make sure that all the proper notifications have been given to the owner, to John Smith and then will give the bank what’s called Conduct of Sale.  

The bank then goes and hires a realtor because the courts require any foreclosures in BC to go through a public process to ensure they are sold to the highest and best possible price.  Then, the bank will then hire a realtor who will do a market assessment, price the property what they think is a fair market value and it goes on the typical multiple local listing system just like any other property that would be sold through a realtor would be done.  Typically these or often these properties will have some challenges, they’ll have maintenance issues or they will have, you know, if the sellers not paying back the bank he’s probably spending money on the roof, or on decorating and things like that.  So there can be some challenges.  So that will be priced in.  

Foreclosures typically take a while to sell because the banks price them a little bit higher maybe, they want to make sure they’re being fair to the seller and so lots of people will go through and view the properties and in some point in time one individual who will typically be using their own real estate agent that they’ve got a relationship with will put in an offer in on the property.  Once that offer is negotiated, you negotiate with the bank’s lawyers just like you would any other seller, it goes back and forth on price and all the normal subject to would have, financing, inspection, if it’s a strata, the strata documents and so forth and then once that offer has been accepted then that buyer will do their due diligence.  They’ll put their financing in place, do all those things and remove their subjects.  The only difference between that and a normal sale is the bank is required to have a subject on there that is subject to court approval.  So before the sale can be confirmed going forward it will have to go back to court and the judge or the master will then approve that sale or not.  

At that time in court this is where the twist comes up, any other buyer can walk into court with another offer, the first offer, the amount of that first offer is public knowledge because it’s in the court documents, so if the property’s priced at $450,000, there’s an accepted offer for $400,000 that’s going to be published and then I can walk into court with another buyer and we know that $400,000 so we’re going to think we’ll were going to offer $410,000 or whatever the case may be.  Sometimes you’ll see five or six or seven other buyers in court so then maybe the winning bid is going to be above the original list price, maybe it’s going to be $460,000.  

Sometimes you’ll see a different, case in point, I had a foreclosure that I dealt with about a month ago.  It was a small condominium out in Maple Ridge, it’s a two bedroom, two bathroom, had been on the market for quite a while.  Our client tied the property up at about $325,000, went through her whole due diligence, it was even less than that, but went through her whole due diligence and got her financing in place, read the strata documents, all the things that she needed to do to remove her subjects.  We got a court date, were informed that, we went to court.  We were informed a couple of days before that it looked like there may be another offer coming in.  So we prepared our client.  We said ok we need to be prepared, think about where you may want to change your price and any other changes you may want to make to your contract in order to make your offer more attractive in court.  When we showed up in court there was indeed one other offer that was going to be presented to the courts and so our client thought about it, we went through a process and she wrote her price down and we put an addendum to the contract in, handed it to the banks lawyer to present.  She collected the offer from the other party who was interested and basically the way it works; they all go to a sealed envelope; those sealed envelopes got handed up to the master during the process.  The master who was a lady, lady judge at the time opened up the documents and compared the two.  The other offer was required to be even considered could not have any subjects and had to have a bank draft deposit in hand, typically in the amount of five percent of the purchase price.  When the master read the prices out, amazingly enough our client had increased her price to $351,440.  The other offer $351,300.  We got it by $140.  It was the closest I’ve ever seen and it was just, our client was over the moon.  So that’s the kind of thing that can happen in court.  

I’ve been in other ones where there’s been no other offers, so the first offer was the one we had, it just accepted because it was fair market value.  So it’s a bit of a process to understand but it can be, a very rewarding one and in both those cases I do believe that our client paid a little bit under market value for the property that they bought.

Mark:  So, overall Paul, would you say it’s a good idea?

Paul:  Yeah, so it really depends on your situation, it can be a very good idea.  I think that there’s definitely, um can be a benefit to buying a foreclosure.  I think there’s an opportunity to get, to purchase things under market value on foreclosures but it’s not for everyone.  If you’re the first person in and you can do your subjects and have it subject to financing and put your financing in place, it’s great because then it’s just like any other purchase.  However, if you don’t like the idea of going to court and having somebody able to trump your price and you don’t like, and you need certainty around your purchasing process, then it may not be the best for you.  On the other side of the coin if you’re a person who is financially in a situation where you can pull funds out of another property, through a line of credit and you don’t need that financing certainty it can be kind of advantageous to go in as what they call the ‘stalking horse’, the person who goes into court when the first offer’s in place and then tries to trump that offer with a subject free offer.  So, each situation is unique but it’s really worth sitting down with an expert, someone like myself who can walk you through the process and see whether it might be something that would work for you.

Mark:  That’s awesome, Paul.  Great story too, I mean that must have been pretty exciting when they read that out.

Paul:  For sure.

Mark:  So, we’ve been talking with Paul Toffoli.  You can reach Paul at his website, toffoil.ca , toffoli.ca or you can call him at 604-629-6100.  Thanks a lot Paul.

Paul:  Thanks Mark.