Many buyers looking for a deal on a home might turn to foreclosed properties to save a few bucks. But while you may be able to find foreclosures that are listed under market value, these types of properties come with inherent risks.
Read on to find out how to buy a foreclosed home in Canada, and whether you should consider these types of homes as a way to get a good deal.
Key Points
- Buying a foreclosed home can be a great way to save money and gain equity quickly with a rehab job.
- Foreclosures require lots of homework and due diligence to protect yourself from a bad investment.
- The buying process is much different when you’re dealing with a foreclosed home compared to traditional property listings.
- Be wary of hidden costs, such as latent problems, which may not be made known until after you take ownership.
How To Find Foreclosed Homes For Sale In Canada
It’s not easy to find foreclosed homes for sale in Canada, as they’re rare. That said, here are some ways you may find these properties:
- Contact A Local Realtor: Reach out to a real estate agent in the area who has some experience working with foreclosure listings. Agents are constantly in contact with other professionals within the market and will typically be the first to know when a foreclosure pops up on the market.
- Check Local Auctions: Foreclosed homes are often sold in auctions. If they fail to sell at an auction, they may end up on MLS.
- Visit Foreclosure Websites: Foreclosures in Canada may be advertised on various websites, like the following:
| Website | How To Find Foreclosures |
| Bank Foreclosures | Enter your name email address, and phone number. Then choose the property type, your budget, and the region you’re looking in. Then click “Free List Access”. |
| Centris.ca | Go to “Filters”, then “Other Criteria”. Then choose “Repossession”, then “Search”. |
| Canada Homes In Foreclosure | Enter your name email address, and phone number. Then choose your city of interest, number of bedrooms and bathrooms, and your budget. Then click “Submit” to receive your list. |
| Pro tip: Always get help from a real estate agent to assess foreclosure listings to make sure they’re legitimate. |
How To Buy A Foreclosed Home
Buying a foreclosed property is more complicated and risky than the average home purchase. So, you must be even more financially prepared when you apply for your new mortgage.
Take some precautionary measures, such as the following:
Step 1: Get Professional Advice
Sure, the home itself might be listed at a lower price. Then again, who knows what’s really wrong with it? Make sure to seek the counsel of both a financial advisor and a real estate professional to find out if buying a foreclosed home is the best choice for you.
Ask them about all the potential costs and risks involved. Do the benefits of buying a foreclosed home outweigh those of a typical one? If not, it might be better to avoid the purchase altogether.
Step 2: Create A Budget
Consider the significant costs involved with buying a foreclosure home. Remember, a foreclosed property might need some work before it’s safe to live in. If you can’t afford these costs (as well as your payments), hold off until you can find a more suitable property. Starting and maintaining a home-related budget can help.
Consider expenses that are unrelated to the initial price, such as the following:
- Utilities that need to be switched on (water, gas, electricity, heating)
- Changing the locks
- Cleaning and general maintenance
- Renovations (if any)
- Property and land transfer taxes
- Landscaping (if necessary)
- Inspection/appraisal
- New or used appliances and furniture
- Interest rate and administrative fees
- Any titles or permits required (additions, porches, garages, etc.)
- Additional damages that may have occurred between when you last viewed the home and when you actually took possession of it
Step 3: Search For Foreclosed Properties
Check out MLS listings, bank websites, auction platforms, and provincial court listings. A real estate agent familiar with bank-owned or court-ordered sales can help identify listings in your area and navigate the legal nuances. Some banks may also list foreclosed properties directly.
| Warning: Foreclosed homes are typically sold “as is,” so consider this carefully, as you may have limited options as far as inspections are concerned. |
Step 4: Make An Offer
Offers on foreclosed homes may be submitted to the lender, court, or listing agent, depending on where the property is located. Be prepared for a firm sale with no conditions, which means you’ll be bound to the contract when your offer is accepted.
Step 5: Prepare For The Application Process
While buying at auction is a common way of purchasing a foreclosure property, going with a legitimate real estate company is often a safer method. In either case, however, an approval process is just as necessary as with any conventional mortgage. You have to be prepared for your credit score and finances to be inspected.
Here are a few things you can do to make you appear more creditworthy:
- Update and organize any required personal/financial documents
- Pay down your other outstanding debts
- Improve your credit (report, score, history, rating)
- Increase your income and savings as much as possible
- Offer a sizable down payment
- Figure out a payment plan that works for your finances
Find The Best Mortgage For Your Needs
| Amount | Rate | Availability | Products | |
 Loans Canada | Varies | Varies | All of Canada | - First mortgage - Refinancing - Renewal - Lender switch - Home equity loans |
 Alpine Credits | $10,000+ | Based on equity | All of Canada except Quebec | - Home equity loans |
 Mortgage Maestro | $10,000+ | 5.19%+ | All of Canada except Quebec | - First mortgage - Refinancing - Renewal - Line of credit (HELOC) - Reverse mortgage |
 Neo Mortage™ | Varies | 5.54%+ | All of Canada except Quebec | - First mortgage - Refinancing - Renewal |
 nesto | $100,000+ | 5.34%+ | All of Canada | - First mortgage - Refinancing - Renewal |
 Homewise | Varies | Varies | BC, AB, MB ON | - First mortgage - Refinancing - Renewal - Lender switch |
Can I Have A Foreclosed Property Inspected Before Buying It?
Having a property inspected and appraised for its current value is typical with your average real estate transaction. However, keep in mind that foreclosed homes are sold “as is”, and inspections and appraisals may not be permitted until after the offer has been accepted, depending on the location and how the property was acquired.
For instance, bank-owned foreclosures may permit an inspection, while inspections on court-ordered foreclosures may not be allowed.
Can I Get A Regular Mortgage To Finance A Foreclosed Home In Canada?
Yes, you can use a regular mortgage to finance a foreclosed home in Canada. However, there are a few key things to consider:
- The Property’s Livability: Lenders will approve a standard mortgage if the foreclosed home is in reasonable condition and meets basic habitability standards. However, if the home is uninhabitable, lenders may reject a regular mortgage. In this case, you may need a private loan.
- Your Financial Qualifications: You’ll need to meet the lender’s income, credit, and debt requirements, just like any other type of mortgage.
- The Source Of The Sale: Many foreclosures are listed like regular homes on the MLS and can be financed with conventional mortgage products. Court-ordered sales, on the other hand, may have stricter conditions that can complicate financing.
See How Much You Qualify For
Pros And Cons Of Buying A Foreclosed Home
As we mentioned, foreclosures and sales of foreclosed homes are rare in Canada and are more common in the United States. That said, it does happen and there are ways that you can buy a foreclosed property, which involves a different procedure than a traditional home purchase and mortgage.
However, before you start looking into buying a foreclosed home, it’s important to understand the inherent benefits and risks involved.
Pros
- Potential Deals: Lenders will want to sell the property quickly to recoup their losses. They may even sell it at a lower price than it was initially. If you buy the house at auction, it’s sometimes possible to get an even lower price.
- Potential To Add Equity Quickly: If you’re able to get a home that needs a lot of work for under-market value, you may be able to quickly add equity into the home and increase its value with some renovating. This offers the potential for a higher ROI.
- More Negotiating Power: As mentioned, lenders don’t like dealing with foreclosures and prefer to get them off their hands quickly. Lenders don’t necessarily want to own property because it costs money to carry a home. As such, you may have more bargaining power to get a better deal.
Cons
- You Must Move Quickly: Foreclosed homes that are being sold at a steep discount will catch not just your attention, but other buyers looking for a deal as well. If you want the home, you may have to move quickly to claim it. But sometimes this sense of urgency may prompt you to make a deal on a home you’re not ready to buy just yet.
- You May Spend More Than You Thought: While foreclosed properties can be cheaper, they’re often not rock-bottom prices. More often than not, you would acquire the home at only a slightly cheaper price than it was initially. And if you wind up finding major issues after you take possession, you may have to spend a lot more than you thought to fix the place up.
- Complex Legalities: The legal and financial procedures for buying a foreclosed home are more strict and complicated than the average home sale.
- More Restrictive Visiting Hours (Before You Buy The Home): If the property is damaged or the hydroelectricity has been shut down, you may only be able to view the home during certain hours and when accompanied by a realtor, if you’re allowed to schedule a walk-through at all.
- Lengthy Process: A typical real estate closing takes anywhere from 30 to 60 days. But with a foreclosure, the process can often be drawn out. If you’re in a bit of a rush to move into your new home or prefer a more predictable closing process, a foreclosure may not be for you.
The Importance Of Your Credit
Even if the foreclosed home sells for a relatively low asking price, it’s still likely to cost a pretty penny. Therefore, it’s essential to save as much money as possible so that you’re able to comfortably afford your future mortgage payments, as well as your other regular expenses.
One way you can do that is by securing an affordable interest rate for those payments, which you can do by making sure your credit score is in good shape before you apply for financing.
While you may be able to secure financing with a lower credit score, your interest rate will be higher because of it. This will cost you more over the life of your loan.
So, by raising your score, you’ll be effectively saving yourself money over the course of your new mortgage. From then on, you can continue to strengthen your credit score with every timely mortgage payment you make going forward. This will put you in a better position to get lower interest rates for any credit products you apply for down the line.
Learn more: Minimum Credit Score Required For Mortgage Approval In Canada
Buyer’s Rights In A Foreclosure Sale In Canada
It’s important to understand your rights as a buyer when purchasing a foreclosure in Canada:
| Right To Title Transfer | Buyers are entitled to receive clear title upon closing. A real estate lawyer will ensure that the property is free of liens or encumbrances before the title is transferred. |
| Right To Withdraw Before Final Sale | In some cases, buyers can withdraw their offer before final acceptance, especially in the case of judicial foreclosure provinces like Alberta or BC. |
| Right To Due Process In Court-Supervised Sales | In judicial foreclosure provinces, buyers may have the right to review legal filings and timelines. |
How Do Foreclosures Work In Canada?
Foreclosures in Canada are relatively uncommon since lenders prefer alternatives to avoid costly legal action. When borrowers miss about four payments (roughly 120 days), lenders may reclaim the home’s title. The process differs by province:
1. Judicial Sale
Judicial sales are common in BC, Quebec, Alberta, Saskatchewan, and Nova Scotia. The lender petitions the court, and if the borrower cannot defend, the property is sold through agents or auction. This process can take months to a year.
2. Power Of Sale
Common in Newfoundland, Ontario, PEI, and New Brunswick, a Power of Sale is when the lender, through a clause in a homebuyer’s mortgage contract, has the right to sell the property and avoid the judicial court procedure. This is enabled by a mortgage clause, and gives borrowers a short redemption period to catch up. If unpaid, the property is sold quickly, often at auction or via real estate listing.
A Power of Sale is typically a much faster process than a foreclosure.
Learn more: What Is A Power Of Sale For A Mortgage?
Final Thoughts
Buying a foreclosure could potentially help you save a lot of money, but there are risks associated with the type of transaction. If you’re looking for financing to help you purchase a foreclosure property, be sure to team up with professionals who understand the process. This could save you a lot of stress and money.
