Foreclosure is used by a lender when a borrower who has pledged land as security fails to repay the loan.
The owner of a piece of real estate online real estate who borrows money through the use of a mortgage is said to have an “equitable right to redeem”, meaning that even though he owes money to a loan company who has a charge against the real estate property and has breached the contract and as a result lost the legal or contractual right to redeem the property the owner still has the ability to redeem the asset and repay if he can get the cash.
What this signifies to a lending agency who’s loan has been unpaid is that before he can take the property and assets or otherwise cause it to be sold he must extinguish the borrower’s equitable right to clear the loan. This is generally a technicality in that a consumer who has the funds to clear the bank loan through his equitable right of redemption probably wouldn’t find himself in the online real estate position in the first place.
In British Columbia the foreclosure process begins with a petition to the Supreme Court. It is written up, filed, and served to all respondents. The respondents are the borrower, of course, but also everybody has a claim on title that has to be extinguished. These can include any guarantors, subsequent banks, the registered owner of the property (if different from the borrower), a buyer (if there is an contract to sell the property in existence) and any Builders’ Lien claimants. The petitioner is the lender who wants to foreclose (or for that matter, a strata corporation that is owed funds).
There are an assortment of remedies available to a bank. The first stage is an agreed upon accounting of all money to be paid. The Registrar of the Supreme Court will review the property loan contract and the payment history and determine really what is owing, including how the debt will change as a result of incurring interest as time passes. This produces a figure that both parties must agree to and agree to should repayment actually come to pass.
Next is a judgement on any covenants that the borrower may have assigned the creditor. The personal covenant survives the sale of the property, so even if the borrower has disposed of the property he’s still answerable for the unpaid loan amount. This category of judgement can also be ascribed to any guarantors or subsequent buyers (assuming they also provided a covenant to the creditor when buying the online real estate).
If these steps work the process stops. For instance, if the guarantor pays the lender, or the new purchaser clears up the debt, the bank has been paid and the foreclosure process will normally stop. If it does cease at this phase it’s pretty obvious that it was never a very significanttroublesome to start with.
For some properties a receiver can be appointed. Property with commercial operations or rented properties fall into this category. Mortgage contracts often have an assignment of rents, and this clause can be invoked.
A lis pendens can also be filed against a piece of real estate. This stops the asset from being disposed of while the financial institution sort out their conflicts.
For a genuine default foreclosure of the borrower’s interest in the property (and, as mentioned, the rights of all other respondents)is the ordinary course of affairs.
The first thing that occurs is for the creditor to send a demand letter to the borrower specifying a time-frame to pay the outstanding mortgage. Failure to do so ends in the bank proceeding to the next step, which is the filing of the petition in the Supreme Court.
The Court will then issue an Order Nisi which formally establishes the amount necessary to pay off the property loan and the time frame within which to do so. This amount of time is called the improvement period. It’s often six months, but the time may vary.
At this point there are two ways to go. The first involves the petitioner asking the Court to approve a judicial sale. In this case the title of the property doesn’t change, but the property is listed for sale. Generally a realtor will list the property, get offers and present them to the Court.
The Court (in the form of a Master) will review the offers and if they are acceptable (acceptable to the lender and fair to the borrower) will make a court order specifying that the property be sold with a clear title, and with the proceeds satisfying the debt. Any excess will go to the borrower; in the case of a shortfall the lender has added redress against the borrower.
The 2nd method is the absolute order of foreclosure. If the redemption period has concluded, the value of the property is the same as the outstanding debt, or more, the borrower is “judgement proof” and the real estate can’t be sold (i.e, there is no interest from any buyers), the lender can petition the Court to transfer the asset free and clear of all encumbrances to the creditor.
The Order Absolute cuts two ways. If it is granted the loan company cannot enforce a personal covenant provided by the borrower unless the order is re-opened. If the loan company sells the real estate asset to a third party he cannot enforce a personal covenant against the borrower because the property cannot be returned upon debt repayment. If the borrower gets the money to cover the loan the order can be re-opened, and the borrower’s right of equitable redemption is reanimated, but this can only be done by the Court, is only done on equitable grounds, and is very rare.
Anybody with any familiarity acquaintance with online real estate in BC will understand that the judicial sale path is the most common one used in foreclosures in British Columbia. Normally referred to as a “court ordered” sale, the court, through its officers (the lawyers) oversees the sale.
After the Order Nisi has been issued, and ordinarily after the redemption period has ended, the lawyer for the mortgage lender can petition for a conduct of sale order. He will then cause the property to be listed for sale with a realtor who will advertise the asset. The real estate must be competitively priced to shield the owner’s “equity of redemption”, and the Court will ensure this.
As a successful sale will be in the form of a court order all offers must be subject free before they go to court. The Master’s decision will be final, and any successful purchaser who does not complete will be defying a court order. The lawyers won’t let this happen. All subjects must be removed before a court date is fixed.
One subject free offer that satisfies the mortgage lender can cause a court date. At court the lender’s lawyer will explain the offer and describe the marketing activities and market response to the property. If the Master is satisfied that the marketing has been fair, and that the bid is a good one, he will accept it and issue the court order.
If there is a court date you can see multiple offers. The price of the first offer will be known, as it is a court document and for this reason public. This permits other purchasers to know exactly what they have to do to beat the first purchaser. Additionally, the lawyers for some creditors will specifically demand that the real estate salesperson disclose the first offer price to subsequent buyers.
If you ever find yourself in this scenario bear in mind that offers can be changed right up to the moment they are presented to the Master. Success many times is dependent on sizing up the competing buyers, making an educated guess of what they will offer, and then adding as little as $200 to the highest bid.
If you haven’t ever been to a foreclosure before the process will go by quickly. Buyers in many cases don’t even know they’ve been successful until another person with experience in court explains it to them.
Don’t forget, these are laws for British Columbia. Mortgage statutes vary from territory to territory and country to country.