# distressed properties. auctions and tenders?



## jargey3000 (Jan 25, 2011)

(I thought i had started a thread on this already...anyhoo, may have been commenting on another )
Sooo...I'm seeing a bit of a spike in the local paper for properties being sold "to satisfy an amt. due on a mortgage". I'm green at all this, but couple of questions: why are some sold on 'Public auction" & others on "public tender"? are there reasons for holding one or the other?
and, do these things usually go for the mortgage amt. owing (or more); or is there opportunities to pick up bargains?
and, the auction / tenders are usually held at a lawyer's office. are these things open to the public? can anyone go & sit in? does anyone go?
hoping to learn a bit about this.


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## sags (May 15, 2010)

I have seen a few home auctions at an auction website, but they always have a reserved bid. Most often they are removed before the auction for some reason.

A friend of mine got involved in searching for government properties being auctioned. He put a bid on a vacant property on Georgian Bay, but was outbid for it by the adjacent property owner.

It is all done with blind auction tenders. You never know how much to bid or what the winning bid was, so he never did get a property that way. He bid on a few properties that way and eventually gave up on it.

Instead he bought an old cottage on a lake, tore it down and built a brand new cottage, machine shop and garage.

It started out with a $130,000 purchase and ended up costing $500,000 and that was 10 years ago.

Nice place, but considering the amount of work involved he probably would have been better off paying $500,000 for a place already done.


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## jargey3000 (Jan 25, 2011)

and i guess there's no easy way to find out the amount that is due, on the mortgage?


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## OptsyEagle (Nov 29, 2009)

I know nothing about the process but it seems to me that it would be less likely that a property would have a mortgage at anything less then 90% to 100% of the value of the property. Probably the mortgage balance is even higher. This is because if a person owed the bank 50% of what a property was worth, he/she would have to be a complete idiot to let the bank formally foreclose on them. Why not keep it in your own control and sell it yourself and pocket the equity. I imagine there will be exceptions but I would think not many.

2ndly, if there were some good exceptions, I doubt someone is going to let you come along and bid 50% of what the property is worth and walk away with it, no matter what might be owed on the mortgage. The people running these things probably have friends and families, as do the appraisers, they could probably direct towards the opportunity with the right information to carry the day.

Again, just my opinion, with no basis of experience. Just a good understanding of how I suspect things might work.


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## jargey3000 (Jan 25, 2011)

good points optsy. I wondered the same thing.
Reason I got into this was, there was nice, brand new home built just up the street from me. the guy who moved in owned a local business. next thing we hear he's going out of business. he holds a yard sale in his house & sells off whatever he can.
then he hires a local auctioneer firm to have an auction on whatever's left AND also on the house. I couldn't get there, but told by neighbors there was no successful bid on the house. Next I see an ad in the paper calling for bids on this and another property ( which I think the same guy owns). Apprently at the auction, there were bids on the other place but none on the one on our street, & the other sold (for a reasonable price). The mortgage was held by Home Trust, so just for fun, I tracked them down & asked if they's still entertain a bid on the other. The person called me back - couple of times -to see if i was interested, but I never followed up. Next I see a realtor For Sale sign on the house & it sold at a fair market price. Just wondering if I coulda slipped in there somehow with the cash & got it from Home Trust for a low(er)-ball quick cash sale?
No?


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## sags (May 15, 2010)

Lenders have to be able to prove they gave their best effort to sell for fair market value, or risk a legal objection from a homeowner owing the difference. If there is a positive difference between the selling price and the outstanding mortgage, the money belongs to the homeowner who was foreclosed upon.


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## jargey3000 (Jan 25, 2011)

thanks sags. yes, i can understand that. does anyone know if these things tend to sell below the outstanding amt. owed? 
or not?


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## Numbersman61 (Jan 26, 2015)

jargey3000 said:


> thanks sags. yes, i can understand that. does anyone know if these things tend to sell below the outstanding amt. owed?
> or not?


It depends. The house just down the street sold for less than balance outstanding. In Alberta, in many cases, lender can recover deficiency but in this specific case, owner had become a non resident of Canada. 
Very different in US. Arizona has a law which precludes lenders from recovering deficiency - hence during financial crisis, many mortgagors just stopped paying the mortgage. Five years ago in Phoenix we purchased a foreclosure condo for $190 thousand - amount owing was $ 320 thousand.


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## jargey3000 (Jan 25, 2011)

thanks numbers. sweet deal! are you pleased with the condo?


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## Numbersman61 (Jan 26, 2015)

jargey3000 said:


> thanks numbers. sweet deal! are you pleased with the condo?


Very pleased. Complex is now being built out and our unit is now worth the original price (380)


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## Just a Guy (Mar 27, 2012)

I've bought properties below the mortgage amount. If they are cmhc insured, the bank gets paid regardless, in some provinces cmhc may go after the former owner for compensation as well. The banks do have to prove they tried to sell it and get the highest possible price, but sometimes that price is well below what it sold for in the past. 

I've also bought properties from people below the amount they owed. I did this last year when I bought a place from a lawer getting a divorce, I actually had to wait a couple of days because the bank was waiting for him to pay the difference between the sale price and what he owed. 

Now, these aren't common everyday deals, but they do happen.


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## sags (May 15, 2010)

It is true that during the US housing collapse, some people walked away from their homes if they lived in non recourse States.

It wasn't without consequence though. Their credit ratings were trashed and they would be recovering about now if they studiously rebuilt it.


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## olivaw (Nov 21, 2010)

It was common during the Alberta real estate collapse of the early 80s for people to walk away from their mortgage. My wife and I lived in a starter home in Edmonton/Millwoods at the time. Many of the homes on my street were empty. It became so bad that the mortgagor kept some of those homes off the market to avoid adding to the flood of cheap starter homes. 

AFAIK you can still walk away from a mortgage in Alberta.


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## sags (May 15, 2010)

George W. Bush changed the bankruptcy laws in 2005, making it much more difficult or impossible to discharge credit card and other debt.

The new law made the subprime mortgage collapse worse, as people couldn't discharge other debts to pay their mortgage.

In the US, government intervention of all kinds, from deregulation of banks to changing bankruptcy laws created the situation there.

Fast forward to today and the lessons appear to have been lost. 

Trump wants to deregulate banks again, and remove all fiduciary liability from financial advisers and lenders.

Trump has said in the past that he made a fortune during the real estate collapse, as did others in his cabinet appointments.

Wall Street and billionaires don't care about the downside consequences. The foxes rule the hen house.

They know they can make money like bandits and then arrange for the taxpayers to bail them out.

The US is paving the way for a "rinse and repeat".

http://www.huffingtonpost.com/2011/02/08/fed-bankruptcy-law-fueled-foreclosures_n_820491.html

Hopefully the Trudeau government, specifically Finance Minister Morneau have contingency plans in the event of a similar Canadian housing meltdown. They have had lots of time to prepare for it.

Hopefully that would involve extended amortizations and not allowing lenders to create mass foreclosures. 

At the very least, the CMHC should be prepared to examine every mortgage loan to ensure the lenders documentation isn't fraudulent (bogus stated income). 

The Canadian taxpayers shouldn't be forced to bail out lenders that indulged in such practices.


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## Numbersman61 (Jan 26, 2015)

My understanding is that in Alberta you can walk away from a conventional mortgage but are responsible for deficiency on a high ratio mortgage (CMHC)


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## Just a Guy (Mar 27, 2012)

There are still a couple of provinces with non-recourse mortgages. It's a provincial legislation. I believe Alberta and Saskatchewan are the only two left.


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## jargey3000 (Jan 25, 2011)

Just a Guy said:


> There are still a couple of provinces with non-recourse mortgages. It's a provincial legislation. I believe Alberta and Saskatchewan are the only two left.


Can someone please explain what "non-recourse mortgages are" - like i'm a 5-yr old.?


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## Numbersman61 (Jan 26, 2015)

jargey3000 said:


> Can someone please explain what "non-recourse mortgages are" - like i'm a 5-yr old.?


Non-recourse mortgage means lender can only repossess the property but cannot force borrower to make up the deficiency if ultimate sale price is less than the debt.


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## twa2w (Mar 5, 2016)

Most properties taken back by a mortgage company or bank are done so through power of sale. These usually sold through a realtor in order to prove exposure to market and a fair market price.
Forclosure is a different process, although this varies by province.
A property handed back to the bank voluntarily is sometimes handled with a quit claim deed.
Properties that you see up for auction or sealed bid are not usually forclosures or power of sales.
They may be judicial sales as a result of a judgement. They may be a police or govrnment seizure. Tax sales and bankruptcies are sometimes handled this way.
Occasionally they are homeowners looking for a different way to market their home. Auctions of RE are common in Australia.

Sales of financially distressed properties do often sell for less than normal market for a variety of reasons. Sometimes homeowners trash the house before letting the bank take it. Punching holes in drywall, throwing paint on brick fireplaces. Sometimes the house sits empty and unattended for a while before the legal processes happen. Sometimes the heat and water are off or the house is not winterized. Plumbing seals dry out or pipes burst, or varmits get and chew wires. Also if people think it is a forclosure, they will offer less even if house is in good condition. ( no guarantees on what is behind the walls and no disclosure from homeowner so the risk lowers the price) After several low offers the bank will take one within a reasonable % of appraised value, esp if listed for some time. In small or remote communities with little activity, bargains can be had. Caveat emptor
I often looked for these as well as three other bargain sources. I looked for houses with closets/ cupboards partly empty and maybe some furniture missing. Sure sign of a divorce and have gotten a bargain or two this way.
Houses with very dated furnishings, plastic on the lamps etc often indicate an estate sale or a situation where parents have been moved to a home. Often in an estate sale and children are out of town, they are eager to sell. Listings will sometimes say to give extra time for offers or other clues.
Sometimes if a home is empty and appears to be empty for a while, it can be a corpirate transfer or a person who has bought a new home and is trying to sell old. Both potential bargains and usually there are clues in home or listing.

Of course in a hot market these will be very rare but they do happen. You do have to spend time to separate the wheat from the chaffe as they say.

Of course look at homes with garish furiture and weird paint jobs. No one wants them as most look for move in condition. The weird ones usually sell for a much bigger discount thsn the cost of paint and cleaning.


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## Rusty O'Toole (Feb 1, 2012)

You would be surprised what you can find out with a little research. Start by taking the street address to the Town Hall and looking up the tax rolls. These are public records open to anyone. You can find out the legal description (important) owner's name, assessed value, tax rate etc etc.

With the legal description you can go to the Registry Office (Court House, Hall of Records etc depending where you are) and look up all the deeds, mortgages, liens etc. registered on the property, going all the way back to when the country was first settled. In other words find out who owns the property, when they bought it, what they paid, if they have a mortgage, who holds the mortgage, how much it is for, when it comes due, how much the payment is etc etc.

This information is all on the public record although now they charge a few bucks for looking it up.

I used to do this as a matter of routine when buying a property, you can find out some useful things that the real estate agent and even the owner don't know.

The laws vary depending on what province you are in. I know a bit about Ontario but, other provinces may be slightly different. So Jargey you will need to do a little research of your own. I hope this gives you some leads to follow up.

Some provinces may be foreclosure but I think most have gone to power of sale. They are 2 different ways of getting at the same end result.


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