# Force of sale



## Eoink15 (Feb 25, 2015)

Anyone here ever buy a force of sale?
A broker/real estate agent I know showed me a force of sale that he got his hands on. The house was appraised at 470 but he thinks I can get it in the region of 420 ish? I took a drive by the house yesterday and it's in bad but fixable shape. 
Anyone ever herd of this? I'm sure there is something in it for the broker or he wouldn't be telling me!!
Does it sound fishy?!


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## Just a Guy (Mar 27, 2012)

Ahh yes, another "partnership" ending in a bad way...

Basically a "force of sale" means that at least one owner wants out of a piece of real estate and the other(s) don't, but can't afford to buy the disgruntled one out. The solution is the disgruntled one takes them to court and forces a sale to get compensated.

If the property is appraised at $470 and is in rough shape, I'd be bidding a lot lower than $420 if I were you...the market is stagnant right now in most provinces, prices are dropping in the west. If it's in Toronto or Vancouver, that's different of course.

However, 10% below list is nothing for a "must sell" situation, this is an opportunity to get a piece of property for a reasonable price in an overpriced market, don't be pressured into paying too much.

As for the agent, he's going to pick up a nice commission in the range of $15k+ probably (and he may double that if he's the lister) so yes he's getting something out of it.


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## Eoink15 (Feb 25, 2015)

Ya so the house in in Toronto downtown area. The adverage price on that street is 550+.
It's a power of sale because the owner is defaulting on his mortgage!the house is in bad shape, I guess I've nuthing to loose by putting in a low offer!
Is there any other implications with buying in this type of situation?


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## nobleea (Oct 11, 2013)

I thought you were not able to get a mortgage? Or is this for your flipping partnership idea?

Look, we get that you want to get started and build wealth quickly, but most indications from your posts suggest these ventures aren't going to end well. You don't HAVE to be involved in the crazy TO market. It's a game of musical chairs and usually the ones left standing at the end are the ones who joined in the party closer to the end, and the ones that can least afford to take the hit.


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## Eoink15 (Feb 25, 2015)

Yea sure maybe your right,but I do have an advantage of being a contractor and can do a lot of work on the house myself! I have managed to get a mortgage from a broker yes, so I am exploring my options! Who says ther is gong to be an "end"?!


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## Just a Guy (Mar 27, 2012)

You should try and find out the size of the mortgage...most people are unwilling to go underwater by much, many expect to get a profit or at least break even...even as they sink into bankruptcy. Of course, it costs the bank a lot to complete the foreclosure, so they are willing to take some loss.

Don't get fooled into the "I'm a contractor" defence...I know a guy, a painter with construction experience, who bought a place (trailer/engineered home) for $8000 and even had a buyer lined up for $80k. Last I heard, the job was half done, the expenses had run more than $80k and the buyer had found something else since the job still wasn't done...the person who really made money on the deal? The specialists who were hired to do the work the "investor" couldn't.


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## marina628 (Dec 14, 2010)

I have bought power of sales listed on MLS by banks in past ,no different than any other deal and the discounts are generally not much 3-5% at best IMO.


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## dougboswell (Oct 25, 2010)

If a bank holds the mortgage as Marina628 said don't expect big discounts. If the lender sells it too low the owner can sue them for selling at a below market price. The lender has to pay for an appraisal, possibly a maintenance person to look after and clean up the place, cover insurance and look after taxes. Then they would have to pay a realtor if it is listed on the MLS. After all this they hope there is enough left to cover the outstanding mortgage balance. If an owner is defaulting on their mortgage they will not be worrying about leaving the place in a clean state.
Banks are not in the business to operate at a loss by underselling properties.


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

It is called power of sale. I have bought properties that were under power of sale. Don't expect any bargains.

The way it works is that in the mortgage there is a clause that allows the lender to sell the property to settle the debt, if the borrower does not make his payments. The lender, or bank, never owns the house but they have the power to sell it. This is quicker and easier than a foreclosure and has been the standard way of handling these things for years.

BUT the lender has certain obligations to the borrower. If the money they get comes up short they can sue the borrower. But if there is change left over the borrower gets it.

This means the borrower has an interest in what the property sells for. If there is any hanky panky or the bank sells too cheap they can sue.

Therefore the bank always gets an appraisal from a licensed appraiser, lists the property with a major real estate broker and makes sure the property is on MLS and advertised widely. They might discount the price 10% from the appraisal but that is about as far as they can go.

If the property does not sell for 3 months or 6 months they will reappraise it and try a lower price. Now they may be more inclined to take a lower offer.

In any case they will not take any fancy offer with a lot of clauses in it. They will not guarantee ANYTHING, not even to give you the deed on closing.Zoning, survey, legal problems, they are all on the buyer. They expect an all cash offer with no conditions.

Plus the property may have been trashed. Sometimes a Power of Sale property seems to sell cheap but there are good reasons for the low price. Occasionally you will get a bargain but usually you will be paying all the property is worth.


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## Eoink15 (Feb 25, 2015)

Sounds to me a bit risky especially that they won't give you the deed's?
I guess you have to chase down the zoning and everything after you buy??


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## Just a Guy (Mar 27, 2012)

The lawyer will do it all for you. It's not like the properties are usually a problem, it's more it's already cost the banks money, so they aren't willing to do anything more, especially if it has a cost.

I've bought some of these...often you can't view the property as its occupied still. So you buy sight unseen for the interior. The bank still has to evict the people, but that happens before closing. One time, I had to store the former owners stuff for a month because hey evicted the day of possession. The law says they've got time to collect it, we were stuck with it. That was about the worst that I've had from this type of deal...is was bought sight unseen, but we had a low offer so, while inconvenient, it was well worth it. Wound up hauling most of it to the dump.


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## Ottawa Realtor (Aug 16, 2015)

Eoink15 said:


> Ya so the house in in Toronto downtown area. The adverage price on that street is 550+.
> It's a power of sale because the owner is defaulting on his mortgage!the house is in bad shape, I guess I've nuthing to loose by putting in a low offer!
> Is there any other implications with buying in this type of situation?


Maybe you haven't included all info? It's appraised at $470K but is it listed? If it's a power of sale the bank will list it. If the agent has a listing and is holding back it's considered illegal. Assuming it's listed at $470K the bank will not sell it for $420K likely. Rusty is correct, there are laws. If the ARV is $550K you don't have a lot of space to fix it and then resell and pay all the fees. Besides, Toronto is overpriced and there might be a correction.


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## Just a Guy (Mar 27, 2012)

For a forced sale, the banks don't really have a say. All the offers usually go before the courts and they decide. You can submit any offer you want


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## Eoink15 (Feb 25, 2015)

Wow that must be awkward!it is quite a gamble buying without even setting foot inside!! So basically my lawyer will know the odds and ends?

Did you flip that house your talking about just a guy?


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## Eoink15 (Feb 25, 2015)

It is not listed yet no. My mortgage broker got his hands on it from a friend a lawyer I think. He reckons I could get it for what's owing on the mortgage which is 410. Plus fees so he reckons I could pick it up for 420. It's quite a big house 1500 foot.
So I'm thinking of putting a low offer on it just to see.! I could be lucky but I don't have my hopes up!!


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## Just a Guy (Mar 27, 2012)

Actually, it was good for me. Most people don't have the experience to buy a place sight unseen. I usually gut a place when I buy it anyways and renovate them, I know what to expect in certain situations, I can afford to take the chance. The benefits of experience.

I'm not a flipper, I hold my places for rentals, though I've often had thoughts of selling these types of deals since I get them well below market but, since they appraise so high, I get all my money back at 80% financing (if not more) so I don't really have a lot of risk built in. 

If the place hasn't been listed yet, the odds aren't good of getting it quick. That being said, you can somethings get it below what is owing on the mortgage as well since it costs money to foreclose, and each month it sits is losing another payment.

To do anything like this though, it should be an unconditional offer (meaning you've got the cash in hand and don't need financing). If you have conditions, the odds of getting a deal go way down.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> To do anything like this though, it should be an unconditional offer (meaning you've got the cash in hand and don't need financing). If you have conditions, the odds of getting a deal go way down.


This. Some lenders will require an in person appraisal to confirm value and cover their bases. That doesn't work in this kind of situation where it's sight unseen.


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## dougboswell (Oct 25, 2010)

In Ont. even if there are tenants, they can be given the proper notice and a prospective buyer can then view. 
It is the lender who has an appraisal done and gain if the tenants are given the proper notice the appraiser can gain entry.
As has been mentioned the lender will not accept an offer with any conditions allowed - it is " as is "


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## Just a Guy (Mar 27, 2012)

It's different when the place is occupied by an owner. They can refuse entry.


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## Eoink15 (Feb 25, 2015)

ok wel there is a lot of different situations here! im having a meeting with the guy on thursday, so will no more then!
any advice before the meeting guys? im sure ill be straight on this after anyway to seek help lol


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

If you have any questions about zoning, or survey, or building code violations, or anything else you must look up the answers yourself or get someone's advice. You will be allowed to inspect the property inside and out and hire a property inspector if you wish. The point is, you must get all your questions answered BEFORE you buy because the seller (bank) will not take responsibility.

As for the deed you will get it but I have bought power of sale properties where there was a clause in the contract saying the seller would try to provide the deed on closing but if they couldn't the deal would close anyway and they would hand over the deed when they could.

Given all these conditions, and that the property may be in bad condition and impossible to get financing on, and the seller wants all cash on the nail you can see that when they sell for a cheap price it is for good reasons.

I have bought Power of Sale properties and made money on them but it was not any get rich quick deal.

What guy are you meeting, the real estate broker?


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## donald (Apr 18, 2011)

I guess in Real estate you can think it's 'easy' if you pull off a successful first build
You Can notice a property a street away and you envision what you could do(your 2nd)
Trouble starts with the real estate agents and quite frankly the 'bank'
I guess 'normal' people don't 'speculate' on raw land
If you have a agent that is focused on a one time commission and needs to take say his family to Mexico for a holiday
Maybe he tells his client to fore-fit all conditions because there is another buyer in the shadows
and tells his client if he is liquid enough to move that way
(the client has a lapse on properly placing trust on someone)
Than holds the bag(and all the problems)
The Bank Wins automatically
But how can you tell if it's a family that wants to sell family land vs a personal bankruptcy
Tough F*cking waters land development
You can not go blind without a team.
Seems a lot different than free market in how equities are.


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## dougboswell (Oct 25, 2010)

Just a Guy said:


> It's different when the place is occupied by an owner. They can refuse entry.


The ones that I saw had the owners out by the lender first and then the lender had it appraised and listed.


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## Just a Guy (Mar 27, 2012)

Yes, most of the time I've seen the place, but there are still some where the owner stays until the courts kick them out. If you've ever been a landlord and tried to evict a tenant, you know how difficult it can be. It's a lot harder to evict an owner from a property, not sure it's even legal in fact, until you gain title. To gain title you need to foreclose, the bank is trying to get around that by a forced sale...

Any way you look at it, this is probably not a great property to have as your first investment. Getting some experience first would probably be a good idea. Especially when you see the offer to purchase contract with about half the clauses crossed out and a schedule "A" attached with a bunch of new ones...

You need to realize most of the things in the contract designed to protect the purchaser are no longer there...this isn't just a cheap property, there are a lot of issues that can creep up which you may not be prepared for.


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## Eoink15 (Feb 25, 2015)

Yea I am very cautious with this option. I have a highly experienced realtor from the area who said he can help me draft an offer if it comes to that! it could be a risky first property you are right.


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## Just a Guy (Mar 27, 2012)

A realtor is a salesman...a highly experienced realtor is a good salesman, that's it. They make their money selling properties. I know a lot of highly experienced realtors. Some will sell you properties you can't afford, will even find you a mortgage (usually at high interest rates which you can't afford) when you can't qualify. They know every trick in the book, every appraiser who'll give them the numbers you need, etc.

In the end, you get sold a property you can't afford and, after you go broke and they foreclose on you, they'll sell it again to some inexperienced smuck. It's how they make their money. They don't make it off investing in real estate, they make it off commissions. They need people to buy, not make money.

If you truly want advice, find someone who's made money flipping during a recession (so not in the last 15 or so years where real estate has been going up at unprecedented rates, but when the market was going down). Any idiot can make money in a boom, that doesn't make them an expert, an expert is someone who makes money in the hard times. They're the ones who really know their subject. Too many "experts" today have been bailed out by a rising market, they think they know everything because they couldn't help but make money...those are the ones destined to be wiped out.


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## Eoink15 (Feb 25, 2015)

So basically I got approved for a mortgage yesterday, 4.99% with 10% down. 1 year term!

Also got news on the foclosure house and the current owner has not vacated yet, I think they gave them a month before the sheriff comes in!
Anyway my guy told me the only way to have the slightest chance of getting in was to get my lawyer to call the lender on my behalf to negotiate! I called my laywer and he said that I have to get on to the vender to write up an offer. It's so confusing! So then my contact about the house said I can't do anything because the owner wasn't kicked out yet? I'm afraid I'm Gona miss this chance! 
Is there anything you guys can think of I can do?


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## Just a Guy (Mar 27, 2012)

First, you probably got pre-approved, which isn't the same thing as "approved". They will want to see the house, which means you need "pending financing" as a condition. If you don't add this condition, you could be in for a very expensive surprise. Many people don't realize that hey are approved only if the banks finds the property suitable. 

Next, you need to present an offer in writing to the people selling the house (probably the bank's lawyer taking the owner to court). Your broker buddy should be able to find out who the seller is.

Finally, you are getting too wound up in the idea of owning the place. You need to be able to walk away from any deal with no regrets. Otherwise, you'll wind up paying too much. There are ALWAYS other deals to be had if you are patient. Learn how to do this deal (tracking down the owner, getting financing set up, how to price it, etc.), if you don't get the house, you'll be more ready next time. With the economy stalling out, there could be a lot of deals soon if something doesn't change.


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