Buying a repossessed property: Is it a good deal?

Have you ever wondered if buying a repossessed property is a wise move?

It’s true that many repossessed properties have selling prices below the market value. You could actually get a really good deal.

Certes, plusieurs reprises de finance affichent un prix de vente en deçà de la valeur marchande. Vous pourriez effectivement obtenir un très bon deal.

But be careful: Many buyers don't always understand what it means to buy a repossessed home. It pays to be a smart buyer and make informed decisions.

To fully understand the complexities of foreclosure and repossession, we asked notary Martin Dumesnil to answer a few questions.

What is repossession?  

Let's say you own a building and you stop paying your mortgage. You have defaulted on your payments. You will then receive a notice by a bailiff from the attorney at your financial institution. Depending on the time limit provided by law, you have 60 days from the time of publication of the exercise notice in the Registre foncier du Québec [Québec Land Register] to rectify the situation, otherwise your bank may exercise a hypothecary recourse against you. The bank will seek a judgment from the court in order to recover what is owed and order your eviction if you have not already left the premises. It can ask the judge to order the sale of your house, but it could also ask to repossess the house as payment for your debt.

The term “repossession” is commonly used, but sometimes it is used incorrectly because there are, in fact, two types of exercise notices: taking in payment and sale under judicial authority.

Taking in payment

In the event of a taking in payment, the bank takes possession of the property as the owner following a court judgment. It now holds the title to the property. The former owner therefore loses the property and the bank can proceed with its sale. Taking in payment clears all of the previous owner’s debt and the bank also takes care of discharging any other legal or contractual mortgage on the house.

Sale under judicial authority

Sale under judicial authority is much more common, but it’s also more complex to understand. The court judgment appoints a designated person (notary, lawyer or bailiff) to carry out the sale on behalf of the owner, but for the lender (the bank). The lender does not become the owner of the property. The owner remains the owner until the sale is completed. The bank thus retains personal recourse to the owner. If, for example, the sale did not fully pay off the mortgage, the bank could claim that amount from the previous owner. Once the sale is concluded, the designated party takes control of the funds and will distribute them to creditors according to their ranks. The previous owner recovers nothing.

What does that mean for a buyer?

The biggest disadvantage of buying a repossessed property is that it is sold without legal warranty, and at the buyer's risk. So what exactly does that mean? 

The legal warranty of a house concerns title deeds and the quality of the property. The various parties involved in repossession (the bank, the law firm or the bailiff) generally do a good job with regard to title deeds.

But where you need to be extremely vigilant is with regard to the quality of the building. Buying without a legal warranty of quality means that you waive your right to sue the seller if you discover any hidden defects. In other words, you’re buying “as is”. The buyer is therefore purchasing the property at their own risk and they assume the consequence if an unexpected problem arises. This is especially risky since, when buying a repossessed property, the bank very rarely produces a vendor’s declaration. There is hardly any history on the property.

What are the costs for the buyer?

In cases of repossession, the buyer often has to bear several costs. It’s best to be well informed up front.

• Notary fees are paid by the buyer. And, for repossessions, these fees can turn out to be more expensive than normal, given the many legal documents required. The notary is often imposed by the bank, the law firm or the bailiff's office.
• The mortgage and legal fees for writing off previous mortgages are sometimes the responsibility of the buyer. Be careful: in some cases, these costs can climb quickly. The first deed to be written off is often around $154 and subsequent deeds are often around $98. To this are added the notary's fees, which can be around $200 + taxes.
• If you are buying a condo, it is important to check if any condo fees are overdue. You may be required to pay them.
• Finally, if the certificate of location is expired, obsolete or lost, it must be redone at the buyer’s expense.

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By Celina Machado, Marketing Director and Residential Real Estate Broker, Martin Dumont Real Estate Team
Last update September 2021