Foreclosures in BC

The foreclosure process is the remedy available to a lender when a borrower who has guaranteed land as security fails to repay the loan.

The owner of a piece of real estate property who borrows funds through the use of a property loan is said to have an "equitable right to redeem", meaning that even though he owes money to a lending agency who has a charge against the coronet realty and assets and has breached the mortgage contract and consequently lost the legal or contractual right to redeem the property the owner still has the capacity to redeem the real estate asset and repay if he can somehow get the cash.

What this signifies to a finance company who's loan has been defaulted on is that before he can take the real estate or otherwise cause it to be sold he must extinguish the borrower's equitable right to redeem the loan. This is usually a technicality in that a consumer who has the funds to redeem the bank loan through his equitable right of redemption probably wouldn't find himself in the foreclosure situation in the first place.

In BC the process of foreclosure will begin 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 against the 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 agreement 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 various remedies available to a bank. The first stage is an agreed upon coronet realty of all monies owed. The Registrar of the Supreme Court will analyze the mortgage contract and the payment history and determine really what is outstanding, including how the debt will change as a result of accruing interest as time goes by. This produces a sum that each party has to recognize and agree to should payment actually happen.

Next is a judgement against any covenants that the borrower may have granted the loan provider. That covenant survives the sale of the property and assets, so even if the borrower has disposed of the property he's still obligated for the unpaid loan amount. This kind of judgement can also be ascribed to any guarantors or subsequent purchasers (assuming they also provided a covenant to the bank when obtaining the property).

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 operation will normally stop. If the procedure does finish at this point it's obvious that it wasn't a very genuinechallenge to start with.

Sometimes a receiver can be appointed. Property with commercial income or leased 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 real estate from being disposed of while the lender sort out their differences.

For a serious default foreclosure of the borrower's interest in the property (and, as mentioned, the rights of all other respondents)is the standard course of affairs.

The first thing that arises is for the loan coronet realty to send a demand letter to the borrower specifying a length of time to settle the outstanding loan. Failure to do so ends in the loan provider continuing to the second step, filing the petition with the Supreme Court.

The Court will then issue an Order Nisi which sets the amount necessary to redeem the loan and the time allowed to do so. This is called the satisfaction period. It's most 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 additional redress against the borrower.

The 2nd approach is that of the absolute order of foreclosure. If the redemption period has passed, the value of the property is equal to the loan amount, or more, the borrower is "judgement proof" and the property can't be sold (i.e, there is no interest from any buyers), the lender can petition the Court to transfer it free and clear of all encumbrances to the mortgage lender.

An Order Absolute works both ways. If it is ordered the mortgage lender cannot collect against a personal covenant provided by the borrower unless the order is re-opened. If the loan company sells the real estate off to a third party he cannot enforce a judgement against the borrower because the asset can't be returned upon repayment. If the borrower gets the funds to pay the loan the order can be re-opened, and the borrower's right of equitable redemption is refreshed, but this can only be done by the Court, is only done on equitable grounds, and is extraordinary.

Anybody with a passing understanding acquaintance with foreclosures in BC will know that the judicial sale path is the most usual one used in foreclosures in British Columbia. Commonly called a "court ordered" sale, the court, through its agents (the lawyers) supervises the sale.

After the Order Nisi has been issued, and normally after the redemption period is over, the lawyer for the bank can petition for a conduct of sale order. He will then cause the property to be listed for sale with a realtor who will sell the asset. The asset must be well priced to take care of the owner's "equity of redemption", and the Court will attempt to ensure this.

Since a court ordered 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 abide by it will be defying a court order. The lawyers won't permit this. Therefore, all conditions must be removed before a court date is arranged.

One unconditional offer that is acceptable to the creditor can induce a court date. At court the lender's lawyer will explain the offer and describe the marketing activities and market response to the offering of the property. If the Master is pleased that the marketing has been fair, and that the bid is a good one, he will accept it and issue the order.

If there is a court date you can see multiple bids. The price and coronet realty of the first offer will be known, as it is a court document and therefore public knowledge. This permits other purchasers to know exactly what they have to do to beat the first offer. Furthermore, the lawyers for some lenders will specifically demand that the real estate salesperson disclose the first offer price to all other buyers.

If you find yourself in this position bear in mind that bids can be modified right up to the moment they are presented to the Master. Success frequently depends on understanding the competing buyers, making a guess at what they will offer, and then adding as little as $200 to the highest bid.

If you haven't gone to a foreclosure before the operation will go by swiftly. Buyers oftentimes will not even know they've been successful until someone more experienced in watching court advises them.

Always remember, these are rules for British Columbia. Mortgage laws and regulations can vary from local area to local area and country to country.