Part 2 - What is the Process for a Court Ordered Sale or Foreclosure?

Part 2 of a 3 Part Series - What is the Process for a Court Ordered Sale or Foreclosure?

In Part 1, we introduced the meaning of a Court Ordered Sale, often referred to as a foreclosure in everyday real estate conversation, and outlined some of the common situations where the court may become involved in the sale of real property.

In Part 2, we want to provide a general overview of how the process works in British Columbia, particularly for buyers, sellers, lenders and other stakeholders who may become involved in a Court Ordered Sale.

As always, this is general information only and should not be taken as legal advice. Anyone involved in a foreclosure or Court Ordered Sale should obtain independent legal advice.

1. Default or Dispute Occurs

The process usually begins when there is a default, unpaid debt, dispute, or legal claim affecting the property.

In a foreclosure situation, this often means a borrower has fallen behind on mortgage payments or has otherwise breached the terms of the mortgage. In other Court Ordered Sale situations, the issue may involve builder’s liens, estate disputes, matrimonial disputes, co-owner disputes, or other claims against the property.

2. Court Proceedings Are Started

The lender or other party seeking relief will usually start a court proceeding in the Supreme Court of British Columbia.

In a foreclosure, the lender asks the court to confirm the amount owing and to set out the borrower’s opportunity to redeem the mortgage. “Redeem” means to pay the amount required to bring the matter to an end, which may include mortgage arrears, interest, costs, taxes and other amounts depending on the circumstances.

3. Order Nisi and Redemption Period

One of the first major court orders in a foreclosure is called an Order Nisi.

The Order Nisi will usually confirm the amount required to redeem the mortgage and set a redemption period. This is the time given to the borrower to pay what is required, refinance, sell the property, or otherwise resolve the debt.

The length of the redemption period can vary. It may depend on factors such as the amount of equity in the property, whether the property is being maintained, and whether there is a realistic chance the debt can be repaid.

4. Conduct of Sale

If the matter is not resolved, a party may apply to the court for conduct of sale.

Conduct of sale means the court gives a specific party the authority to list and sell the property. This may be the lender, another creditor, or another party the court considers appropriate.

Once conduct of sale is granted, the authorized party may list the property for sale, often through a licensed real estate professional. The court order may also set out terms relating to the listing, marketing, access, price, commission, and sale process.

For a property owner, this is an important stage. Once another party has conduct of sale, the owner may no longer control the listing or the sale process in the same way they would in a normal sale.

5. Listing the Property

Many Court Ordered Sale properties are listed on MLS and marketed similarly to other properties, but there are important differences.

The seller is not always the registered owner. The seller may be the party who has conduct of sale under the court order. The sale will also usually require court approval before it can complete.

Buyers should understand that these properties are commonly sold on an “as is, where is” basis. The seller may have limited knowledge of the property, and the usual representations, warranties, or disclosures may be more limited than in a standard sale.

6. Receiving and Accepting an Offer

A buyer may submit an offer through the normal Contract of Purchase and Sale, but the offer will usually include a Schedule “A” and will be subject to court approval.

The Schedule “A” is very important. It may change the standard terms of the contract, limit seller obligations, and set out special conditions required for a court-approved sale.

Once an offer is accepted by the party with conduct of sale, the buyer will usually remove subjects before the application for court approval. This is one of the major differences from a normal transaction. Buyers should have financing, inspection, insurance, legal review and deposit arrangements handled before going to court.

7. Application for Court Approval

After an accepted offer is in place, the seller’s lawyer applies to court for an order approving the sale.

At the court hearing, the accepted offer is presented to the judge or associate judge. Other interested buyers may also have the opportunity to submit competing offers in accordance with the court process.

The court is not simply rubber-stamping the sale. The court may consider price, deposit, completion date, certainty of closing, terms, and whether the sale appears fair in the circumstances.

The original buyer is not guaranteed to be the successful buyer. If a stronger competing offer is presented, the court may approve that offer instead.

8. Completion of the Sale

If the court approves the sale, an Order Approving Sale is granted. Once that order is made, the transaction can proceed toward completion according to the approved terms.

The sale proceeds are then dealt with according to the court process and legal priorities. This may include payment to the lender, other creditors, legal costs, property taxes, strata amounts, or other registered charges. If there is money left over after the claims are paid, it may be paid to the owner or dealt with as directed by the court.

Key Takeaways

A Court Ordered Sale can look similar to a normal real estate sale from the outside, but the process is very different.

The key differences are:

• The court may control or approve major parts of the process.

• The seller may be a lender, creditor, or other court-authorized party.

• The sale usually cannot complete without court approval.

• Buyers may face competition at the court hearing.

• The property may be sold with limited warranties or disclosure.

• Legal advice is important for all parties involved.

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In Part 3, we will discuss how buyers and interested parties can find or access Court Ordered Sales and foreclosure opportunities in the Vancouver and Greater Vancouver market.