The Main Risks of Buying a Residential Foreclosure Property in BC

The dream of securing a deeply discounted property is a powerful lure, and few real estate opportunities are perceived to shine brighter than a foreclosure sale. In British Columbia, where housing affordability is a persistent challenge, court-ordered sales can seem like a golden ticket to homeownership.

While a traditional home purchase comes with its own set of challenges, buying a BC foreclosure—a judicial sale overseen by the Supreme Court—is a fundamentally different and far more complicated process. For any prospective buyer, a rigorous understanding of the “buyer beware” reality is not just advised, it is essential.

What is the process?

The subject property is usually listed on the local MLS. The buyer, through his realtor would make an offer to the lender to purchase the property. The buyer may put various subject conditions into the offer such as a home inspection, mortgage financing approval, review of title and strata documents etc. If the lender accepts the offer, the buyer will have a period of usually 1-2 weeks to remove the conditions. When the conditions are removed, the lender’s lawyer will apply to the BC Supreme Court for an order approving the sale. If the court approves the sale, the completion will usually be a week to ten days later (but most orders allow the lender’s lawyer to further extend the completion date by up to an additional ten days without further court approval). On the completion date, the buyer’s lawyer will pay the purchase price to the lender’s lawyer and concurrently file a vesting order to transfer title to the buyer. The court order will clear the title of the lender’s mortgage, CPL and all other financial charges.

Although he must be served with the Petition for Foreclosure and supporting documents, the registered owner of the property is typically NOT involved in the process at this stage (although he may have appeared at an earlier court proceeding to contest the foreclosure. However, there are few legal defenses to residential foreclosures in BC, so the owner’s submissions are usually restricted to arguing about the “redemption period” (which is typically 6 months if there is sufficient equity in the property).

So, what are the risks?

1.      An "As Is, Where Is" Sale -what you saw may not be what you get

The single biggest financial risk when purchasing a foreclosed property is that it is sold “as is, where is.” In a traditional sale, the seller provides warranties and disclosures about the home's condition. In a foreclosure, the seller is the lender (a bank or financial institution) who has no first-hand knowledge of the property. The listing realtor will insist that a 5-10 page comprehensive “as is, where is” schedule is attached to the buyer’s offer. Said schedule is typically drafted by the lender’s foreclosure lawyer to protect the lender from any potential claims by the buyer.

In the standard BCREA/CBA form of purchase agreement, there is a warranty by the seller that the property will be in substantially the same condition as when the buyer first viewed it. In a foreclosure sale, such warranty has been removed by the “as is, where is” schedule.

This places the entire burden of discovery and repair squarely on the buyer. The property may have been neglected for months. Hidden defects can range from minor cosmetic repairs to structural, electrical, or plumbing issues (not all of which can be ascertained by a standard home inspection by a qualified inspector).

If the registered owner is still in possession, he may intentionally damage the property prior to the completion date due to frustration or anger with the lender or its lawyer. A few years ago, we had a case where upon obtaining the keys, our buyers discovered that the owner had torn out the kitchen and bathroom cabinets, plumbing and lighting fixtures and removed all the appliances, Due to the “as is, where is” schedule, our clients effectively had no legal remedy.

The bank usually has no claim on the owner’s chattels, appliances or other fixtures that were not permanently affixed to the property, so they are not transferred to the buyer via the vesting order.

Thus, when making an offer on a foreclosure property, make sure that it’s vacant and has been secured by the lender. This will greatly enhance the probability that the property will be in the same condition as when you viewed it.

If tenanted, the foreclosing lawyer will have named the tenants as respondents in the foreclosure process, so they will expect to be evicted upon the completion date. It is less likely that the tenants will trash the property before they vacate.

2.     The Court Approval and Competition Conundrum

A standard BC real estate transaction is a negotiation between two parties. A foreclosure is a legal process governed by the Supreme Court, and this introduces a level of complexity and uncertainty that is a significant risk for the buyer.

Even after a lender conditionally accepts the buyer’s offer, the sale is still subject to Court Approval. A court hearing is scheduled, and this is where the biggest surprise can occur. Other interested parties who were notified of the proposed sale price can show up on the day of the hearing and submit their own, unconditional, bids in sealed envelopes (in such case, the original buyer can re-submit a second, sealed bid as well). The presiding judge will normally approve the offer that is in the best interest of the former owner and the creditors, which is typically the highest, most favorable offer.

The party who worked for weeks to secure the original accepted offer may find themselves outbid in open court, losing the property and being left only with the non-recoverable costs of their inspections, appraisals, and legal fees. This risk of being "gazumped" at the last minute can make the entire process unpredictable and costly.

3.     Legal, Financial, and Possession Hazards

The legal intricacies of a foreclosure introduce several timeline and occupancy risks:

• Unpredictable Timeline: The judicial process is slow. Between the time an offer is accepted and the actual court approval, weeks can pass. On occasion, an appeal of the court order may occur, further dragging out the closing date, making it difficult for buyers who need a firm move-in date.

• Financing Roadblocks: Traditional lenders can be hesitant to finance "as is" properties, especially if they are deemed uninhabitable or require major repairs. Securing a mortgage may require alternative, more expensive private financing or bridge loans, adding significantly to the total cost.

• Uncertain Possession: Even with a court-approved sale, the property may still be occupied by the former owner or tenants. The contract often states that the lender's only obligation is to apply to the court for a Writ of Possession to force the occupant to leave. This process can take a week or two. Once obtained, the next step is to hire a court approved Bailiff, which can also take another week or more. The owner or tenant, will be given a day or two by the Bailiff to vacate, failing which the Bailiff will physically remove them and their possessions. While the cost of obtaining the Writ may be borne by the lender the Bailiff’s costs may not be (you must check the “as is where is” schedule).

• Non-Resident Registered Owner: If there is any indication that the registered owner is a non-resident of Canada, additional investigations must be undertaken. While there is an old BC Supreme Court case that held that in a foreclosure sale, the seller is the bank (which makes sense, as the registered owner is NOT involved in the sale process), Canada Revenue Agency disagrees with this position and holds the view that the seller is the registered owner.  As s.116 of the Income Tax Act requires a purchaser to make reasonable inquiries as to the residency of the seller, this can be difficult on a foreclosure when the seller/registered owner is either uncooperative or absent. Again, the typical “as is, where is” schedule purports to exempt the bank from providing any information about the seller, including his residency status. If appropriate inquiries are not made the buyer could wind up with a tax bill for the seller’s unpaid capital gains on the property. See: $600K mistake on non-resident purchase

Due Diligence is a MUST

The high-stakes nature of a foreclosure sale means due diligence is not a formality; it is your financial lifeline. Buyers should:

1. Engage Specialized Counsel: Hire a BC real estate lawyer who is familiar with foreclosure sales. The lawyer can review the lender’s Schedule A and, advise you on the court bidding process. Keep in mind that most buyer’s realtors do not read the Schedule and simply assume that it is just an “as is, where is” clause. As you can see above, it’s much more. Budget for at least twice the normal legal fees as on a regular property purchase.

2. Conduct a Comprehensive Title Search: Identify any outstanding charges, liens, or claims against the property that may not be cleared by the Vesting Order. Often a property in foreclosure will have multiple mortgages, Certificates of Pending Litigation, strata liens, judgments and the like, so it’s necessary to ensure that the Vesting Order and if necessary, additional undertakings from the bank’s lawyer will result in a clear title for the buyer.

3. Perform a Non-Invasive Inspection: While access can be limited, maximize the opportunity to inspect. Consider bringing an experienced contractor alongside the inspector to get on-the-spot repair cost estimates. If it’s a strata property, have the contractor or building inspector review the Depreciation Report.

4. Confirm Financing: Ensure you have iron-clad financing approval before going to court. Remember, all offers presented to the court must be unconditional.

 (C) 2025 Pazder Law Corporation. This article is for information purposes only and is not intended as legal advice. If you are thinking of buying a property in foreclosure, always consult a real estate lawyer who is familiar with foreclosures before you make an offer.

CAUTIONARY NOTE:  Is buying a foreclosure property really a deal? The only reason anyone makes an offer on a foreclosure property is to get a bargain basement price. In some US jurisdictions like Texas, California, Arizona and Georgia, non-judicial foreclosures can result in a property being sold at a substantial discount from its market value, but that is not possible in British Columbia, as the bank’s lawyer must present a current, independent appraisal of the property to the court. This appraisal is used as a benchmark by the court to see to it that the property is sold as close to the market value as possible (thus ensuring that maximum sale proceeds are available to pay existing creditors and the surplus, if any to the registered owner). If multiple bidders show up at the approval hearing, often the highest bid is actually higher than the appraised value, so the foreclosure deal turns out to be no deal at all.