Multiplex Foreclosures in Canada

[Filipe Matos]

Some people ask about foreclosures in Canada, here is an email I got from an expert in Ontario refering specifically to multiplex properties:

"Foreclosures are rare in Canada and Power of Sale is more common. The problem faced is when the lender's lawyer seizes the property, they levy all sorts of fines and fees on the deal and the deal is sold at market value minus 5%....not much of a deal anymore. Plus if you have a multi-plex that defaults, it is because they have bad tenants in them that trashed the place and the landlord gave up. Unless you have deep pockets and you kick all the tenants out and re-hab all the units, you will end up following the last landlord into another power of sale. The good buildings are mainly owned by REIT, Real Estate Trust and owned for more than 20 years and the investors are lawyers, doctors and business men that are not hurting.

Filipe

[Roy N.]

@Filipe Matos

This is in-line with my response to your earlier thread. You will also find many people do not distinguish between the Foreclosure and Power of Sale, though there are differences.

The largest difference is when ownership of the property changes hands. With Power of Sale, the lender has the ability to force the sale of the property, but ownership does not change hands until the sale is complete. The property must be sold through a realtor at {fair} market value {no fire sales}.

Proceeds of sale go to the owner - and are garnished for the amount outstanding to the lender. This also means that if the property sells for less than the balance of the note, the owner/borrow remains obligated to the lender for the balance.

In foreclosure, the lender goes to court to obtain title to the property. In exchange for obtaining title, the vender accepts the property as full payment of their note and the borrow has no further obligations to the lender. Foreclosed properties could be sold at auction, directly by the lender or via a realtor. Deep discounts to market value are possible, but, in our experience, rare {most markets in Canada are small enough that inventory levels are moderate and there is no need to dump the property}.

Lenders - particularly the Big 5 banks - tend to prefer Power of Sale as it's more cost effective for them: No/less legal expense; they do not need to maintain the property while it is for sale; the owner/borrow is motivated to get the best price possible for the property (and not to trash it); and, if the property sells for less than the note, the borrow is still on the hook for the balance.