@Leo Robinson Wholesaling properties from banks isn't really an option in Canada.
It's not just that their contracts require them to get the best price, but that the law requires them to. You see, many properties in the US are foreclosed on by the banks. The bank then owns the property, and can sell it at whatever price they want.
In Canada, a mortgagee has three options when the mortgagor is in default. Mortgage agreements have an acceleration clause, so they are able to accelerate the mortgage and say you owe them the full balance. This lets them take action on the covenant for not paying. These are the three options:
1. Judicial Sale: This is often the least preferred option by lenders. Here, there is a sale of the property authorized by the courts. This can be a longer process, and takes control out of the lender's hands. With the additional costs of the judicial sale, the lender is likely to get less out of the property. Since a mortgage is also personally guaranteed, if there is a shortfall, the lender can still sue the borrower for the deficit. So if a property has a mortgage of $100k, sells for $90k, and had $10k in costs associated with the sale and court proceedings, the lender would sue the borrower for the $20k deficit.
2. Foreclosure: This is not often used in Ontario, and is really only used when the lender has a specific reason for wanting the property. In this case, the borrower would foreclose on the property, and own the property outright at the end of the process, but no remaining rights to sue for any deficit. This means that if the property has a mortgage of $100k, and is only worth $90k, the lender could foreclose and own the property. They could not sue the borrower for the shortfall. A lender might do this if they have some personal reason for wanting the property, such as it being the neighbour's property. If the property has a mortgage of $100k, and is worth $120k, they lender can start foreclosure as well. If they get through it, they will own the property outright, and not owe the borrower the other $20k. However, at any time in foreclosure proceedings, a borrower can request that the foreclosure becomes a judicial sale (above). This means they lenders almost never get to reach the point where they can keep that equity, and they get stuck in a judicial sale, which they don't like.
3. Power of Sale: This used 90-95% of the time in Ontario. The lender is able to take control of the situation. The lender sells the property, and if it is sold for more than the loan and sale costs, the lender will pay this to the borrower. If the property is sold for less than the loan and sale costs, the lender will sue the borrower for that shortfall. If there is default insurance (CMHC, Genworth), the insurer will pay the lender then sue the borrower. Here is why Power of Sale does not work for wholesalers: If the lender sells the property for too cheap, the borrower can sue them for improvident sale or improvident realization. This essentially is a right of the borrower to receive the fair market value for their property. This means the lender needs to sell the property for FMV. Lenders fear being sued for improvident sale, so they are very careful. This usually means they get multiple appraisals or broker opinions on the property. They will not stray far from those valuations until the property has been on the market for a long time. They will almost never accept the first offer, even if it is very fair. They often want to counter at least twice, to show they have tried to negotiate the best price. Essentially, it is very difficult to get a good deal on the property. If a lender has a loan for $100k, and sells the property for $90k with $5k in costs, they will want to sue the borrower for $15k. However, if the borrower can prove the property was worth $130k, the borrower will sue the lender for improvident sale, and claim $25k. A lender can defend against the claim by showing they completed the above steps, which courts will accept to show they got FMV. If a bank sold at a low price and the contract was flipped to someone else, this is a very strong way of showing that they sold at too low a price, and could be sued for the difference. They would never allow this.
In all of these methods, if the lender is able to pay everything owing before a sale closes, they are able to keep the property. This occurs even if there is no contractual provision that allows it, it is the equitable right of redemption.
That's the summary of what I remember from my Real Estate Finance class from my law school days. Sorry for the length, I should turn this into a blog post!
