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Understanding Foreclosures: A Comprehensive Guide for Alberta Buyers and Homeowners

Writer's picture: StartritehomesStartritehomes

Updated: Jan 20

Foreclosures are a hot topic in real estate, often seen as an opportunity for buyers seeking bargains and a challenging ordeal for homeowners. In this guide, we’ll explore the intricacies of foreclosures, including why properties go into foreclosure, the Alberta foreclosure process, its financial implications for homeowners, and the pros and cons for buyers. We’ll also address whether foreclosures are priced lower and whether buying one is a genuinely cheaper option.



Man in suit writes at desk with wooden house, gavel, and question mark symbol nearby, suggesting legal or real estate context.

Why Properties Go Into Foreclosure


Foreclosure occurs when a homeowner fails to meet their mortgage obligations, prompting the lender to reclaim the property to recover their losses. Common reasons for foreclosure include:


  • Financial Hardship: Unexpected job loss, medical expenses, or divorce can cause homeowners to fall behind on payments.

  • Adjustable-Rate Mortgages (ARMs): Homeowners with ARMs may face increased payments they can no longer afford when interest rates rise.

  • Overleveraging: Borrowers who take on more debt than they can handle risk falling into financial trouble.

  • Economic Downturns: Recessions or industry-specific challenges can lead to widespread foreclosures in affected regions.


Pro Tip: If you’re struggling to make payments, reach out to your lender immediately. Many lenders offer hardship programs or loan modifications to avoid foreclosure.


The Foreclosure Process Explained


In Alberta, the foreclosure process is governed by the Law of Property Act, which outlines the legal procedures lenders must follow when a borrower defaults on a mortgage. Understanding the specific steps and timelines involved can help homeowners navigate this challenging situation more effectively.


1. Missed Payments and Initial Contact

The foreclosure process typically begins after a borrower misses one or more mortgage payments. Initially, lenders may contact the borrower to discuss the missed payments and explore possible solutions. It's crucial for homeowners to respond promptly to these communications to prevent further legal action.


2. Demand Letter

If the borrower fails to address the missed payments, the lender's legal counsel will issue a Demand Letter. This letter formally requests payment of the arrears within a specified timeframe and notifies the borrower of the impending foreclosure proceedings if the debt remains unpaid.


3. Statement of Claim

Should the borrower not comply with the Demand Letter, the lender files a Statement of Claim with the Court of Queen's Bench of Alberta. This document outlines the details of the mortgage default and the relief sought by the lender. The borrower has 20 days from the date of service to respond by filing a Statement of Defence or a Demand of Notice. Failing to respond allows the lender to note the borrower in default, expediting the foreclosure process.


4. Redemption Order and Redemption Period

If the borrower does not respond or resolve the arrears, the lender may seek a Redemption Order from the court. This order sets a redemption period, granting the borrower additional time to pay the outstanding amounts or sell the property. The length of the redemption period varies based on factors such as the property's equity and the borrower's financial situation. Typically, courts may grant a redemption period ranging from one day to six months for residential properties, and up to one year for farmland.


5. Methods of Sale

If the borrower fails to redeem the mortgage within the allotted period, the court may order the sale of the property. In Alberta, there are three primary methods of sale:


  • Posting for Sale: The property is advertised, often on platforms like Kijiji, for a specified period, and tenders are invited.

  • Advertisement in Newspapers: The property is advertised in local newspapers, with tenders closing after a set period.

  • Judicial Listing: The property is listed for sale on the Multiple Listing Service (MLS) with a real estate agent, usually for a period of 90 days.


It's important to note that during these sales, the Court of Queen's Bench of Alberta acts as the seller, and the property is sold "as is, where is."


6. Possession and Eviction

After the sale, the court grants an order for possession, typically providing the borrower with 30 days to vacate the property. If the borrower does not leave voluntarily, the lender can employ a bailiff to enforce the eviction and change the locks. Personal belongings left behind may be disposed of or stored, depending on their value.


Pro Tip: Engaging with the lender early in the process and seeking legal advice can provide options to avoid foreclosure, such as loan modifications or negotiated settlements.


Financial Impact of Foreclosure on Alberta Homeowners


Foreclosure has significant financial and emotional consequences, including:


  • Credit Damage: A foreclosure can remain on your credit report for up to seven years, severely impacting your ability to secure future loans.

  • Deficiency Judgments: In some jurisdictions, lenders can pursue the homeowner for the difference between the loan balance and the sale price. In Alberta, deficiency judgments are allowed but are subject to specific conditions.

  • Stress and Uncertainty: Foreclosure often comes with emotional distress, particularly if the homeowner is unsure about their options.


Time Limits for Foreclosure


The timeline for foreclosure varies:


  • Judicial Foreclosure: This process can take 6-12 months or longer as it involves court proceedings.

  • Non-Judicial Foreclosure: Typically faster, taking 1-4 months.

  • State-Specific Laws: Check your province or state regulations for precise timelines.


Pro Tip: Monitor all communication from your lender and respond promptly. Ignoring notices can accelerate the foreclosure process.


Are Foreclosures Priced Differently?


Foreclosures are often priced below market value, making them appealing to budget-conscious buyers. However, several factors influence pricing:


  • Condition of the Property: Many foreclosed homes are sold as-is, often requiring significant repairs.

  • Market Conditions: In a seller’s market, even foreclosures may be competitive.

  • Carrying Costs: Lenders are eager to offload REO properties quickly, leading to lower asking prices.


Pro Tip: Hire a professional home inspector before purchasing a foreclosure. Hidden damages can turn a “bargain” into a costly investment.


Is Buying a Foreclosure Cheaper?


Foreclosures can be more affordable, but the savings aren’t always guaranteed. Consider the following:


Pros of Buying a Foreclosure:

  1. Lower Purchase Price: Foreclosures are typically discounted to attract buyers.

  2. Opportunity for Equity: If you can invest in repairs, the property’s value may increase significantly.

  3. Diverse Inventory: Foreclosures range from single-family homes to luxury estates.


Cons of Buying a Foreclosure:

  1. As-Is Condition: Foreclosed homes often require extensive repairs.

  2. No Negotiation: Lenders usually sell foreclosures at a fixed price.

  3. Complex Purchase Process: Auctions and short sales can be time-consuming and complicated.


Evaluating the Pros and Cons


Advantages for Buyers:

  • Immediate Discounts: Foreclosed homes are often priced below comparable properties.

  • Potential for Customization: Investing in repairs allows you to tailor the property to your needs.

  • High ROI Investment Properties: Renovated foreclosures can yield strong returns in rental or resale markets.


Disadvantages for Buyers:

  • Risk of Hidden Costs: From legal fees to major structural repairs, unforeseen expenses can arise.

  • Competitive Bidding: Auctions may drive prices higher than anticipated.

  • Time-Intensive: Research, inspections, and legal processes can be time-consuming.


Pro Tip: Secure pre-approval for a mortgage before pursuing a foreclosure. Having financing ready gives you a competitive edge, especially in auctions.


Tips for Buying a Foreclosure


  1. Research the Market: Understand local pricing trends and comparable sales.

  2. Inspect the Property: Identify repair costs and factor them into your budget.

  3. Understand the Legal Process: Familiarize yourself with the foreclosure laws in your region.

  4. Work with Experts: Real estate agents, attorneys, and contractors can help you make informed decisions.


Pro Tip: Consider foreclosures listed on multiple platforms, including exclusive property listings and bank websites, to increase your options.


Foreclosures present opportunities and challenges for both buyers and homeowners. While buyers can benefit from discounted prices and potential equity gains, the process requires diligence and expertise. For homeowners, understanding the foreclosure process and seeking early intervention can mitigate financial and emotional distress.


Whether you’re considering buying a foreclosure or facing foreclosure yourself, having the right information and team of professionals is essential. Start your search for top-rated real estate professionals at Pro Search.


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