Posted by Joe Samson on Monday, June 4th, 2012 at 3:27pm.

In Part I of pursuing foreclosure purchases I have shared with you a general overview of  how a property exchanges hands all the way from a defaulted owner to the courts, then to the banks and finally into the hands of a new owner.

Many buyers are surprised to find out that purchasing a foreclosure property involves great risks associated that they may not encounter in a regular resale transactions and the normal rules of engagement do not apply.

It often happens that buyers are competing to purchase the same property and as the natural evolution of any market, usually the strongest bidder walks away as the winner. In a “bidding war” where a foreclose property is involved, all of the details of any offer received may be shared by the lawyers with the competing parties and it shall become public information.

An even greater concern or risk is the modification to the standard Real Estate Purchase Agreement by the courts or the bank’s lawyer.

In most cases, a Schedule “A” will be added to the purchase agreement to amend many standard provisions and to wipe out most warranties that are in place in the standard real estate agreement to protect the buyer’s interests in the transaction.

By clicking on this link here. you can download a copy of a PDF sample of alterations of terms that a bank’s lawyer had modified in a previous transaction that I have participated in.

Some of the  most important examples are:

• Compliance of a Real Property Report where any concerns related to a building or property line would be identified.
• Transfer of ownership of any appliances is not warranted nor is their working order.
• Vacant possession of the property will not be guaranteed by the seller. Sometimes they have to evict residents and the bank will not guarantee when it will be completed.
• There is zero responsibility accepted by the seller for any damages to the property between the time when an offer had been accepted and the keys are turned over to the new owner.
• GST implications may take place if major renovation is required. It’s up to the buyer to verify if it applies.
• Condominium transactions usually involve reviews of detailed financial reports and many other documents to evaluate the financial and structural state of the complex. None of these documents will be provided to the buyer for review.
• Often there is no opportunity for the buyer to ask for any conditions to be attached to the purchase agreement and they may need to take a leap of faith by making a few major assumptions. For example: financing and property inspection.
• This is something that really blows my mind, but they even cross out section 2.2 of the purchase agreement that states the “The Seller is going to act cooperatively, reasonably, and in good faith”.

As you can tell from the examples above, there is no shortage of risks involved with buying a foreclosure property in Calgary. However there could be some real hidden gems in the pile, but you need to feel comfortable with navigating through a minefield of potential problems. While most foreclosure deals close without a glitch, occasionally they do become a buyer’s worst nightmare.

My caveat to you is that if you are interested in getting your feet wet in the foreclosure market, then you should first consult with a real estate lawyer to get a better understanding of any implications involved with the purchase.