Home' Trinidad and Tobago Guardian : July 5th 2015 Contents SBG6 COVER STORY
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JULY 5 • 2015
First, the good news about
property foreclosures. If
the home being foreclosed
on is not yours, then a
foreclosure represents a
legitimate opportunity to
own a home, oftentimes
below market value.
The bad news? They do not quite represent
the bargains they are often thought to be, since
the prices they are available at are not signif-
icantly below market value. Moreover, you
may see a foreclosed property being advertised
for sale, only to be disappointed when you
call because the owner has managed to retain
ownership of his home.
"I would say seven out of 10 times, the
mortgagors will find the money by some means
to pay off the arrears that will satisfy the
financial institution and the sale of the property
would be cancelled," said Edward Soon, man-
aging director of Edward Soon and Company
Ltd. Soon s company has been providing auc-
tioneering and collection services for the past
"In the remaining three out of ten times,
when properties go out for sale, there is a
"People come to the auction because there
is always demand for a property. Also, people
are of the view they will get it at a figure less
than the market value."
But this is not necessarily the case. To under-
stand why, you have to understand the process
by which a home gets to foreclosure.
The road to foreclosure
Wendy Huggins, the assistant general man-
ager, mortgage origination at the T&T Mortgage
Finance Company Ltd said, "Accounts are
classified based on the number of days in
"For example accounts with zero days in
arrears are considered current whereas accounts
31 to 179 days are classified as Special Men-
According to Huggins, this allows for easier
monitoring and management of the overdue
accounts. She said after all efforts to meet
with the client, which include phone calls,
letters, face to face meetings and field visits,
are exhausted, the foreclosure process begins.
In foreclosure, the entire debt is collected,
not just the arrears owed on the home.
Soon said there are two ways financial insti-
tutions can do this, through private treaty sale
or a public auction.
In a private treaty sale, the mortgagee adver-
tises the sale itself and it is not required to go
to the courts to do this, as the right to do so
is enshrined in the mortgage agreement, said
However, when choosing to go the route of
a public auction there are certain rules to fol-
"They may have to give them (occupiers of
the property) written notice of the default,
give them notice to remedy their situation,"
Market value vs
forced sale value
"Real estate auction sales are usually guided
by a reserve price, which is derived from a
recent evaluation that would have been done
by the financial institution of the property."
At an auction, the reserve price is the min-
imum price that will be accepted from bid-
But there is also the market value price and
a forced sale price, the market value being
what would be paid for the property on the
open market, the forced sale price being what
would be paid if the mortgagee has no other
option but to sell the property. Soon estimated
that this could be between nine and 15 per
cent less than the market value.
It is important to understand that the price
of the property is not determined by the
amount owed by the mortgagor, usually the
homeowner. Remember that in foreclosure,
the financial institution is aiming to collect
the entire debt.
Soon explained further.
"Let s say the arrears is $50,000," said the
"If the arrears are $50,000, not only are the
arrears is paid off, but the whole amount owed
to the bank. So let s say at the time of purchase,
the property was bought for 1.6 million. Let s
say after two years, you would have paid off
$200,000. With interest, it comes back up to
"When the property goes up on the auction
block, it sells at a greater value with the passage
of time, because property values increase in
T&T. Let s say after those two to three years,
it increases to $2 million from $1.6. million.
The forced sale value will be around $1.9 mil-
lion. The bank is not only paid off the arrears,
but the entire amount due to them, which
would be the $1.5 million plus the cost of the
sale and the expense of the auction."
Therefore, while you may get the foreclosed
property for less than market value, don t look
for amounts that are wildly lower.
"Purchase of foreclosed property does not
necessarily present a cheaper option," said
Huggins, "In fact, in T&T that is more of a
myth; a misconception. The T&T reality is
that foreclosed properties must be sold for
the current market value or for an amount as
close as possible to the current market value.
In other words, the financial institution has
the responsibility to get as much as it can for
Pitfalls of buying 'as is'
There may also be any other problem.
Financial institutions are under no obligation
to sell foreclosed properties subject to vacancy.
Essentially, this means you can purchase a
property with tenants who may not leave it
voluntarily. Soon said the court process to
remove the occupants could run between six
and eight months.
Bidding on a property at an auction also
means you buy "as is".
"Once your bid is accepted you will be
required to make your downpayment and
source financing for the difference within a
specified timeframe, usually 90 days," said
"In terms of pitfalls, there is little or no
negotiation on the price. Essentially you would
have submitted a bid without knowing the
market value of the property. Should your bid
be higher than the market value, then the
amount of financing you are able to get may
Huggins added that the purchaser may also
have to cater for the costs of hidden defects
in the property and outstanding bills, such as
Buying 'As Is'
Need-to-knows when buying foreclosed property
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