Demystifying the Court Order Sale Bidding Process

Real Estate Law - Blog
Nov
March 3, 2016

Demystifying the Court Order Sale Bidding Process

Nav Parhar - Blog Avatar - Law Firm Victoria BC
by
Nav Parhar

I recently received a call from a friend who was looking to buy a house out of the court-ordered sale process that typically concludes a foreclosure proceeding.  He told me that two realtors were telling him two different things when it came to making his bid in this competitive real estate market:  one realtor told him it is a one-round process with all interested parties submitting their best and final offer in a sealed envelope, while the other told him it is a two-round process, with only the best of multiple offers moving on to the second stage.  He asked me how the process goes and I was at a loss because I have seen it happen both ways, but I wasn’t sure which way is “normal”.

As it turns out, the reason that I was uncertain is because until a couple of weeks ago, there was no clear-cut method in the Victoria Judicial District.  In BC, the court’s use of the sealed bid in residential foreclosure proceedings has been created not by some law or statute, but through the common law – the law that is created through custom and practice.   There has been little written on the topic and little reason to address the process, as no one has raised the issue with the courts, at least until counsel did in CIBC Mortgages Inc. v. Oddoux 2016 BCSC 251.

After hearing the submissions of local lawyer William S. Johnson in this recent CIBC case, Master Bouck of the Victoria Registry issued her reasons as to the protocol that she will be following when she presides over foreclosure proceedings in Victoria.  For a number of reasons, which include protecting the interests of creditors and the owners of the equity of redemption (in other words, maximizing the sale price for the original owner and those to whom they owe money), providing integrity to the process, and also to ensure fairness to all participating parties, she decided she would follow the two-step process.

In lay terms, what this means is that an original offeror (who we will call "Bob"), whose offer is included in the court materials filed prior to the hearing, walks into Court thinking he has his new purchase in the bag.  However, much to his dismay, he could be subjected to others coming in and beating that offer at the hearing because they already know his offer from the filed court materials.  In the case of multiple interested parties, the following type of scenario could unfold now that the local rules have been clarified:

  1. The lawyer for the selling party (usually a bank) asks all parties interested in 123 ABC Street to come speak to him/her outside the Courtroom;
  2. The lawyer requests the new or competing bidders to disclose to Bob and to each other, the amount that they are prepared to offer for the property (the “Step Up Bid”), but always with the proviso that all of them, Bob included, will have a further opportunity to make their final or best offer in a sealed bid;
  3. The Lawyer advises the new bidders that the Step Up Bid has to be more than Bob’s offer before their bids are considered. If the step up bids disclosed by the new bidders are not better than the offer being presented Bob, then that would be the end of the process and the application to approve Bob’s offer would proceed;
  4. If the Step Up bids by the new bidders are materially better than Bob's offer, as determined by the Court, then a second round of the offering process would result, where Bob or any of the parties from the Step Up Bid process who choose to continue can put their best foot forward in part two, the Sealed Bid process;
  5. The Court would determine the best bid after opening the Sealed Bids.


Knowing that your offer could be outbid at the last moment is nothing new in foreclosure proceedings, as this practice has gone on for decades.  However, knowing how many rounds of sealed bids may occur is vital to those wondering about strategy if it gets to a competitive bidding situation.  Now we know, and knowing is half the battle!

(special thank you to William S. Johnson for his input and contribution to this blog entry)

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