While the process of buying a home is typically quite similar from one transaction to another, there is a less common method of acquiring property: purchasing a home at an auction.
This non-traditional approach, however, is not without its regulations. In fact, there are several measures in place to regulate the practice. Although home auctions are relatively uncommon and not widely known, these regulations ensure that the process is well regulated.
Here’s what you need to know.
Why would a house be sold at an auction?
In Quebec, municipalities have had the authority to auction properties since 1830, and this power has been maintained and adapted over time.
Today, Quebec towns and cities can auction a property if the owner fails to pay taxes. This is known as a tax sale and can involve non-payment of:
- Municipal taxes
- School taxes
- Welcome tax
If a property owner does not settle these dues, their property may be auctioned by the municipality.
It’s important to note that municipalities can auction properties for unpaid balances as low as a few hundred dollars. While some cases involve amounts in the thousands or even hundreds of thousands, most foreclosures occur for unpaid balances under $5,000.
This method is the simplest way for municipalities to recover unpaid taxes, as pursuing legal action in court is much more complex and costly. Although it might seem extreme, this approach is effective because most owners pay their debts before the auction day.
How does a municipal auction work in Quebec?
The municipal auction process in Quebec involves several steps, and property owners are given multiple opportunities to settle their debt before foreclosure occurs. While details may vary slightly between municipalities, the general procedure is as follows:
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The municipality identifies an outstanding balance on the property’s account.
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A few months after the payment deadline, the municipality sends two account statements to the property owner.
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If the debt remains unpaid, the municipality issues a formal notice about the upcoming tax sale, usually around 6 months before the auction.
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If payment is still not received, a final warning is sent to the property owner.
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Before the auction takes place, the property is advertised in a local newspaper and on the municipality’s website.
When are auctions held?
In Quebec, municipalities conduct property auctions only once a year, usually in the autumn. During this time, interested buyers have the opportunity to participate.
It's important to note that a property can be removed from the auction list if the total outstanding balance is paid, even up until the morning of the auction. As a result, there is no guarantee that the property will be sold on the scheduled auction date.
How to buy a home at an auction?
Purchasing a home at an auction is an experience that requires careful preparation. Here’s a general guide on how to proceed:
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Research the property: Begin by gathering information about the property through advertisements on the municipality’s website and in the local newspaper. It’s essential to conduct thorough research and verification on your own.
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Understand the limitations: Unlike traditional sales, auction properties are sold as-is, and you typically cannot visit the property or conduct pre-purchase inspections. There are no guarantees or warranties.
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Register for the auction: On the morning of the auction, you must register with the organizers to participate in the bidding. Be aware that the property may be withdrawn from the auction if the owner pays the outstanding balance before the auction starts.
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Bid on the property: If the property remains available when the auction begins, bidding will start. The property is awarded to the highest bidder, who must pay the full amount immediately. If the payment is not made, the property will be put back up for sale.
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Prepare financially: Ensure your finances are in order beforehand, as immediate payment is required. Banks do offer mortgages for auction purchases, so securing financing in advance is advisable.
Buyer and former owner: what rights do they have?
When purchasing a property at auction, the new buyer should be aware of certain limitations. Although ownership of the property is acquired, it is not yet fully official.
Within one year of the auction, the former owner has the right to reclaim the property by exercising their right of withdrawal. To do so, the former owner must repay the purchase amount plus GST and QST, along with an additional 10%.
If the former owner does not exercise this right within the year, the new buyer gains full and permanent ownership of the property.
Consequently, it is not common for buyers to make renovations during the first year, as any renovation costs cannot be recovered from the former owner if they choose to reclaim the property.
Additionally, buyers are not allowed to remove existing structure or cut down trees on the property.
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