As our economy continues to down-slide, and housing values drop, “short sales” have become ever-more popular, and in many cases are the only way for a homeowner to get out from under a mortgage they can no longer afford without being hit by a full-blown foreclosure.

The real estate market in Michigan is flush with homes in the early stages of foreclosure, as well as bank-owned properties that have been foreclosed on.  These homes offer a great opportunity for a first time home buyer in Michigan, as you can typically get into a home for less than the actual value of the property.

With the right home and negotiations, especially with a foreclosure, you can sometimes purchase a home and begin immediately with equity by paying under the current value of the home.

Understanding the Short sale in Michigan

A short sale occurs when the lender agrees to accept less than the full amount that is currently owed on the mortgage of a piece of property, when that property is sold.  Most lenders agree to short sales in Michigan because they want to avoid the added expense of a foreclosure and the time it takes to remove a homeowner, list the home, and wait for it to sell.

When a homeowner or borrower goes into default on their home loan, there’s not only the issue of back payments but there are also fees related to court costs and attorney fees, property inspection fees and more.  These fees can add up quickly, effectively nullifying any equity they had in the home or property.

If the homeowner can’t make good on the mortgage, then the lender will foreclose.  The downside of this for the lender is that they typically lose as much as 40% of the mortgage amoung due to the costs involved in foreclosure:

• Attorney and filing fees
• Court costs
• Interest lost
• Eviction of borrowers
• Property maintenance and upkeep
• Selling costs
• Money lost while home is vacant due to depreciation and dropping home values

While not all lenders allow for short sales, it can be in their best interest because the foreclosure process on a home can take as long as two years.  It’s also a benefit to the homeowner or borrower because they don’t have to endure the stress and hardship, as well as the hit to their credit, by selling through a short sale.

The Benefits of a Short Sale in Michigan

As a buyer, what are the benefits to getting a short sale in Michigan?  The primary benefit is in the savings you will often see in a short sale.  As mentioned previously, lenders opt for short sales to avoid the greater financial loss of a foreclosure.  Still, short sales typically come in under the actual value of the home or the loan.

It’s important to note that the savings aren’t “free money”.  In a traditional home sale, the seller is often required to take care of necessary repairs before the home is sold and contracts signed.  This isn’t generally the case with a short sale, as the buyer will have to cover repairs and address structural or cosmetic issues.  The benefit here however is that because of these issues, and purchasing the home as is, you can save money by purchasing a short sale that needs work or is a “fixer upper” as long as you’re willing to do the work or pay for it at a later date.

Favorable Financing Terms for a Short Sale in Michigan

Rather than sitting on an empty property, or one in which a borrower is no longer paying, banks may be eager to get a home sold as quickly as possible.  This can lead to more favorable financing terms to make the sale more attractive to potential home buyers.  This could equate to a lower interest rate, or buyer-friendly terms to quickly recoup some of the financial losses on the property.

Cooperation from the Borrower/Homeowner

During a foreclosure, a new buyer may face conflicts with the previous homeowner.  This can force the new buyer (you) into legal action to force an eviction.  In some cases, angry homeowners will cause deliberate damage to the property before they leave, or strip the property down which can add to the expenses of purchasing the property.

With a short sale, it’s in the best interest of the seller to get the sale completed as quickly as possible.  This spares them from the headache of a foreclosure, and allows them to recover more quickly so they can get another home.  This eagerness leads to cooperation, where sellers work toward getting the deal closed.

The primary downside to a short sale that you must consider is that they often take longer to close than a typical home sale, or purchasing a foreclosure.  There’s no set time for closing a short sale in Michigan, and there are a lot of factors that come into play.  Some lenders take longer than others with their own approval processes.  The turnaround could potentially be as fast as a few weeks, or as long as 6 months or more.

The short sale process, from submission to short sale approval, is generally as follows:

• Submission of offer and complete short sale package from the seller.
• Bank acknowledges receipt — 10 to 30 days.
• Bank orders a BPO or appraisal — 30 to 60 days.
• File is reviewed — 30 to 60 days.
• Negotiator is assigned — 30 to 60 days.
• Level II negotiator may be assigned — 30 to 90 days.
• File is approved or rejected — 30 to 120 days.

If you’re not in a time crunch, it can be worth it to wait for a short sale.  If you need to relocate quickly and the potential of a several-months-long closing process doesn’t look favorable then you want to reconsider looking into short sales in Michigan.