Why Buying a Short Sale in Michigan Might Not Be a Good Idea

A short sale can be an attractive opportunity for a first-time home buyer interested in buying a home in Metro-Detroit.  In most cases you're dealing with a motivated seller that wants to get out from under a mortgage that is burying them.

When home values take a tumble, and a seller can't get enough money for a home to cover the debt owed to their lender, it's possible to negotiate with the original lender to take less than the amount owed in order to pay off the debt.

This often gives the appearance that the buyer is getting a great deal on a home for sale, especially if it's in an area like Northville or Novi - even Royal Oak.  There are occasions where a short sale in Michigan can be profitable, however in many cases a buyer is better off finding a home that's not in default.

Here are some reasons why Michigan home buyers may want to consider looking elsewhere for their first home, and leave short sales behind:

1. A seller may have paid too much for the home

If a home lost a significant amount of value, such as a seller who purchases a home in Northville for $250,000 but the home is now for sale at $150,000, it doesn't mean you get to pick up $100k worth of equity for free.  It means the seller may have paid too much in an inflated market and the seller has virtually no equity.

2. A seller may have borrowed too much

During the early and mid-2000's, banks were eager to lend in a market that was appreciating.  In some cases here in Michigan, borrowers over-mortgaged their homes to the point where a loan balance exceeded the value of the property.  With falling values, the remaining balance, even after negotiations in a short sale, could still be well above the value of the property.

3. Homes typically sell close to market value

The original lender isn't necessarily desperate, and they certainly aren't naïve about the value of properties.  With a short sale, a lender typically insists on a comparative market analysis.  If they believe they can get a better price on the home by letting it fall into foreclosure, they may deny the short sale (after months of review and negotiation) while they wait for a better offer.

Lenders are far more likely to accept a short sale when the home is worth the short sale price.

4. You get property as is

If you want to buy a short sale in Metro-Detroit, expect to get the home just as it is.  Lenders don't want to sink additional money into the property and will often refuse work requests and expenses relating to repairs disclosed on the inspection, pest inspections, roof certification, and deferred maintenance.

5. You wait longer

Even with modified legislation that took place earlier this year in 2012, lenders still have a back-log of foreclosures and there's a lot of paperwork to deal with in a short sale.  Even though the lender is now required to respond to an offer within 30 days, the process of closing on a short sale in Michigan still takes several months.  In addition, if there are two lenders involved because of multiple loans secured to the home it could take even longer to satisfy the requirements of the 2^nd lender.

If you're a first-time buyer and you're trying to find that starter home for sale in Metro-Detroit, a short sale may not be the best option.  There are some instances where you can find a good deal, but you can often find a number of other properties for sale in Wayne and Washtenaw Counties that are just as appealing without going through the red tape.