Short sale is one of the hottest buzzwords in Michigan’s real estate market today. There hasn’t been a single day that’s gone by over the past year that I haven’t heard it brought up at least once. With more and more clients finding themselves in an upside-down mortgage, often a short sale is their only option for getting their heads above water and avoiding foreclosure.
Lenders are still trying to figure out what’s in their best interests, because the market has been so insane, they don’t even know WHAT benefits their bottom line anymore. This leads to constant re-writes of the lender’s best practices regarding short sales. Banks are in the business of lending money, not mitigating loss or holding property. They don’t want property, they want money from the loan… the last thing they want to hold is more delinquent property. To the lender, a house is merely another widget. The lender will never see the home, they don’t care what it looks like and they don’t care about who lives in it. They don’t care about the situation or emotions of the homeowners… real estate inventories are entries in a spreadsheet, nothing more, nothing less.
The longer a bank holds a property, the more it costs them. Maintenance, taxes and all the other costs that go along with homeownership are then burdens on the lender. When you multiply that burden across the thousands of foreclosures lenders are holding, the financial strain these properties place on banks becomes apparent.
The foreclosure crisis is definitely not close to the bottom. There is tremendous amount of property out there that is pending foreclosure. In In addition the properties that are currently sitting on the market as a result of foreclosure, lenders are believed to be sitting on another 600,000 foreclosed properties that have yet to be released on the market, for fear it would collapse prices even further. This doesn’t include the thousands of homeowners, pending foreclosure, that have been in their homes for 2 to 3 years without making any mortgage payments. These conditions add up to a gradual pricing decline that may last for up to 7 years.
This makes it a prime time for prospective buyers to get a great deal on bank owned real estate through a short sale. In a nutshell, the idea behind a short sale is that, due to this excess inventory, the lender will agree to sell a property for less than is owed on it by a mortgage holder to avoid the property getting foreclosed and adding to the already massive inventory. In this arrangement, the current owner benefits by being relieved of their upside-down mortgage, the buyer benefits by paying a lower price for their new home and the lender benefits (somewhat) by at least getting some of their money on the original loan and not having the financial burden of the property on their books.
The problem with short sales is that the rules are constantly changing in regards to them, and the lenders don’t necessarily even know what their policies are or are not regarding them at any given time! The lenders, investors, collections agencies and government agencies are still trying to determine exactly what has and is currently happening in the market so the rules are in constant flux as they work to stay on top of the situation as best they can.
How this translates to homeowners is in longer, more uncertain closings. The bank must approve all short sales before they’re allowed to proceed and this can typically add 45 days or more to the closing process. If time isn’t of concern to a buyer, this might not matter, however it does have to be factored into the transaction. This is especially true for buyers expecting to take advantage of time-sensitive offers such as the $8000 Federal First-Time Home Buyer Tax Credit , which requires deals to be signed and closed by December 1st, 2009.
Overall, the short sale is another tool in the modern home shopper’s arsenal to move into a great new home at an unprecedented price.
