According to the July 19th issue of The Commercial Appeal, “The foreclosure epidemic in Memphis has slashed property values and drained government coffers.” Local officials stated during a U.S. House of Representatives subcommittee hearing downtown. Even as bleak as this may initially sound, it gives rise to the great opportunities for sellers to cut their losses and buyers to acquire highly-desirable properties at discounted prices.

With record-low interest rates and several choices for financing, buyers and intelligent investors, alike, have profited from the short-sale market over the past few years. It’s true, that short-sales take longer to close, but the payoff can be tremendous for all parties involved.

With a short-sale, sellers are able to unload an over-encumbered property and limit their liability and debt—many times giving them a “fresh start.” Buyers are also able to benefit by buying properties at large discounts to use for personal residences or investment rentals. And yes, even the bank benefits. This is due, in part, to federal laws requiring lenders who take back a property through foreclosure to hold eight time the property’s value in monetary reserves—tying up capital that would otherwise be used to make loans and generate profits.

It’s interesting however, that short-sales, which were once avoided at all costs, are now becoming a more popular way to purchase a home—even for first-time buyers. Due partly, because short-sales that were once rarities are now commonplace. The process has become more streamlined in recent years due to the efforts of buyers, sellers, lenders, and hard-working realtors.

Many sellers, who in the past, may have opted to walk away from their defaulted properties have now began to take more responsibility for their predicament—and work with the lenders, real estate professionals, and buyers to limit their liability through the short-sale option. Buyers need not be afraid of making an offer on a short-sale property—as they once were. Now is a terrific time to acquire a beautiful home at a discounted price.

Any buyer or seller considering the short-sale process should speak with an experienced and reputable real estate professional. A seasoned realtor will be able to guide buyers and sellers, alike, through the many hurdles and complexities associated with the short sales process—a process that can benefit all parties involved.

Short sales and foreclosures have become epidemic among the vast majority of regional real estate markets, with Orlando being among the hardest hit. One recent fiscal year showed 75% of all properties sold were short sale transactions or otherwise involving bank-owned real estate. In a six month period from September of 2009 through March of 2010, nearly 80% of the properties moved where short sale or bank-owned. During recent periods of data collection, it has become apparent that the number of short sales is less than the number of foreclosures, though both exceed the national average. Measuring the value of data on properties sold – otherwise known as sales record – can be deceiving when the number of short sales and foreclosures is not taken into consideration. In Orlando, though a very good sale record is persistent, the percentage of bank owned properties is exceedingly high. Short sales pose problems for a region in terms of overall property value, but buyers and sellers with savvy strategies and quick action can occasionally capitalize on the situation.

Homeowners facing a foreclosure situation may be able to salvage their credit and get out of a precarious financial situation by acting on a short sale opportunity. Short sale specialists working independently or with real estate agencies are excellent resources for determining when a short sale is the best option for a homeowner’s circumstance. In addition to preserving credit, short sales prevent the stigma of foreclosure that will forever be a hindrance to those hoping to own again. Committing to an Orlando foreclosure offers relief of stress and ongoing financial strain that comes with an unreasonable or unmanageable mortgage situation. It is sometimes the smartest business decision to walk away from a mortgage with a short sale and cut losses as opposed to enduring the ongoing decline in value seen over the past couple of years.

Conversely, buyers who are eager to jump into the Orlando real estate market may benefit from a short sale in terms of short and long-term value. For individuals and families who were previously excluded from neighborhoods in Orlando due to the high cost of luxury real estate, jumping at the chance to purchase a short sale home will likely cost far less than starting with a smaller property and attempting to build equity. Luxury real estate is commonly the hardest hit during a time of economic uncertainty, and Orlando’s luxury real estate market is no exception. Buyers who may have been just out of reach of their desired property or neighborhood may see doors opening when a property is listed as a short sale. Lenders handling short sales are most often attempting to retain as much money as possible while hastening the process of getting the property off their books.

A Vallejo short sale may end up hotly contested between several interested parties. The art of negotiation is critical to landing a short sale, and buyers may want to make an offer that includes a significant percentage in cash. Lenders who are attempting to capitalize on a short sale and stop their losses are likely to desire a quick, efficient transaction with as much guaranteed money as possible. The earnings potential of properties in this region means that investors are as likely to be making offers as individuals and families finally getting a shot a moving up in the region. Currently, the most valuable properties in terms of cost per square foot are the 2-bedroom designs. Although selling at merely a third of their value 5 years ago, 2-bedroom residences in Vallejo are rebounding at nearly 16% of their value only 1 year prior to the most recent available data.

Sellers considering a short sale in Vallejo need to be closely monitoring the real estate trends in the region to identify when a move would be smart. Homeowners who currently find themselves in deep economic turmoil could potentially make gains from leaving their mortgage regardless of the region’s real estate climate. In instances where the loan or mortgage has become unmanageable, owners should reach out to a short sale specialist for guidance and an appropriate course of action. Working with banks regularly is a job function that develops expertise among short sale specialists. The tactics of negotiation and closing are different for a short sale property than one of traditional listing or foreclosure, and demands a thorough understanding of the process. Regions like Vallejo, with a great variance in property value, are particularly sensitive to fluctuations in the market and must be handled with attentive professionalism.

As more homeowners discovered they could no longer afford to pay their monthly mortgages, lenders started to conduct an increasing number of short sales in order to avoid the lengthy, expensive foreclosure process. Popular among mortgage holders with “under water” properties, short sales have been conducted at a higher rate than usual.

But since 2009, an additional 19,000 debtors fell into foreclosure in the Bakersfield metropolitan area despite the best efforts of lenders and homeowners. These figures, surprisingly, do not include the thousands of other properties in financial distress that have yet to be foreclosed upon. As a result of all of this uncertainty and upheaval in the Bakersfield real estate market, short sales have shifted the dynamic between local buyers and sellers, so here is a quick overview of Bakersfield, CA short sales from the perspectives of both parties:

Buying a Short Sale Property in Bakersfield, CA

Recently, commentators affiliated with the National Association of Realtors have reported that the short sale real estate market in the entire southern California region seems to be shifting from a sellers’ to a buyers’ market. This trend has created an interesting situation for home buyers who want to take advantage of the current market conditions. For example, a two-story 4 bed, 2 bath, 2,500 square-foot Bakersfield, CA home in Brimhill Estates sold for over $400,000 in 2007 according to public real estate records; however, the same house in 2010 is now listed at $300,000 and dropping. Other similar prices can be found throughout the city.

Conducting a Short Sale in Bakersfield, CA

The good news for mortgage holders who want to take advantage of a short sale to free them from a bad loan is that the real estate market in Bakersfield, CA has remained relatively neutral even though the current economic conditions in the region are holding down home prices to near-record lows. As always, short sale listings must be coordinated between the buyer and the lender in order to be considered legitimate and deficiency judgments vary on a case by case basis. Also, as mortgage lenders begin to sell off their back list of foreclosed properties, short sales will continue to be an attractive option.

Modesto, California – located 90 miles to the east of San Francisco – has endured more than its fair share of property foreclosures since the national housing crisis began to strike northern California as early as 2007. Financially distressed homeowners saddled with “under water” mortgages began to contact their lenders in masse as an increasing percentage of honest, hard-working people suddenly found themselves unemployed or burdened with an unsustainable debt.

This difficult economic environment in 2008 forced Modesto, CA property owners to make tough choices in order to avoid the costly and emotionally devastating foreclosure process, which could permanently scar their credit reports for years. Although, over 200,000 Modesto area homeowners (approximately 1 out of 8 housing units) have lost their homes to foreclosure from 2007-2009. The latest figures from the National Association of Realtors estimate that thousands more are in danger of defaulting within the next three months due to some manner of financial hardship.

As a result, the short sale market has boomed precipitously since mortgage lenders are more willing than ever to accept short sales over filing for a foreclosure. So with that in mind, here is a quick overview of the short sale real estate market in the Modesto, CA from the perspective of buyers and sellers respectively:

Buying Short Sales in Modesto, CA

According to Modesto, CA realtor Dan Phipps, “our local market is clearly moving from a strong seller’s market and transitioning into a buyer’s market”. For the last two years, the Modesto real estate market has gradually leaned in favor of buyers rather than sellers due to the drop in property values that caused many homeowners to fall into “upside-down” mortgages, which in essence amounts to owing more on a mortgage than the property is worth on the current market. For instance, 4 bedrooms, 3 baths, 3,500 square-foot Modesto, CA home sold for over $750,000 in 2008, but the same home in 2010 is currently listed at $625,000 and falling.

Conducting Short Sales in Modesto, CA

The reality of the Modesto real estate market as a whole is that conditions have remained relatively neutral despite the wave of foreclosed and short sales that flooded the market over the last two years. To put this negative trend in perspective, the expectation of more foreclosed properties to be seized later in 2011 actually makes conducting a short sale an increasingly viable option for both buyers and sellers alike.

The real estate market in Stockton, CA is extremely challenging and unpredictable, and this has created a number of short sales on primary and investment properties. A short sale occurs when the homeowner tries to sell their property for less than what they owe on it. The lender must agree to be “shorted” and release the lien for less than the amount they are owed. Many real estate agents in Stockton require the homeowner to complete a hardship packet. Once they receive it, they will meet to view the property and determine a list price. This is one reason that sellers should use a short sale expert, as they will know what price the bank will accept, as well as what price will attract potential buyers to the property.

As of November 2010, there were 5,963 foreclosure homes in Stockton, CA, and the average sales price of these homes was $130,132. In October 2010, 1 in every 119 housing units in Stockton received a filing for foreclosure. The highest rate of foreclosure action to housing units was in the 95212 zip code, where 1 in every 32 housing units received a filing for foreclosure. Following closely behind was the 95206 zip code with 1 in every 73 units. The zip code with the lowest rate of foreclosure actions was 95202, as they only saw 1 foreclosure action in every 295 housing units.

New laws are also being created in order to protect California residents during the short sale of properties. Beginning in January 2011, the first position lender will no longer be able to obtain a judgment of deficiency against the seller after the short sale of a property. The approval letter for a short sale and the fact that the lender accepts the funds will be considered payment in full by the borrower, and the deficiency will then be discharged. However, refinanced loans will not be affected by this changed.

Real estate in Riverside, CA is a challenging market. Currently prices are competitive while interest rates are low. Homes are becoming more affordable for first-time buyers, and there are a record number of foreclosed and bank-owned homes listed on the market. Many investment buyers are also beginning to purchase more investment properties. However, real estate in Riverside, CA is unpredictable. The market is fast-changing, so it is crucial that prospective home owners find a qualified realtor to assist them with any short sales or other home buying issues.

In 2009, California had more foreclosures than any other state. The fourth highest city in the U.S., in terms of foreclosure filings, was Riverside, CA. As of February 2010, there were close to 1000 active listings for single-family homes in Riverside. Of those listings, 139 were foreclosures. Additionally, 462 were short sales and pre-foreclosures, while 50 were not identified. Many of these foreclosures are due to financial hardships including unemployment, and until the economy turns around these numbers are not expected to decrease significantly.

When faced with the possibility of foreclosure, many homeowners may try to get a short sale on their house. A short sale occurs when the lender agrees to sell a property for under what the borrower owes on it. The lender also agrees to pay the costs associated with selling a property, such as title insurance and escrow. Home owners must get approved for a short sale and establish a hardship. The hardship must explain why they cannot afford the payments or need to move to a different area. The advantage of a short sale is that it helps to avoid foreclosures and to save credit. No expenses are needed out of pocket, and there are no consequences regarding taxes for a primary residence.

A real estate agent that is also a certified short sale specialist is an ideal candidate to assist a homeowner with a short sale. They help to negotiate with the bank for the release of the lien as well as the short payoff. This will help the homeowner to be free of their debt in order to gain a fresh start. They will also help home owners to obtain the necessary documents to get a short sale in the Riverside, CA area. These documents include a hardship letter, pay stubs, purchase agreement, tax returns, bank statements, an authorization to release information, and possibly other forms. The short sale process in Riverside also involves the coordination between multiple offices and entities, so it is especially crucial to use a real estate agent that specializes in short sales.

Miami and the South Florida market were amongst the hardest hit areas when the real estate market collapsed. From its high point back in 2006, home values have depreciated by close to 50%. That means if you were unlucky enough to purchase a $500,000 home in the last few years, chances are pretty good that you could only sell it for about $250,000. Besides directly affecting new homeowners, the general real estate malaise has driven down the value of homeowners who bought their homes a long time ago and faithfully made their mortgage payments every month.

Because their is such a glut of properties in Miami that are under water (owing more on the mortgage than what you could sell the property for), the laws of supply and demand kick in. If someone can buy your next door neighbor’s distressed property for a bargain price, your property loses value. That is the insidious part of the housing meltdown. Those who took out high mortgages and did not have the earning capacity to pay adjustable mortgages that suddenly rose through the roof, have a 2 pronged dilemma. First, they have insufficient income to pay the contractual obligation they agreed to when signing up for a mortgage to buy their dream house. Second, the mortgage they took out is now much higher than the value of their home.

In Miami, approximately 42% of single-family homeowners arer considered under water. That means if they were lucky enough to find a buyer, they would have to take a substantial loss on their investment. If you owe the bank $300,000 on a mortgage and the market will only command a sale of $175,000, than you will be $125,000 short when the bank asks for its money at settlement. Unless you can make certain arrangements, you are legally responsible for coming up with the $125,000 shortfall.

Back only 4 or 5 years ago, there was a tremendous spurt of building in Miami, particularly luxury condos along Miami and Miami Beach. Investors and homeowners snapped them up for very little down and then the market collapsed. A loss of equity that might reach 6 figures was enough for people to walk away and lose their $10,000 deposit, leaving the lender with another distressed property in its portfolio.

The crisis continues to this day as more than 60% of all new sales in Miami and the South Florida area are either foreclosures or short sales. While banks were very generous when they lent out money, they now are very hesitant to take big losses on short sales.

Buyers are in a great position as they can snap up luxury properties at a huge discount. Sellers on the other hand are bearing the brunt of the housing market’s collapse. In Miami, there is little hope of a quick recovery. There is still a big glut of foreclosures and potential short sales on the market. Until the inventory is cleared out, it will be a definite buyer’s market.

Las Vegas, Nevada’s reputation for pushing the limits held true in 2010. In contrast to boasting the biggest casino hotel or the most extravagant entertainment venue, the city’s current claim to fame is due to the most home foreclosures of any US city. Real estate sales might be robust in Las Vegas but the deals come from short sales or auctions.

Las Vegas Short Sale

In simple terms a short sale means that the lender is willing to accept less money for a property than the borrower owes. A Las Vegas short sale allows borrowers some relief by getting rid of an unaffordable home. The lender releases claims to sell the home but does not have to erase the deficient amount. A real estate agent will work with the lender on behalf of the seller.

Lenders like Fannie Mae will allow Las Vegas short sale owners to qualify for homeownership in 2 years while borrowers with a foreclosure can’t own for at least 5 years. Some of the red tape in Las Vegas short sales was erased early in 2010 when federal regulations made it easier for buyers and sellers to complete a transaction with a lender more efficiently. With updates syncing with Fannie Mae and mandates directed to private lenders, Las Vegas short sales jumped in numbers.

2009-2010 Statistics

•CNN Money.com named Las Vegas the #1 city for home foreclosures in 2009.
•CNN cited nearly 70% of all home real estate transactions in Las Vegas consisted of distressed property.
•RealtyTrac reported foreclosure notices were sent to 12% of Las Vegas households-5 times the national average.
•September 2010 numbers showed 8,935 out of 13,406 home sales were short sales in Las Vegas.
•August-October 2010 Trulia reported a 56.3% drop in Vegas home prices over the past 5 years; 38,337 homes were listed in foreclosure stages.

No other city can quite match the profile of Las Vegas. The unique conditions in the once thriving city created the worst odds for the housing market following the sub-prime lending fiasco of 2007. As the national economy slumped, fewer people spent money on gambling and entertainment in Las Vegas creating a ripple affect in related workforce industries like construction and transportation. Most experts point to the Las Vegas entertainment industry getting a big boost as the national economy regains strength.

The forecast remains mixed on housing market indicators. One undeniable fact is that Las Vegas short sales currently reign in most of the action in the housing market. Based on the numbers, that trend will likely continue. For perspective buyers intrigued by the city, real deals on real estate in Las Vegas look like a sure bet through the first half of 2011.

Also, figure in the Realtor taking 6% and you are even further away from the amount needed to satisfy the loan.

With that being said it is very important for homeowners to do all they can to keep their current home or to get rid of it with the least amount of damage to their credit and bank accounts. Some can try to rent out their properties or have friends or family gift them money to cover the difference, but often times these are just temporary solutions to a big problem.

What is a Short Sale?

One solution that can work is called a short sale. Essentially a short sale is where the bank agrees to take less money than what is owed and satisfies the mortgage. While the bank may lose out on some money, it is often much cheaper than going through the foreclosure process which can cost the bank $20,000 or more in most instances. The short sale is also much quicker and does not take too long to process once it is approved.

Getting Short Sale Approval

Getting the short sale approved is often the hardest part though. Many times there are 2 or 3 mortgages on the property and if the 1st mortgage is not getting their full amount that means the other mortgages are getting nothing. Other banks do not like to get nothing so they must either agree to a compromise or the other bank will just not agree to the short sale. This will derail the whole process as all the lien holders must approve the short sale for it to be processed.

While these are much better for the borrower, it is still a very stressful process. However, the HAMP program has required lenders to do all they can to stop foreclosures and help out borrowers who are struggling to meet their minimum payments. As you can see in the chart below, the number of short sales as increase quite a bit over the past 3 years. This is one tool banks can use to help home owners out.

The hardest hit areas were located in areas where real estate prices were increasing at 10% plus levels each year. Many areas in these states saw home prices double in just a few years as well. This was very unrealistic and if you continued that rate homes would be worth millions and millions of dollars in just a few more years.

Obviously things had to calm down and when the economy turned bad these areas took the hardest hit and home prices fell faster than they rose in the previous years. With the coasts and western areas taking such a nose dive it really hurt the local economies as well. No longer did these people have the money to eat out, buy home improvements, or other things they purchased when the going was good.

Even Perfect Credit Might Not Be Enough To Get a Mortgage

The hardest part in getting a loan these days is qualifying for one. The banks have become really strict with their underwriting guidelines so only the best borrowers can get loans. There are some good deals to be had in states such as California, Florida, Nevada, Oregon, and Arizona. These states were hit the hardest, but others such as Michigan and Ohio have seen areas hit hard as well. Many cities such as Stockton, Las Vegas, Miami, Eugene, Phoenix, and Cleveland are just a few that have seen a huge rise in short sales.

Now, many cities have short sale bus tours that take people to all the foreclosed or seriously delinquent properties in the area. The prices have dropped to a point where investors and bargain hunters are starting to look for some good deals on previously over priced homes. Others advertise these properties on local TV shows or radio ads. The market is really growing for short sale homes.

As you can see, 2010 is on pace to break many of the previous year’s short sale records and many expect 2011 to be bad before the market starts to balance itself out again. Whether you are interesting in investing in a short sale property or looking to sell yourself, it can be a useful in many circumstances.

Top 5 Short Sale States

Last 3 years short sale numbers compiled from various sources:

2010 (est. year to date)
California – 129,065
Florida – 74,006
Nevada -29,365
Oregon -18,036
Arizona-16,526

2009
California – 163,245
Florida – 79,458
Nevada – 25,369
Oregon – 19,214
Arizona- 15,125

2008
California – 112,065
Florida – 42,069
Nevada -18,006
Oregon -9,058
Arizona- 5,333