The foreclosure crisis isn’t over, but a new trend in real estate sales could be the light at the end of the tunnel for many borrowers and lenders. Short sales, which occur when homeowners sell their homes for less than what they still owe, outpaced foreclosures for the first time ever in January, according to a new report from Lender Processing Services, Inc. Another report by RealtyTrac estimates that short sales rose 33 percent between January 2011 and January 2012.

Short sales accounted for 23.9 percent of January home sales, compared with 19.7 percent for foreclosures. The LPS report also says that while foreclosed homes sold at average discounts of 29 percent in January, homes in short sales were only marked down 23 percent. Short sales are also closing faster than foreclosure sales, and they relieve banks of the responsibility of managing and protecting vacant homes. With lenders poised to reap such significant benefits, the real question isn’t why they’re warming up to short sales, but why they’re doing it right now.

Recent Developments

For starters, they’re being forced to. The Federal Housing Finance Agency announced this month that mortgage servicers will be required to review and respond to short sale offers within 30 days and make final sale decisions within 60 days. The new requirements, which take effect in June, have kept lenders busy expanding and training the staff needed to catch up with growing short sale demand.

But just as significant is the $25 billion settlement the mortgage servicing industry recently reached with the federal government and states attorney generals from 49 states. The settlement from the five largest loan servicers — Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo — is designed to atone for what became known as the “robosigning scandal”, in which loan servicers signed foreclosure documents without verifying their accuracy. Under the terms of the settlement, loan servicers can earn credit against the $25 billion total by agreeing to short sales and forgiving the deficiencies still owed on the loans.

“When the robosigning crisis hit, there was effectively an 18-month moratorium on foreclosures,” said Roy Oppenheim, a foreclosure defense attorney with Oppenheim Law in South Florida. “The banks got caught with their hand in the cookie jar and the lid slammed closed on it. Fraud, robosigning — it all came to a stop. But through this $25 billion settlement, they’re using the crisis to their advantage. The settlement creates a major incentive for the banks to do short sales.”

Win-Win Situation

It’s not just the lender who wins in the event of a short sale. With the incentive for banks to forgive debts that remain after the sales, the typical homeowner walks away debt-free.

“For most borrowers, it’s a good idea,” said Todd K. Helwig, a real estate attorney with Mirick O’Connell in Massachusetts. “If you want to get out from under the burden of your loan, it’s usually the best way, as long as you can convince the bank to agree not to collect the remaining debt.”

Now that lenders are better equipped to process short sales, it’s also the fastest way for borrowers to walk away from their distressed properties. Damage to borrower credit is usually less severe with short sales than with foreclosures, as well.

Some borrowers can expect yet another perk. In order to help distressed borrowers transition out of their homes and into rentals to accommodate short sales, banks are offering cash incentives to selected homeowners. Wells Fargo has offered bonuses as large as $20,000 to homeowners whose foreclosures would be the most complicated and time-consuming.

Curbing Neighborhood Decay

Because short sales put new owners in vacant homes much faster than foreclosures, this trend could also turn around whole neighborhoods that have been hit hard by the mortgage crisis.

“Foreclosures killed the housing market and destroyed property values,” Oppenheim said. “Banks are terrible property owners.”

Foreclosed homes often stay vacant for extended periods, during which time the homes gradually decay due to lack of maintenance. Homes that are obviously vacant can also become attractive targets for thieves who break in to steal copper pipes, fixtures and other hardware. These circumstances cause the value of bank-owned homes to plummet, which negatively affects the value of all the other homes in the neighborhood.

“The banks are cannibalizing their own assets with foreclosures,” Oppenheim said. “With short sales, the effects on property values are not nearly as severe.”

Looming Situation

The short sale trend should continue for at least a few more months, but one uncertainty could bring it to a halt at the end of the year.

The Mortgage Debt Relief Act of 2007 makes short sales more affordable for borrowers by waiving any taxes they might otherwise be assessed in the process. Before the act was passed, any debts forgiven by lenders would be counted as income and taxed accordingly. But this substantial tax break expires at the end of 2012.

“It all depends on whether or not the tax cuts get extended into 2013,” Oppenheim said. “If they don’t, we may see short sales drop off a cliff.”

If you’re in a distressed home and considering a short sale, you should contact a real estate attorney immediately if you hope to take advantage of the tax break. An attorney can help you determine if a short sale is right for you and assist you in negotiating with your mortgage lender to begin the process

Realtors, buyers and sellers have long been looking for looking for home prices, which have been declining steadily since 2007,  to bottom out and analysts at a major housing index say that time has arrived!

Real estate database Zillow reports South Florida home values saw a year-over-year rise of 1.1 percent to $141,300 . Among the 30 largest major metropolitan markets, only Phoenix saw a greater spike in home prices.

Nationwide, home values rose .5 percent from February to March, the largest monthly increase since May 2006, when prices peaked.

More importantly, their economists are predicting a robust rise in home values in 2012 in the Miami-Fort Lauderdale-West Palm Beach area.

“For people who have been waiting to time their home purchase close to market bottom, it’s time to start shopping,” Dr. Stan Humphries says.

Humphries tells the Miami Herald that South Florida’s low housing prices have led to a surge in interest from foreign buyers, investors, retirees and those looking to buy a 2nd home, which is why prices are expected to climb steadily in the coming year.

Zillow says 19 of the 30 markets they track have hit their bottom or will in the coming year, including Orlando and Tampa. There’s been enough small incremental increases that their analysts are confident the worst is behind us.

“The last two years we’ve seen the rate of decline slow and now we’re seeing this uptick for the first time, where instead of sloping down, the curve is sloping up,” Ziilow’s Svenja Gudell told the Palm Beach Post.

That curve will quickly become a peak in South Florida, with home values expected to surge 5.6 percent in 2012, according to Zillow’s  Home Values Forecast.

“It is undeniable that we are seeing sparks of life in the housing market,” Humpries adds.

There seems to be some reluctance on the part of many people to commit to purchasing a home. It’s understandable that no one is rushing to join the 11 million people living in underwater homes.

But if you think you’re saving money by renting, think again.

The flip side is as home prices are starting to stabilize, rents are continuing to rise.

It’s to the point now where in the overwhelming majority of US cities, it’s actually cheaper to buy than to rent, according to Trulia.com.

Trulia just released its Spring 2012 Rent Vs Buy Index, which is based on asking prices for rental properties and homes for sale in similar neighborhoods

Out of the 100 largest metropolitan areas, the only cities where rental and home prices are level were Honolulu and San Francisco.  There isn’t a single market in the country where it’s cheaper to rent.

In fact Florida offers some of the best values in the country, by Trulia’s numbers. Lakeland-Winter Haven landed just outside Trulia’s Top 10 to buy a home, with a Rent-To-Buy Index of 7.1. West Palm Beach and Tampa-St. Petersburg were not far behind, with indexes of 7.3 and 7.4 respectively.

Fort Lauderdale and Orlando are also markets with a ranking under 8.

According to Trulia, an index of between 0-15 means its more affordable to buy if you plan to live in your home for at least five years. An index under 10 means it’s still more affordable to buy, even if you’re not planning on staying in your home for that long.

The highest ranking market, Honolulu had a 17. Even in expensive markets like New York and Los Angeles, buying is cheaper.

So what does this mean? You’ll end up spending more now if you wait for the housing market to recover.

It’s a vicious cycle, as people have less money to set aside for a home purchase, yet will end up spending more in rent than they would for a mortgage

“Rising rents create a dilemma for people who can’t afford to buy yet,” said Jed Kolko, Trulia’s chief economist. “Rising rents make it harder for people to save for a down payment, which is the biggest barrier to buying a home that aspiring homeowners face.”

As I’ve said countless times before, banks are more willing than ever to accept a short sale and let a borrower walk away from their home legally.

But what if you’re looking to buy a home? Are there benefits to to seeking out a home to buy via a short sale?

Of course! If you’re looking to buy a house on the cheap, then a home that’s available on a short sale could be a great deal for you.

Emphasis on the could.

The good news? If a homeowner wants to sell their home on a short sale, you the buyer have the chance to get a home at a size-able discount. Considering that home prices are already as low as they have been in sometime, there’s a real chance for a bargain.

According to RealtyTrac, the price of a home sold at short sale during the first quarter of 2011 was on average about 10 percent less than the market price of a comparable house.

Do Your Research

But buying a house on short sale is a lot like buying clothes at a second-hand store or getting something on Craig’s List.

There’s plenty of gems available, but you’ve got to do your homework. Getting a great house on a short sale won’t be easy but it can be worth it if you put in the time.

For one thing, you might come across a home in need of repairs, and sometimes they won’t be obvious.   So make sure you go over the property with a fine tooth comb. The last thing you want is to be stuck in a fix-er-upper and see your saving wiped out with an expensive repair.

Get a thorough inspection done, before you even think of making an offer. Remember when you’re buying a distressed property you’re getting it AS IS.

Patience is a Virtue

Want that bargain? It’s going to take time. A short sale is contingent on the bank accepting the selling price, since they are one’s taking the financial hit.

So don’t expect a quick acceptance on your offer. Patience is a virtue, especially when it comes to short sales.

Unlike a regular home purchase, it might take 30 to 60 days for a bank to accept your offer and in some cases it could take longer. So you must be flexible on your time frame.

Get Help!

Before you even think about buying a home on a short sale find knowledgeable professionals to help you.

Contact a Realtor, one who’s well versed in the art of a short sale. And make sure you get yourself an experienced real estate attorney. (I know a few) 

There are a lot if issues to address when buying a home this way. There will be obstacles that you, especially if you’re a first-time home buyer, just won’t think of!

That’s why a good real estate attorney is an essential tool. Going over the fine print can be a daunting challenge.

There may be liens on a property. You might be dealing with more than one lender (Usually not a good sign)

Don’t expect a bank to be completely upfront with you. You need someone looking out for your interests.

But you can get a great home at a great price, IF you have all the necessary tools at your disposal.

Just like Baby Bear's Porridge, the Housing Market isn't too Hot or too Cold

Some analysts are once again crying gloom and doom about yesterday’s latest release from the Case-Shiller Index.

Case-Shiller, one of the most respected indicators of housing prices nationwide, posted new lows in December in 3 key composites, including a 3.8% drop in the national composite.

The index’s own chairman sounded dismayed when announcing the numbers.

“In terms of prices, the housing market ended 2011 on a very disappointing note,” David Blitzer, said.

It’s true we’ve seen a steady decline in housing prices over the last few years, but the housing market is not in the midst of an end times or doomsday scenario.

From my vantage point, the state of the housing market is just like Baby Bear’s porridge.  Not too hot and not too cold.

Yeah housing prices are as low as the lowest hanging fruit right now, but it doesn’t mean that all is lost.  Prices are just one side of the story.

Housing sales have risen consistently over the last few months just as prices have dropped.

There is less inventory on the market. Buyers are slowly returning to the table. Prices are dropping, and likely will continue to drop, but I believe you actually have a foundation for a stable housing market staring back at you.

It is what it is, and it ain’t bad.

If there is a positive to the banks looking to dump their backlog of foreclosed homes back on the market, its that for the first time in a while, scores of investors and first time buyers are there to pounce.

So if you’re a seller, of course you’re not going to get the price you wanted. But you CAN sell. You don’t have to be trapped in an underwater home anymore.

Short sales are a big contributor. You leave the house without a deficiency and maybe even with a cash incentive. If you are a seller you should be thrilled, considering where the market has been the last few years.

If the market offers you a chance to get out and move on, then take it.

If you’re a buyer, there’s no question it’s a great time for to purchase a house, and it will be for a few years.

If you’re forming a family or just getting out of college, you can get into a home and in some cases it will be cheaper to buy then rent.  

You’re going to find affordable houses that you wouldn’t have been in your price range during the housing bubble.

Now banks and realtors may not like small loans or small deals, so they’ll continue to tell you the sky is falling but the truth is far less interesting.

The housing market is a long way from healthy, but it’s on its way.  

Photo by The-Lane-Team

In another good sign for the housing market, the sale of existing homes last month rose in January in the US, the third time there’s been gains in the last four months, according to the National Association of Realtors.

According to numbers released this week, total sales were up 4.3 percent for single-family homes, townhomes, condos and co-ops.

Because of the increase in sales, the NAR says the amount of available homes on the market, which fell .04 percent, is at it’s lowest level since April 2006.

Locally, the Florida Association of Realtors showed also posted strong numbers in single-family home sales, with a 13 percent jump in resale prices in January in Miami-Dade County, compared to the previous year.

That’s the second straight increase for Florida’s biggest housing market, after December’s 5 percent gain.

The increases are marginal, yet encouraging. If February’s numbers also go up, it  would be the first three-month stretch of rising home prices for Miami-Dade since February 2007, the trade organization reports.

Even though foreclosures are expected to pick up yet again in Florida, local realtors say these numbers show that is that much closer to being a seller’s market yet again

“Home prices in Miami are significantly rising and sooner than expected, as the Miami real estate market continues to outperform the rest of the nation, mostly due to the strong impact of international buyers,” said Martha Pomares, the head of the Miami Association of Realtors.

The inventory of residential homes in Miami-Dade County dropped 37 percent from 24,507 to 13,610 over the last year. Last month, the total inventory of homes dropped 3.4 percent.   

In Broward County, single-family home sales increased 15 percent, from 813 to 911, and condo sales dropped 16 percent in January compared to a year earlier, from 1,318 to 1,079

Statewide median sales prices in January increased 18.8 percent to $95,000 for condominiums and 5.3 percent to $129,000 for single-family homes.

The national median existing-home price for all housing types was $154,700 in January, a two percent drop from January 2010.

2012 Florida Realtors president Summer Greene, a regional manager at Better Homes and Gardens Florida 1st,  said her real estate agents are once again fielding multiple offers for their listings in Broward County.

That’s because there are far less homes actually on the market, about 6,000, down from 34,000 during the peak of the housing crisis, she told the Sun-Sentinel.

“The Florida market has turned a corner, and while there will be challenges along the way, it’s only going to get better,” Greene said.