But the reality is that this situation has its advantages. The families that stay in the home post-foreclosure tend to keep the utilities on and maintain the property. They keep the A/C running which dehumidifies the house inhibiting mold growth and they winterize the pipes preventing costly leaks. In addition an occupied home is less likely to be vandalized (broken windows, copper theft) than a vacant home.

The backlog is one factor contributing the situation, the second is the volume of foreclosed properties on the market already. ForeclosureRadar says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.  In addition releasing more cheap inventory into the market will only further diminish the value of the bank;s asset. It pays for the bank to have a family living in the home until a point when the market stabilizes and they can recoup their investment in a sale.

Although the family’s credit now has a foreclosure on it, living rent free has give some people the opportunity to use their mortgage money to pay off other debts, and in some cases even save a little bit of money so that when they move to an apartment or other living situation they have the ability to restart their lives with a small financial cushion.

The new Home Affordable Foreclosure Alternatives Program (HAFA) goes one step further. In the case where someone has already had a loan modification and is still not able to pay their modified mortgage. The HAFA program essentially pre-approves participants for ‘short sales’, fast-tracking them to sell their home and settle their debt with their creditors.. The program is efficient because it already uses financial hardship information collected by HAMP.

This program is going to impact the Cincinnati real estate market by helping to shit the home inventory from foreclosures to short-sales, The larger impact could be a stabilizing effect on local home prices. While short sales tend to sell below market, they tend to sell for higher amounts than foreclosures.  Below are some details on the HAFA program. For more visit the article posted on Realtor.com.

* Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds and acceptable closing costs).

* Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holders receive an incentive under HAFA, those debts as well (no cash contribution, promissory note, or deficiency judgment is allowed).

* Provides financial incentives: $3,000 for borrower relocation assistance; $1,500 for mortgage servicers to cover administrative and processing costs; and up to a $2,000 match for mortgage investors for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders (up to 6 percent of the remaining balance of each junior lien).

* Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
The program sunsets on December 31, 2012.

They key difference is that in short sales and foreclosures the bank that owns the mortgage plays a muh larger role in finalizing the sale price and contract terms.  In both situations the bank must approve the sale price, terms of the contract, and ultimately has the final say on the contact to purchase. I am pasting the article below:

If you have been paying attention to the real estate market, you are probably aware that there are a number of homes on the market that are in foreclosure or in short sale situation. But, as a home buyer, what does it mean to buy a foreclosure or a short sale, and how is it different than buying a consumer owned property? Which is right for you? Each situation presents its own set of challenges and I think it is valuable to outline the differences here.

In a short sale situation, the seller owes more money to the bank than they can sell their home for and have incurred a hardship where the bank has agreed to accept less money than the seller owes them, in an attempt to avoid a foreclosure. The advantage to this situation is that the seller avoids having a foreclosure on their credit which destroys ones credit for 7 years.

Instead this short sale option tarnishes a seller’s credit for approximately 3 years. Short sales are often listed for less than market value, so they can be a good investment opportunity. But it is important to note that the lending bank will always have the final approval authority on sale, so buyers making offers on short sales must make a strong offer without concessions if they want the offer to be accepted and approved. When purchasing a short sale I caution buyers that they need to be patient and understand that their offer needs to not only meet the approval of the home seller, but also the bank.

In addition they need to understand that short sales can take much longer to close than a consumer sale (though it may seem backwards that short sale=long wait). Because of the number of asset managers and approvals required, short sales can take multiple weeks or even months longer than a consumer owned sale depending on the status of the deed transfer in the county. Hamilton County can take as long as 16-20 weeks to record the deed in a short sale situation.

In a foreclosure, the bank repossesses the property and assumes ownership. Foreclosure properties are often priced well below market value because the bank’s primary interest is in recouping as much of its investment as possible as quickly as possible. Therefore foreclosures can provide a unique investment opportunity to buyers looking to purchase property below market value.

The challenge with a foreclosure is that there is no one actively maintaining the property. In my professional experience, I have seen foreclosed properties in good condition, but more often I have seen foreclosed properties in extreme disrepair. In some cases foreclosures require substantial investment to repair the neglect and make the home livable. Depending on the home, the investment in repairs combined with the purchase price may make the total cost of a foreclosure more than the cost of a consumer owned home. Financing options are limited as well if you are not a cash buyer depending the home’s condition.

No matter how good a deal a foreclosure or a short sale seems there are always other things to consider aside from the price: the time it will take to close a deal, the complexity of working with a bank, and the additional costs in repairs to bring it to the neighborhood standard. Both situations present unique opportunities and challenges, but it is most important to make sure you are well aware of all these factors before agreeing to anything.

If you have any additional questions please feel free to call me and ask questions. I would be happy to provide you resources and information that will make your home buying experience exceptional.

What is frustrating to many home owners is that financial institutions are doing everything that they can to prevent Homeowners from foreclosing, while large developers are simply handing the keys back over to the banks when thier properties become too much of a financial liability.

RealtyTrac continues to track the increasing number of short sales and foreclosure and the problem continues to weigh down the housing market. As the economy slowly recovers it is my hope that the unemployment rate will drop and with it, the number of families facing foreclosures. The Federal Government continues to put pressure on lenders to modify mortgages through the Making Homes Affordable program, and the program is slowly helping to relieve pressure on families that qualify.

One unforeseen consequence is that the homeowners benefiting from the program may also be taking a 50 to 100 hit on their credit score. The challenge is that lending institutions and banks are reporting the loan modification differently to the various credit agencies. It is this variation in credit reporting that is difference how credit scores are being impacted.

What is important to keep in mind is that a loan modification’s impact on a credit score will be substantially less damaging than a foreclosure or a short sale. In all three cases lenders report the change in credit, but a modification is not reported as a ‘charge-off’. Charge-offs are typically associated with short sales and foreclosures and stay on credit reports for 7 years.  Modification is much preferable to a foreclosure, just make sure you are aware of the potential impacts on your credit.

As a Cincinnati Realtor I can see what is going on locally in my market and this change is being driven by two main factors. The shrinking gap is being perpetuated by basic supply and demand economics, and a better understanding of fair market value by both buyer and seller. Buyers are more realistic about the price of their property, and agents are giving better advice.

As the year comes to a close sellers are reducing their price and creating a greater demand for their property which is yielding stronger offers. In addition the number of foreclosures being purchased is up and those properties tend to sell at or above list price skewing the data. What is most important as a prospective buyer is that your realtor provides you solid comparable data to help you make an informed decision on your purchase price.

However Assistant Treasury Secretary Michael Barr says lenders are taking too long to make those new terms permanent. Currently the government says 375,000 homeowners have cut cheaper temporary deals with their mortgage companies. Borrowers are saving an average $576 a month. The impact on the local market may vary. If homeowners can permanently modify their mortgage and stay in their homes it will reduce the number of foreclosures up for sale and help stabilize the property values. As a Cincinnati Realtor the reduction in foreclosures is a key concern. I want to see families stay in their homes and negotiate affordable rates with their banks.

They have also posted dates and times for two community forums on foreclosures and how they are impacting our city. The sites for the forums are St. Agnes Catholic Church in Bond Hill, 6:30 p.m. Wednesday, Oct. 21, and Our Lady of Lourdes Church in Westwood, 7 to 8:30 p.m. Oct. 27.

There is wide belief that the First Time Home Buyer Tax Credit has helped increase sales volumes and help avert further decline in our area’s home prices.  The below graph shows the steady seasonal increase in sales that we see in our market during the warmer months of spring and summer. I am trying to impress on my clients that although the tax credit ends on November 1st, they truly need to have contracts written and the financing process started no later than the middle of October, and even that is cutting it close.

Foreclosure Assistance USA of Kenwood and American Foreclosure Professionals of Blue Ash with several violations of Ohio consumer protection law. A number of consumers have complained that the companies did not deliver on promises that they would halt forclosures for customers.