In a nut shell the first wave of foreclosures in 2006-2008 were caused by the subprime loan market. This created the economic down turn, increasing unemployment. Unemployment is what caused the current wave of foreclosure we are seeing now. Adjustable rate loans may be third wave of foreclosures which we will know by spring of 2012.

We are not selling enough homes to move current inventory of foreclosures out there which is keeping home prices down.

Inability to sell new homes(which are always highest in price drive up prices) is also what is keeping prices stagnant.

Quick Foreclosure Market Update - Must Read

There are currently 800,000 foreclosures on banks books with less than 30% actually listed on the market. Another 800k are currently in foreclosure, 1.3mil in severe delinquency. 3.5 mil in some stage of delinquency.

The market in terms of pricing will probably bottom out in 2011, remain low through 2012 and 2013 as we work through selling off the foreclosure through inventory. Possibly a rise in pricing by 2014.

Banks are facing adjustable rate mortgages as being the third wave in foreclosures, however they have many options to work through this by extending loan terms, forgiving principle, etc. They want to work this out as they see these loans as their highest risk factor for delinquency in the future.

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Huntington Beach Weekly Market Report

Here is how to go about successfully buying a short sale:

1. Search for short sale properties
Most short sales are listed by real estate agents. You will find these listings on local websites and in MLS feeds. Some lenders have complained about advertising that identifies the home as a short sale, because the lenders feel it puts them at a disadvantage when it comes to home pricing. This is accurate, as buyers generally offer less when the property is advertised as a short sale.

Read the listing carefully. Agents slip in words that identify the listing as a short sale. Look for the following terms:

• Subject to bank approval
• Pre-foreclosure
• Notice of Default
• Give the bank time to respond
• Preapproved by bank
• Headed for auction

2. Select a real estate professional
Professionals with short sale experience can help you navigate the short sales process in your local market. The buying process is often far more complex—and far longer than typical sales–so a trained ally on your side can make your experience successful.

3. Investigate the mortgage and liens on the property
Here’s where a good short sale real estate agent is worth his or her weight in gold. Uncover how much the mortgage is worth. Find out how much the current owners paid and when. Find out how many liens are on the property. Find out which lender is the primary lien holder. Research comparable sales in the area.

4. Have a home inspection
Short sales are typically sold “as is,” with no contingencies allowed. That short sale is no bargain if you discover—after the closing—that it requires major, unexpected repairs. A thorough home inspection will provide a clear view of the home’s condition, allowing you to make educated decisions on whether or not to purchase.

5. Write a complete offer
Remember, the lender—not the owner selling the property—is calling the shots and decides whether your offer will be accepted, rejected or countered. Helping the lender, whose agents may be overloaded with a glut of short sales, fully understand the financial picture will support your bid. Include the following materials with any short sale offer:

• Cover letter
• Signed owner/borrower short sale purchase agreement
• Seller hardship letter
• Seller payroll stubs
• Two years of seller tax returns
• Market comparables
• HUD-1 closing net sheet
• Repair cost estimate
• Pictures of property

6. Negotiate
Like any real estate transaction, successful negotiation is required to strike a deal. If the lender rejects or counters your written offer, you’ll have to negotiate with the lender by making a higher offer. Be prepared to offer more money to close the deal, or to walk away if it doesn’t make financial sense.

7. Be Patient
Short sales, which have increased in volume and frequency, are overloading some lenders. Be aware that processing and decision-making times for some lenders can be quite long—up to a year or more. Decide if you have flexibility in your timing, and if so, know that you may be waiting for awhile.

Dan Steward is president of Pillar To Post Home Inspection.

For more information, visit www.pillartopost.com.

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Linda Ginex
Star Real Estate