Qualified Principal Residence Indebtness

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt was reduced through mortgage restructuring, as well as the mortgage debt forgiven in connection with a foreclosure, may qualify for his release. In most cases, eligible homeowners only need to fill out a few lines on Form 982.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available.

See Form 982 for details.


For additional information visit the IRS website
IRS Publication 4705 (2-2009)
Catalog number 51765 C

An Agents Perspective: Survey of California Residential Market

Included in our analysis is a survey consisting of 11 questions concerning the California residential real estate market. These questions were answered by 237 residential real estate agents located throughout California, each with at least three years experience.

The answers to the following questions will give a better understanding of the 2009 and 2010 California residential market from an agent’s perspective. Each agent was asked 11 questions regarding inventory levels, buyer activity, sales volume, foreclosures, short sales, and financing, all in relation to the California real estate market. The following data was accumulated from February 14, 2010 to February 25, 2010.

1. Are inventory levels in your market on average increasing or decreasing?
Over 60% of those surveyed agreed that inventory levels are currently decreasing, while only about 30% believe that inventory levels are increasing. The current market is demand-driven, and is therefore absorbing much of the supply (inventory levels).

2. To what extent has buyer activity increased or decreased over the past year?
Over 79% of those surveyed agreed that buyer activity has increased over the past year. On average, prices for a single family residence decreased dramatically, leading to an increase in buyer activity and an increase in demand.

3. What do you expect will happen to buyer activity in 2010?
Over 60% of those surveyed believe that buyer activity will continue to increase throughout 2010. The sustained increase in demand (buyer activity) can be attributed to the continuation of low prices as well as the buyer tax credit.

4. What do you expect will happen to sales volume when the buyer tax credit expires in April?
Over 70% of those surveyed believe that sales volume will decrease now that the tax credit has expired. The current tax credit includes up to $8,000 in government assistance for qualified first-time home buyers purchasing a principal residence, and up to $6,500 in government assistance for qualified repeat home buyers.

5. What proportion of buyers in your market are owner-occupants, not investors/landlords?
Over 75% of those surveyed believe that buyers are owner-occupants as opposed to investors or landlords. To some degree this is due to the current mortgage incentives given to owner occupant residencies.

6. Is favorable financing for purchases readily available?
Over 75% of those surveyed agree that favorable financing is either somewhat or readily available. Although lenders have become more stringent concerning lending and FICO scores, historical trends confirm that financing has become easier to obtain.

7. Have foreclosures in your market increased or decreased since early 2009?
Foreclosures vary typically by market. Although there is an increase in default payments, the variations in foreclosures can be attributed to the increase in loss mitigation efforts (short sales, loan modifications), which have helped many homeowners find ways to avoid foreclosures.

8. Have short sales in your market increased or decreased since early 2009?
Over 80% of those surveyed believe that short sales have increased since early 2009. The downturn in the California residential market has led many homeowners to seek assistance in the form of loss mitigation, in an effort to avoid foreclosures.

9. In your opinion, what effect have short sales and foreclosures had on home values during 2009?
Over 86% of those surveyed believe that 2009 home values were negatively affected by short sales and foreclosures. Due to homeowner debt and a lender’s willingness to rid itself of a property in default, many short sales are typically priced below fair market value, leading to a negative effect on home values.

10. In your opinion, what will be the future effects of foreclosures and short sales on home values?
75% of those surveyed believe that short sales and foreclosures will still have some effect on home values in the future. Therefore, a majority of the agents surveyed believe that home values will continue to decrease.

11. In your opinion, what will be true of housing values in 2010?
There is disparity concerning housing values in 2010. Over 44% of those surveyed believe that housing values will decrease in 2010. This can be attributed to the continuation of short sales and foreclosure, which lower housing values.

Published with permission from "A STATE IN TURMOIL: Why The California Residential Real Estate Market Has Just Begun To Fall" By Eli Tene, Gil Priel and Jeff Woodsworth. This text may not be redistributed or reproduced without the written consent of its authors.

Conclusion

The outlook for 2010 was summed up appropriately by Dr. Alex Villacorta, Senior Statistician at Clear Capital, when he stated: “The sustainability of the current price gains will be challenged in 2010, given that most lenders and analysts predict a significantly larger number of REOs will reach the markets. Further, this suggests that as the dynamics of supply and demand evolve, different markets will have varied responses to the increased REO activity. That is to say, depending on the market, if the supply of housing does not dramatically increase for reasons outlined in the previous section, or if demand does not become curtailed due to reasons explained above, then it is believed that housing will have bottomed in most affordable markets and will stay flat or experience modest price growth. Top-tier, less-affordable markets remain weak and unbalanced.

However, despite any promising data today, there are a multitude of reasons to believe that the fundamentals recently supporting stability in the housing market will diminish in 2010. Specifically, the reduction of loan purchases by the Federal Government and subsequent increasing interest rates, the expiration of the tax credit, and the continued weaknesses in the overall economy will likely stymie demand in 2010. Furthermore, the failure of loan modifications to prevent foreclosures, and the anticipated increases in defaults from borrowers of Option ARMs and other loans, will serve as a continuing source of bank-owned properties to be liquidated in competition with one another and will greatly increase the inventory of homes. Any economics student can tell you that when supply goes up or demand goes down, prices must go down. And that is expected to occur in 2010. The extent of this price decline is undeterminable at this stage, but the risk is palpable.

Published with permission from "A STATE IN TURMOIL: Why The California Residential Real Estate Market Has Just Begun To Fall" By Eli Tene, Gil Priel and Jeff Woodsworth. This text may not be redistributed or reproduced without the written consent of its authors.

2010 Forecast

The outlook appears promising despite formidable obstacles that will be realized in 2010, which will pose significant challenges to continued recovery. Our market-by-market analysis of housing values and supply trends shows that most California markets appear to be stabilizing. Home value direction has gone from decreasing to flat and, in some markets, turned positive, while supply of housing in most markets is in balance with demand or less. However, despite the stability of home values achieved over the second half of 2009, there are many factors that suggest 2010 could expose this façade and become another down year for the housing market, with values dropping further before stabilizing. Those factors are addressed below:

1. Rising Mortgage Rates: Just as low mortgage rates were partially responsible for the recovery manifested in 2009, increased rates could be the cause of a housing slump in 2010. Homeowners tend to buy a home not on the basis of what the home costs in absolute terms, but rather on how the mortgage payment will affect their monthly earnings. That is to say, for most home buyers, the key to home affordability is monthly cash flow. A rise in interest rates decreases the overall affordability of the home. Therefore, buyers will be willing to spend less overall, driving economic demand down. This could cause housing to again become overpriced.

2. FHA Restructuring: The Federal Housing Administration suffered heavy losses during the housing downturn, which could lead to additional bailouts from the government. As a result, the FHA slightly tightened standards and raised fees in January. If increased tightening occurs, it could reduce availability of financing and diminish the qualified-buyer pool. That would decrease demand and force further decline in values.

3. Failed Loan Modifications: Loan modifications are the reason many delinquent loans have avoided foreclosure, which has served to moderate the supply of foreclosed homes entering the market in 2009. During 2009, the REO saturation rate dropped 16 from 41.5% in the first quarter to 25.5% upon the release of the HDI Market Report in January 2010.vii However, while 728,000 homeowners have signed up for modifications, just 31,000 have permanent workouts. So it is reasonable to expect that many homes that have been in the modification pipeline will be moved belatedly into the foreclosure pipeline and will add to the supply of foreclosed homes in 2010.

4. Expiration of Mortgage-Backed Securities Purchase Program: The government set aside $1.25 trillion to buy back mortgage-backed securities (MBS), which has been the primary cause of low mortgage rates throughout the downturn. The program is set to expire March 31st. Purchases from the program made up 50% of the MBS issued in 2009, and it is very possible that interest rates will rise without the supplementary demand created by the Federal Government. Also, as stated previously, a rise in rates decreases the affordability of owning a home and will depress demand at current market prices.

5. Mortgage Interest Rate Resets: California has a high concentration of option adjustable rate mortgages that gave the borrower the option to pay a monthly amount less than that necessary to pay the interest on the loan. Thus not only are these loans in a negative equity position due to a falling market, but they are also building negative amortization. Interest-only loans that allowed interest payments for three, five, or seven years were popular with purchasers in expensive markets that did not quality for government-backed loans. Both negative amortization and interest only-type loans are about to reset, dramatically increasing the monthly payments for those borrowers. Of the pool of outstanding Option ARM loans, 88% have not yet experienced a reset event. Research carried out by Fitch showed that 94% of borrowers with Option ARM loans made only the minimum payment. And in the past year, the portion of Option ARMs that were delinquent, in foreclosure, or foreclosed rose from 16% to 37%.1 From the graphs, it seems evident that by the end of 2010, and through 2012, those resets will place heavy burdens on borrowers, who will likely forfeit their homes to banks that in turn will have to foreclose and liquidate the properties. These re-sets will likely cause the next wave of foreclosures, one that will be large and weigh on home values for a long time. Therefore the re-casting of Option ARM loans in the coming months and years will be the source of a tremendous amount of bank-owned housing inventory, which will exert downward pressure on home values.

6. Expiration of the Home Buyer Tax Credit: The program established by the federal government giving buyers an $8,000 tax credit, enacted to shore up the housing market, expired on April 30, 2010. Many home buyers have entered the market prematurely to take advantage of this additional incentive to buy a home now. Many of them perhaps would have waited until 2010 to buy a home, but opted to buy sooner to take advantage of the credit. Those buyers will not be available to buy in 2010. As a result of the expiration of this credit, the demand for housing in 2010 could be greatly diminished, and home prices could decline.

7. More Defaults & Foreclosures: Due to such factors as persistent unemployment and failed loan modifications as aforementioned, foreclosures will likely increase in 2010. There are nearly two million mortgages that are 90 days delinquent, and virtually all of them will end up in foreclosure. About 2.3 million have already been foreclosed on by lenders. Flooding the market with increased bank-owned (REO) properties could increase the housing supply beyond the bounds of demand at current pricing and force lenders to compete by dropping REO home prices. Similarly, short sellers, or property owners attempting to sell a property for less than what is owed on it, will be prominent in most markets, adding to distressed inventory. Home owners with negative equities have proven to have a high rate of default. According to a new study released by First American CoreLogic February 23, 2010, more than 11.3 million residential properties had negative equity at the end of 2009. That is equal to 24% of all mortgaged homes in the United States. This study also reports that an additional 2.3 million mortgages had less than 5% equity. These two numbers combined equal 29% of all mortgaged properties in the U.S. In California, 35% of all mortgaged residential properties are underwater, accounting for the largest number (2.4 million) among all the states. First American reports that once negative equity is 25%, or $70,000 greater than the property’s value, owners tend to walk away from their debt obligations and properties to the same degree as non-occupying investors.

Published with permission from "A STATE IN TURMOIL: Why The California Residential Real Estate Market Has Just Begun To Fall" By Eli Tene, Gil Priel and Jeff Woodsworth. This text may not be redistributed or reproduced without the written consent of its authors.

Housing Market: 2009 Review

When 2009 began, the stock market was in the grip of a terrible bear-market sell-off that didn’t end until early March. By that time, the Dow Jones Industrial Average was half the level at which it had peaked just two years before. Credit was so limited that the situation was termed the Credit Crisis. The housing market had just taken another large leg down, and even high-end housing segments were feeling the effects of a pervasive housing price collapse that had begun two to three years before. Negative headlines assured wary home buyers that the end was not yet in sight. So 2009 was off to an abysmal start.

However, inventory absorption and recovery were evidently taking root in the most affordable and most depreciated housing segments. Buyers were encouraged to re-enter the market as the Federal Government enacted an $8000 tax credit for first-time home purchasers, which was subsequently extended (on a more limited basis) to all consumers. This federal tax credit has been believed to have spurred activity throughout the American economy. In March, the stock markets began to recover as investors took a chance that the worst was behind us. Aside from the tax credits and stock market recoveries, there were several other reasons for the stabilization of housing in 2009:

1. Low Mortgage Rates: The Federal Reserve Board kept mortgage rates low at approximately 5% throughout 2009 by purchasing $1.25 trillion in mortgage-backed securities. Buyers, aware of these historically low rates, believed that there would be a small window of opportunity to buy before financing costs increased. The result was a sense of urgency that spurred an increase in home purchasing as well as mortgage re-finance applications.

2. FHA Loans & Fannie Mae and Freddie Mac: After nearly disappearing during the market boom, FHA loans have returned. One half of all sales nationwide to first-time home buyers were insured by the FHA during the peak buying period in 2009. Also, Fannie and Freddie, now wholly owned by the federal government, purchase nine of ten mortgages.

3. Loan Modifications: In 2009, at the encouragement of federal and state governments, banks and other lenders increased their efforts to modify troubled mortgages. This provided borrowers with alternatives to foreclosure, and prevented (or perhaps only postponed) many foreclosures. According to Clear Capital’s Home Data Index (HDI) Market Report, the REO saturation rate dropped from 41.5% in the first quarter of 2009 to 25.5% in January of 2010. This decline served to limit the foreclosure inventory and thereby assisted price stabilization.

As a result of these stimuli, and as demonstrated by our market-bymarket analysis of California, by the end of 2009 values in most markets began to stabilize and, in home select markets, show consistent appreciation for the first time since 2006. According to RealtyTrac CEO James Saccacio, new foreclosure filings had been declining since peaking in June. This decline was due to trial loan modifications as well as state legislation extending the foreclosure process. The U.S. Treasury Department reported that as of early December 2009, more than 700,000 homeowners had received trial modifications. In the fourth quarter, foreclosure activity fell by 7% from the previous quarter.v All these factors have served to limit the supply of foreclosed homes and to help support a stabilized market. According to Clear Capital’s HDI Market Report, the Western United States Region, including those states that previously registered the largest decline in values (Nevada, Arizona, and California), showed a 1.2% quarterly gain in the fourth quarter. The Inland Empire (Riverside-San Bernardino-Ontario) MSA showed a 4.2% quarterly increase despite having an REO saturation rate of 51.3%. This increase provides evidence that the appetite for discounted REO homes is strong, and that the presence of these REOs is not having the expected depressing effect on the market that some anticipated.

Based upon our research, it seems evident that the least-affordable housing markets are not experiencing the balance in supply and demand that a stable housing market would demonstrate. This disparity is evidenced by high housing inventory and few sales at prevalent prices. High inventory relative to sales has, in past years, indicated that a price correction is on the horizon. Top-tier housing may be generally defined as homes valued at more than $1,000,000; but as average prices for a neighborhood increase, it appears that the sales decline. The factors driving this phenomenon include home owners in these markets being more fiscally resilient and more financially able to patiently wait to sell a home at a high price while making mortgage payments in the meantime. However, demand for these homes remains tepid, as would-be buyers experience difficulty in finding financing that does not require a large down payment to qualify. For example, in Los Angeles County, FHA and conventional loans are available to the amount of $729,750, which is expected to expire at the end of 2010. So presently, a borrower pursuing a $1,000,000 home purchase would have to bring to the transaction at least $270,250 of his or her own cash. Note the two graphs below, which are Multiple Listing Service snapshots of listing and sales activity in expensive Beverly Hills and Malibu markets from February 2010. It is evident that demand for housing at the prevalent prices is very low, and typically we would expect this to foreshadow a price correction.

Published with permission from "A STATE IN TURMOIL: Why The California Residential Real Estate Market Has Just Begun To Fall" By Eli Tene, Gil Priel and Jeff Woodsworth. This text may not be redistributed or reproduced without the written consent of its authors.

Housing Market: 2000-2008 Review

During the first half of the past decade, California experienced a remarkable period in which home values began rising at incredible rates. By 2005, some markets saw home values double and triple as buyers flooded the market, enticed by easy financing and the promise that values would continue to increase in California. While there was talk of a housing bubble by some, there was an equally convincing group that suggested that California real estate values would only go up as more and more people flocked to the Golden State. However, soon cracks started appearing in the market and the boom was followed by a nationwide housing market bust of historic proportions that eventually spread fear among holders of stocks, corporate bonds, and government and municipal bonds. Credit-default swaps threatened to destroy insurance giant AIG, the company having been ultimately saved by a titanic government bailout. Mortgage giants such as Countrywide, Wachovia, and Washington Mutual, facing insolvency, were bought by stronger competitors, who were also severely weakened and ultimately bailed out by the U.S. government. Investment banks, such as Bear Stearns and Lehman Brothers, which were century-old beacons of high finance and trade, were left bankrupt. Even companies such as General Motors and Chrysler Motors, far removed from the housing market, were driven to
declare bankruptcy. Arguably further removed still, international markets all over the globe also crashed.

The history and many of the causes of the biggest housing crash since the Florida Land Crash of the 1920s are becoming well-understood. The crisis originated with the Federal Government’s Community Reinvestment Act, which encouraged home ownership and a monetary policy that kept interest rates historically very low. These policies caused real estate values to begin a steady ascent that progressively picked up steam. Wall Street was making a lot of money packaging and selling mortgage-backed securities. Credit agencies determined those investments to be very safe, and the mortgage bonds received high credit ratings. The demand for such bonds seemed endless. Banks and mortgage brokers discovered that they could make very high profits originating loans. So the competition to capture market share gave birth to creative loan products such as teaser rates (where loan rates are low for a short time and adjust to market rates at a later date), option adjustable rate mortgages (which gave the borrower the option to make less than a full payment), and Alternate-A stated income loans (where loans were underwritten based on unverified statements of income and were nicknamed “liar-loans”). Prior to 2003, those Alternate A loans, which allowed for loans to be underwritten less stringently, were a small portion of the loan market. But between the years of 2003 and 2006, those loans increased by an incredible 340%.i In higher-priced markets, such as California, Option ARM loans (those in which a borrower could pay an amount below that required to pay even the interest, and could allow the difference to be added to the loan) were also very popular. Influenced by loan brokers and reassured by climbing values, appraisers became overly-optimistic with regard to valuations. The lucre from those loans wrought fraud and misrepresentation throughout the system, since those loans were sold to Wall Street and no risk exposure remained with most lenders involved in their origination. When the demand for those products subsided and the news of the crumbling housing market spread, the value of those mortgage-backed bonds crashed. Seemingly overnight, the mortgage-origination business virtually disappeared and was irrevocably changed. Many businesses related to lending went bust. The website ml-implode.com began tracking the instances of mortgage lender failures. As of this writing, the number was 374. Nearly 300 closed during the years 2007 and 2008.

From our analysis, it is evident that the California real estate market peaked in 2005 and 2006, then started showing signs of weakness in mid-to-late 2006. In the latter months of 2006, it was evident that the housing bubble had popped. Sellers began to reduce their prices. Unsold inventory began to build. Where there was smoke in 2006, there was fire in 2007. Home buyers had vanished and sellers were unable to sell their homes at once-prevalent high prices. The inventory of unsold homes began to pile up at a rapid rate as private sellers and banks with newly acquired foreclosed homes flooded the market. Absorption rates for sales of homes plummeted. Financing began to dry up as banks reduced their exposure by withdrawing from the market and tightening lending standards. Buyers who wanted to buy were unable to act, limited by the availability of favorable financing. Throughout 2007 and 2008, the housing market seemed to be in free fall. Some parts of California saw home values decline by 75%. The declines were most evident and severe in areas where the most affordable homes could be found, and where home prices were within reach of the lower tiers of income earners and investors. The declines were also plaguing areas where developers had overbuilt small communities on the edges of cities, and prescient builders began to liquidate new tract homes. But the symptoms soon spread to the upper levels of the housing market. The market crash in 2008, and the credit crisis that erupted in the fall of that year, caused the crash to affect the wealthiest individuals. Consequently, all rungs of the housing ladder, including homes in the top tier priced at over $1 million, were negatively affected. In 2005, the number of $1 million-plus homes sold was 54,773. In 2006, it was 50,010; while in 2007, it was 42,506. Then, in 2008, it dropped 42.5% to 24,436.ii So although top-tier housing was resilient to price declines during the initial housing correction, during 2008 and 2009 significant weakness developed to cause foreclosures and price corrections to be manifested within this upper-level price market.

Published with permission from "A STATE IN TURMOIL: Why The California Residential Real Estate Market Has Just Begun To Fall" By Eli Tene, Gil Priel and Jeff Woodsworth. This text may not be redistributed or reproduced without the written consent of its authors.

I Short Sale's Loan Modification Success Story in Palmdale, CA

T Family

Palmdale, CA 93552

August 6, 2010

Ms. Sona

I SHORT SALE, INC.

22837 Ventura Blvd.

Woodland Hills, CA 91364

RE: PALMDALE, CA 93552

Dear I Short Sale Staff:

Wow! A long journey finally comes to a successful end! We had to put our thanks and deep gratitude in writing, though words fall short of the heartfelt thanks we have for all of you at I Short Sale. We have been blessed to experience and witness, what, sadly, millions of Americans haven't. We can only pray that there are, and will be, many other "I Short Sale" like people out there who sincerely care and diligently work for troubled homeowners.

Every step of the way Sona, Aviva and probably many others who we have never spoken to, but who have nevertheless diligently worked behind the scene to successfully complete our voyage. You all have been extremely professional, honest and attentive to our anxious moments as well as our haunting deadlines. You were always reassuring, encouraging our confidence when we had none.

A very special thanks goes out to Michael Cramer. The guy could easily sell ice in Alaska. Don't get us wrong, Michael isn't a sleazy salesman, but a man with a true gift who puts the party on the other end of his phone - whether it is a client or a bank representative - at ease. He knows his business in and out, and can find a workable solution to a difficult problem that results in a win-win to all parties. In short, Michael cares about the people he serves. We're not just another "file" to lay to rest. His heart is truly in his work and it speaks volumes about who the man is.

We feel like family, you cared about our problems beyond what was on the table, you extended yourselves beyond what was required. We will miss our weekly talks, (but glad we don't have to have them!). Don't be surprised if we call now and then, just to say hello, if nothing else. Again, thanks for your comfort, help, words, and deeds. You have definitely made a mark on this family and we couldn't go on living without sharing the impact you've had on us.

Very Sincerely,

The T Family

ISS to complete the 5th successful short sale for one client

Hi Brenda!

I just wanted to say a great big thank you for all of your help. We just closed our 6th short sale in the past two years!!! Five of those were completed with you and I just wish I had completed the 6th one with you too, since we didn't get cleared of the 2nd mortgage for $30,000 (Cape Coral).

I really appreciate all your help and I can't tell you how relieved I am to finally have these all off of my shoulders. If you need any kind of testimonial letter, I would be happy to write it.

Really, please know that your help has made a huge difference in our lives!! J. D.

Mortgage Workouts, Now Tax-Free for Many Homeowners

Homeowners whose mortgage debt was partly or entirely forgiven may be able to claim special tax relief by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attaching it to their federal income tax return.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude certain debt forgiven on their principal residence up to $2 million ($1 million for a married person filing for a separate return.

for additional information visit the IRS website
IRS Publication 4705 (2-2009)
Catalog number 51765 C

For South Florida real estate market, a hopeful sign

Fueled by foreign buyers and distressed sales, South Florida pending home sales were up in July compared to last year.
By TOLUSE OLORUNNIPA
tolorunnipa@MiamiHerald.com

South Florida's housing sector asserted its independence from national trends in July as a key measure of the real estate market improved year-over-year, with the region's international buyers and still-drooping prices propping up the local housing market.

In July, pending home sales in Miami-Dade County stood at 10,113, up 40.5 percent from July of 2009, according to figures released Tuesday by the Miami Realtors. In Broward, pending sales stood at 7,830 in July, up 25.4 percent from a year earlier.

Pending home sales refer to the number of housing contracts that have been signed, and offer an early indicator of sales activity because typical sales have a one- to two-month lag between a sales contract and a completed deal.

South Florida sizes up well when compared to the national picture, where the pending home sales index hit a record low 75.7 in June, according to the National Association of Realtors. It was the second monthly falloff after the April 30 deadline to enter the federal homebuyer tax credit program, with June's pending sales down nearly 19 percent from the same month a year earlier.

The local market hasn't been completely immune from the post-tax-credit slump. In the past three months, pending home sales are down 3.2 percent in Miami-Dade and down 5.1 percent in Broward.

``We are encouraged by the statistics for pending home sales in the South Florida real estate market even after the expiration of the homebuyer tax credit,'' Jack H. Levine, chairman of the board of the Miami Realtors, said in a statement. ``While the number of pending sales has dropped slightly month-over-month, they are still significantly higher than they were a year ago.''

With financing still difficult to obtain, all-cash buyers and deep discounts on distressed properties are propping up sales, said Peter Zalewski, a principal at Bal-Harbour-based Condo Vultures.

About 60 percent of South Florida sales have gone to foreign buyers, who are more likely to pay with cash and were never eligible for the tax credit.

Additionally, more than half of recent sales in Miami-Dade and Broward counties involve short sales or bank-owned home sales. In the last 12 months, the number of bank-owned condos and single-family homes sold has more than doubled.

A short sale occurs when a home is sold for a price that is less than the value of the outstanding mortgage. In what has become a notoriously lengthy process, both the seller and the bank must agree to the price.

Banks have recently become more willing to allow sellers to pursue short sales, which now account for one in four South Florida sales.

There were 944 short sales in Miami-Dade and Broward in June, up from only 379 a year earlier, according to analysis by Esslinger-Wooten-Maxwell Realty.

That's a reason to be cautious while interpreting pending homes sales data in a market like South Florida's, said Doug DeWitt, Miami-based real estate broker.

Many short sale contracts are rejected by the bank after a seller agrees to sell for a price below what they owe, meaning those pending sales don't lead to closings.

Additionally, because short sales take months to process, many remain in the ``pending'' stage longer than normal, boosting pending sales numbers for multiple months.

In Miami-Dade County, more than half of the pending single-family home sales on the Multiple Listing Service are short sales, said DeWitt.

``I'd say at least half of those are not going to close,'' he said. ``I would say stick to the actual closed sales to make the true comparison, because there's a lot of different ways that these pending sales can fall through.''

The increasing number of short sales and bank-owned properties coming to market has put downward pressure on prices in South Florida, said Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach. In June, median prices of existing homes stood at $203,300 in Miami-Dade, down about 4 percent from the same month a year earlier. Median existing condo prices, at $128,000, were down about 9 percent in Miami-Dade.

``When you're in a neighborhood that has two foreclosures and a short sale that are priced $50,000 or $75,000 below what you thought you could get for your home, you do not set the barometer for the other [home] prices,'' McCabe said. ``They set the prices for you.''

Tejus Karia, who has been trying to sell his Davie townhouse for eight months, has cut prices multiple times.

He has slashed the price on the three-bedroom, from $185,000 to $165,000 to draw in buyers but didn't get a single offer. He recently decided to rent it instead.

Zalewski said many sellers are coming to accept the new, lower pricing levels being dictated by the market, and are acting accordingly.

According to a report by Trulia, one in five home sellers in the Miami area slashed prices last month, with an average reduction of 13 percent.

Karia said the main obstacle for most of his buyers was the lack of financing: ``Nobody could come up with the money. The banks aren't lending money, and that's going to leave a lot of these houses in limbo.''

Miami Herald

Prevent Foreclosure: Tips For Distressed Homeowners

1 in 4 homes sold 'short' in June

By JEFF COLLINS

THE ORANGE COUNTY REGISTER

One out of every four homes sold in Orange County in June went for less than the seller owed on the mortgage, according to the latest figures from the Southern California Multiple Listing Service.

SoCal MLS figures show the monthly tally of “short sales” continued its 18-month climb since lenders began easing rules to help underwater homeowners avoid foreclosure.

Thanks to falling home prices, about 14% to 19% of all O.C. homeowners owe more for their homes than they’re worth. In a short sale, lenders eat the difference between the amount paid and the amount owed.

The latest figures show:

• Sellers and their lenders completed 714 short sales in June, nearly double the number completed in January 2009, when the SoCal MLS began providing numbers on so-called “distressed” home sales.
• June’s short sale total was up 78% from June 2009, when there were 493 short sales.
• Meanwhile, the number of bank-owned homes sold in June rose slightly from the previous month.
• Banks sold 377 repossessed homes in June, compared to 368 in May.
• Still, bank-owned home sales were down 51% from January 2009 and were down 45% from June 2009.
• Bank-owned homes accounted for almost 14% of all homes sold through the MLS in June.
• Overall, distressed sales of all types were down slightly from May (1,091 in June, vs. 1,094 in May).
• Total distressed sales fell 8.4% from January 2009 and 3.3% from June 2009.
• Distressed sales accounted for 42% of all homes sold through the MLS in June.

The OC Register

David's Story of the Week #2

David Cavarra, head negotiator of iShortSale tells an iShortSale success story.
Check out our youtube channel