There are many Orange County homeowners who are caught in today's mortgage loan crisis. Home values have now dropped by 20% to 30% in some cases.  And there are a large number of highly leveraged loans with adjustable rate mortgages, which results in thousands of Orange County property owners having great difficulty keeping up with their mortgage payments, and unable to refinance or sell.  There is now a growing trend for homeowners who are caught in this mortgage loan crisis, to simply stop making their mortgage payments and walk away from their home and letting it go to foreclosure sale.  There is even a website company that focuses on this growing trend and charges clients $1,000 or more simply to tell them to let the home fall into foreclosure.  I think this is a big mistake.  A Short Sale is a far better solution, and more socially responsible choice compared to simply letting the property go back to the bank via foreclosure.  Let's compare the two choices. 

First a few definitions.  In a Short Sale, the homeowner decides to the sell their home, and the sales price minus sales costs, are less then the current loan balances on the property.  In this scenario, the mortgage bank(s) must agree to forgive some of their debt in order for the  property to be sold and close escrow.   A Foreclosure is a legal process initiated by the mortgage bank(s) after several months of mortgage payments have been missed by the homeowner.  This Foreclosure process begins with a 90 day Notice of Default process, followed by a 3 week Notice of Trustee sale period.  At the end of this period, the home is sold via open outcry auction on the county courthouse steps to the highest bidder, or goes back to the bank unsold and becomes an REO property. 

The Short Sale is a much more dignified solution then a Foreclosure.  In a Short Sale, you list your home with a local Realtor (who has experience with short sales). As far as your neighbors and the public is concerned, it is a normal home sale, just like any other.   A Foreclosure on the other hand, usually winds up first as a vacant neglected bank owner REO home with a brown lawn, dead landscaping, and stacks of nwepapers on the driveway.  Then a REO Agent posts "Bank Owned Home" signs all around the neighborhood during the weekend for weeks in a row. In addition, Short Sales nominally sell for about 5% more then the corresponding resale of the bank REO.  A Short Sale transaction is better for the bank, the local real estate market, and even the homeowner.

The Short Sale is better for the homeowner for financial reasons as well.  A foreclosure will usually stay on ones credit report for up to 7 years, while according to mortgage industry experts, the newly  refurbished FHA loan will allow a prospective  buyer buy a home with 1 year after conducting a Short Sale. Also, industry experts in credit counseling state that a Short Sales are approximately 100 points less damaging to ones credit as compared to a Foreclosure sale.

Finally, a little know but huge advantages of a short sale as compared to a foreclosure is the following.  In Orange County, there are many homeowners who have a 2nd trust deed (TD) Home Equity Line of Credit (HELOC) loans. The majority of these loans are recourse loans, which in California, means that if the first mortgage were to foreclose, the 2nd TD HELOC loan is removed from the home, but is not wiped out at the foreclosure sale.  It then becomes a delinquent unsecured debt.  The 2nd TD HELOC lender then has no other choice but to go after the homeowner will all of the legal recourse available to them.  A Short Sale, on the other hand, allows the knowledgeable real estate agent to negotiate with both the 1st and 2nd mortgage holders, in order to divert some of the available sales proceeds to the 2nd HELOC lender, so that they will agree to wipe out the HELOC debt at the close of escrow with no recourse against the homeowner. 

If you have any questions about the Short Sale process, please feel free to call for our real estate team has many years of experience in this area of expertise.

More so then ever before, Mortgage Banks are looking for ways to avoid foreclose on delinquent Orange County CA. homeowners.  So today, mortgage banks and homeowners, with the guidance of their real estate professionals, are working out creative alternatives to resolve non-performing mortgage loans.  This type of mortgage loan workout is normally referred to as Loss Mitigation.

Here are some little known and interesting facts about Loss Mitigation: 

1.) Fifty percent (50%) of the Homeowners who are foreclosed upon never initiate any "contact" with their mortgage bank from the date they miss their first payment.

2.) Mortgage Banks / Mortgage Insurers / Mortgage Guarantors absorb losses of more than $50,000 for every foreclosed conforming loan and $40,000 for every foreclosed non-conforming loan.

3.) Fewer home loans are now being foreclosed. Many conventional mortgage banks, as well as FHA, VA, FNMA and FHLMC require that all options to avoid foreclosure must be explored (ie: Loss Mitigation).

The benefits of Loss Mitigation are that Mortgage Banks and Mortgage Insurers can reduce Foreclosures, Save money, and Re-establish communication with Homeowners.  Homeowners may be able to preserve home-ownership, or at least sell and relocate prior to foreclosure thus salvaging their credit and eliminating the stigma associated with foreclosure. The Real Estate Economy as a whole also benefits by preserving home-ownership rates, reduce financial losses caused by foreclosures, maintain a strong  viable housing market, and eliminate the blight that may be caused by a vacant and neglected foreclosed home.  

Today, due to the dramatic slow down in homes sales, and the drop in home prices, many homeowners find themselves in financial hardship.  These hardships are usually caused by job loss, illness, disability, death in the family, relationship breakup or divorce, poor money and credit management, and other reasons.  The good news is that many mortgage banks are agreeable to alternatives other then foreclosure.  There are typically 6 different Options that the mortgage banks may consider for a homeowner who is in financial difficulty. These 6 options are:

Option 1: Rate Reduction Modification. This type of loan modification will permanently reduce the interest rate associated with the loan, thus lowering the monthly payment from the Homeowner.

Option 2: Capitalization. Capitalization means adding the delinquent payments into the remaining balance and updating the payment due date and perhaps "recasting" the payment amount. Capitalization may be used when other modifications would not be appropriate, such as, if the interest rate is already at or below the market rate, or if the delinquent amount due is just too much for the Homeowner to pay back within the specified period of time

Option 3: Term Extension.  Term extension is extending the amount of time the Homeowner has to repay their loan to achieve a reduced monthly payment (i.e. 15 year mortgage extended to 30 years). Term extensions are often used together with an interest rate reduction or a capitalization modification.

Option 4: One-Time Assumption. Most mortgages are non-assumable, which means the loan cannot be transferred from one owner to another. However, as a form of loss mitigation, the mortgage bank may opt for a one-time assumption, in order to facilitate the sale of the property. Generally if the Homeowner can demonstrate hardship, Fannie Mae and Freddie Mac may allow a one-time assumption. HOWEVER, the transaction must be an "arm's length" transaction. In other words, there cannot be any pre-existing relationship between the Homeowner and the individual assuming the mortgage.

Option 5: Loan Type Conversion.  Some Homeowners with an adjustable rate mortgage (ARM) may not be able to keep up with increased payments during times of increasing interest rates. In this case, the mortgage bank may opt to modify the loan type to avoid increasing the interest rate. The loan could be converted to a fixed rate mortgage.

Option 6: Short-Sale.  A short-sale requires that prior to the sale, the mortgage bank  agrees that the sales proceeds from the sale of the Homeowners home will satisfy the debt, even if that amount is less than what the Homeowner owes on the loan. Many conventional loan mortgage banks prefer this method when the home is severely upside-down (ie: the home is worth substantially less then the mortgage debts owed).  A Short Sale will still negatively affect a homeowners credit, but is far less damaging to ones credit rating (ie: FICO score) then a Foreclosure.

For more information about Loss Mitigation or Short Sales in Orange County, CA., please feel free to call us at: 949-388-3396 or email us at: Info@OCShortSaleInfo.com , or Text Message at:  949-283-4679

As most everyone is aware, the residential real estate market here in Orange County is going through a significant correction.  Mortgage loan delinquencies and Foreclosures are at record breaking levels, with no relief in sight for the near term.  In August 9th of this year we evaluated  the number of distressed properties for sale per population for each city in south Orange County.  That report showed that the beach cities were experiencing a much lower percentage of distressed property sales, compared to the newer and lower priced inland cities of south Orange County.  On October 20th, we reported the ratio of distressed properties for sale compared to the overall number of homes for sale in south Orange County was 14%.

Here, we will examine the ratio of Distressed Properties for sale compared to ALL properties for sale for south Orange county and for each city.  A distressed property that is listed for sale is one in which the property is a Bank Owned REO, or homes still owned by a person that are in Foreclosure or are a Short Sale.  The table below  is a tabulation or our findings for this date of November 14, 2007'. 

Again the higher priced beach cities are holding up well and have a very low percentage of distressed properties for sale (less then 3%), while the inland cities have a much higher rate of 25% or more.  The overall south Orange County region has 18% of the listings which are distressed properties, compared to a ratio of 14%  in October 20th of this year.

The significantly higher distressed property listings in the inland cities is due to several factors.  Compared to the beach cities, the inland cities contain a much higher percentage of lower priced homes and condos that were purchased first time home buyers.  In order to afford the high cost of local housing, many of the first time buyers use highly leveraged financing, some of which with adjustable rate mortgages, and many of these homeowners are finding it now impossible to keep up with their mortgage payments after several interest rate reset increases.   

City	Distressed Properties for Sale	All Propeties for Sale	Ratio ( % )
Newport Coast	0	157	0.0%
Laguna Beach	4	280	1.4%
Corona Del Mar	3	142	2.1%
Newport Beach	12	536	2.2%
Dana Point	25	349	7.2%
Coto De Caza	17	162	10.5%
San Clemente	59	564	10.5%
Irvine	125	1069	11.7%
Laguna Niguel	100	520	19.2%
Ladera Ranch	73	340	21.5%
Tustin	108	479	22.5%
Mission Viejo	143	570	25.1%
San Juan Capistrano	78	310	25.2%
Aliso Viejo	110	434	25.3%
Laguna Hills	77	235	32.8%
Rancho Santa Marg.	163	496	32.9%
Lake Forest	208	567	36.7%
south Orange County	1305	7210	18.1%

On a more positive note, our statistical analysis has shown that the Inventory of homes Active for sale in south Orange County has been slowly decreasing in the past several months, while the number of homes sold In Escrow has increased slightly in the past month.  Also on a more grass roots level, we have seen numerous distressed properties priced well below market, sell within a week with multiple offers from buyers with very large cash down payments, which may be an indication that some of these bargain priced homes represent the bottom of the pricing cycle. For more information about Foreclosures and Short Sale properties, please email us at:  Info@OCShortSaleTeam.com or visit our website at:  www.OCShortSaleTeam.com

Orange County CA has been experiencing record breaking mortgage loan delinquencies and foreclosures this year. A large number of homeowners who purchased homes in the past 3 years using zero down 100% financing, now find themselves with mortgage debts more then their home is worth... sometimes called an "upside down mortgage".   Many of these homeowners who experienced a job lose, medical emergency or other financial hardship are unable to re-finance and are now finding themselves in Foreclosure. Foreclosure is a terrible experience that ruins ones credit for up to 7 years.  But to add insult to injury, if one purchased a home with zero down payment, and lost their home to Foreclosure, and the home sold at the Foreclosure sale for $50,000 less then the original sales price 2 years ago, the homeowner will possibly be subject to an additional $50,000 of taxable income...  Ouch ! 

But with the recent Mortgage Forgiveness Debt Relief Act of 2007' (HR 3648), the homeowner in the above example would not be subject to this extra income Tax. This bill was recently passed by Congress (House Bill 3648) by a wide margin on October 4th, 2007'.  It is now awaiting Senate approval and rumor has it it should pass easily and signed off by the President [UPDATE: Dec 17th - Senate passed this bill with some Amendments which will go back to Congress for approval before going to the President]  .  This Tax provision will only apply to taxpayers' principal residences and not investment property.  Once passed, this House Bill will be retroactive to apply to anyone who has had purchase money debt discharged or forgiven on or after January 1, 2007'.   This Debt Relief Act, if passed, will apply to Foreclosures as well as Short Sales. 

For those not familiar with the term Short Sale - a Short Sale is a pre-foreclosure sale in which the the mortgage lenders agree to accept less then what they are owed on the property, to a dollar figure which equals the sales price minus all cost of sales.  The homeowner does not receive any cash from the sale (just as in a Foreclosure).  Compared to Foreclosure, a Short Sale is becoming a preferred solution for "upside down properties" for both homeowners and mortgage bankers alike.  A Short Sale is less damaging to ones credit as compared to a Foreclosure.. a Short Sale does not stay on ones credit report as long as a Foreclosure, and a Short Sale is a more dignified resolution to a tough problem.

There are couple of items to note regarding Tax consequences that apply both equally to a Short Sale and Foreclosure. The Mortgage Cancellation Tax Relief if passed, will only apply to purchase money mortgages, and not re-finance cash out mortgages.  The other item to note, is according to many accountants, if one can prove financial insolvency, then the income Tax liability discussed above can be avoided. 

If you are a home owner who may be upside down in your mortgage, or if you are delinquent in your mortgage payments, there is free help available to you.  For details, visit:  OC Short Sale Team.  We are not Attorneys nor Accountants and this article is not to be construed as Legal nor Financial Tax advice.  Please seek Tax advice from an Tax accountant before making a decision in these matters.

If you own a home in Orange County, Ca and you find yourself unable to keep up with your mortgage payments, you may find yourself in Foreclosure in the near future.  The basic question you need to ask yourself is, "Do I try to keep my home, do I sell it, or do I declare Bankruptcy ?". 

If your monthly house payment (including property taxes and insurance) does not exceed 40% of your gross monthly income, it should be possible for you to keep the property.  If the payment is greater than 40% of gross monthly income, consider selling it or transferring the property to avoid negative impacts to your credit. 

Plan A -  Keeping the Property:  If you have a significant amount of equity left in your home (greater then 20%), and the cause of your delinquent payments was due to a temporary setback which you have, or can soon overcome (ie: Medical Emergency), then your first option may be to refinance your home and include the back payments (referred to as Arrears) in the new loan balance. If that does not apply to you, then you can try to negotiate a work out with your existing mortgage lender(s).  Lenders want the loan to be current - they don’t want to have to complete a foreclosure and own a vacant home. See if it is possible to make up the defaulted amount over a period of months.. or renegotiate the loan interest rate ... or re-write the note and include the defaulted amount.  If none of these options are possible or did not work, then it is time to consider Option 2. A side note - make sure you talk with a Short Sale expert even if you think you have some equity in your home, for property values have dropped substantially in the past 12 months, and many homeowners are not aware of the true value of their property.

Plan B - Selling the Property:   If you have some equity left in your home (ie: 5% or more), then your best bet is to sell your home outright on the open market using a professional real estate broker.  If your equity is less then 5%, but greater then 0%, and the Arrears are a few Thousand or less, and your monthly payments are too much greater then the market rent for your home, you may want to consider a Lease with an Option to Sell.  You will most likely need a professional Realtor to handle this type of transaction as well for they are more complicated then a standard sale. If none of the above options work out, or if you have no equity left in your home, then your only option at this point may be a Short Sale.

A Short Sale is a situation in which the mortgage debts are more then the home is worth.  In this situation, the Mortgage Lenders need to be convinced to reduce your mortgage debts down to level equal to the net selling price of the home.  You will most certainly need real estate professional who are experienced in these types of transactions, for as you can imagine, trying to talk the mortgage lender(s) into writing off, let's say $40,000 in debt, is no easy chore. 

Plan C - Foreclosure and/or Bankruptcy:  Bankruptcy is a major step that will have long lasting negative impact on your credit rating. Also, when you file bankruptcy, your financial matters fall under the jurisdiction of the courts which could limit your options. For these reasons, we do not recommend filing Bankruptcy as simply a means to try to keep your home.  I've never seen that work, for the mortgage banker(s) can pierce the Bankruptcy so to speak, and still foreclose on the home for they have priority to any equity that may exist in the property. If you have other financial issues that may require a Bankruptcy that is a different story, so please seek appropriate legal advice.  

We also would never recommend letting your home go through to the end of the Foreclosure Sale.  A Short Sale can stop a Foreclosure and is a much better solution.  A Foreclosure will stay on your credit report for 7 years, plus many mortgage experts claim that a Foreclosure will damage your FICO score much worse then a Short Sale, in the range of 100 to 200 points lower.  A Foreclosure will usually be filed by the mortgage lenders after your loan payments have fallen 3 or 4 months behind.  The Foreclosure filing consists of a 3 month Notice of Default period, then a 3 week Notice of Trustee Sale period and then the house is sold at Auction to the highest bidder, if any.  If the Notice of Default has been, or is soon to be filed, you have sufficient time to explore your options, but time is of the essence.  There are some potential income Tax consequences of either a Foreclosure or a Short Sale, so consult with an expert in this regard.

Please don't make any hard decisions regarding Foreclosure, Bankruptcy, Short Sales or other options, based solely upon reading this article though.  Please seek appropriate legal and financial council first. If you would like to discuss your options regarding selling, leasing or conducting a Short Sale of your property here in Orange County, please feel free to call us anytime at:  949-388-3396 or drop us an email at:  Info@OCShortSaleTeam.com , or visit our website at:  www.OCShortSaleTeam.com 

Currently there are a total of  7,489 homes and condos listed for sale in south Orange County which in this report we define to include the cities of:  Aliso Viejo, Coto De Casa, Corona Del mar, Dana Point, Irvine, Laguna Hills, Laguna Beach, Lake Forest, Laguna Niguel, Mission Viejo, Newport Beach, Newport Coast, Rancho Santa Margarita, San Clemente, San Juan Capistrano and Tustin. 

Of these 7,489 homes , there are 1,034 Bank Owned REO, Foreclosure and Short Sale properties for sale, which represents 13.8% of the total inventory.  We will track these statistics twice per month and report as the data is gathered.  It's looking like a great time to buy for prices have also dropped by about 10% from the peak in prices which was around the 2nd quarter of 2005'

Actually, compared to a Foreclosure, there are no Disadvantages to a Short Sale, just a few hurdles. First of all, let me briefly define a Short Sale.  Simply put, a Short Sale (sometimes called a Short Pay), is a situation in which a home is sold to a new buyer, and the sales price is less then the face value of the mortgage loan(s), plus back payments (if any), plus all other sales and closing costs such as Title, Escrow and real estate commission fee's.

As we discussed in a previous blog post, many banks today would prefer to accept a Short Sale versus going through with a Foreclosure repossession of the property.  But what are the Advantages of a Short Sale as compared to a Foreclosure, from the Orange County homeowners point of view ?

The main advantage of a Short Sale is it is less damaging to ones credit.  First of all, many credit counselors state that a Short Sale will stay on ones credit report for about 4 years, while a Foreclosure will stay on the credit report for up to 7 years.  And, an experienced credit counselor may be able to have the Short Sale removed from ones credit report in less time then that.  Another factor, is that some lenders and credit consolers claim that a Foreclosure will damage ones credit by as much as 200 points more then a Short Sale.  If one intends to borrow money in the next 7 years for a car, boat, or another home, this can make a huge difference in ones ability to get another loan and what the interest rate will be.

The other advantage of a Short Sale is the sense of dignity and responsibility.  During a Short Sale, the homeowner is marketing the home for sale with a local Realtor (who hopefully has vast experience with Short Sales), in an attempt to sell the home at the best price thus bringing in as much money as possible to the Bank.  When the home is sold to a new home buyer, the homeowner moves out a that close of escrow in a orderly and dignified manner, just like any other home sale transaction. This is a relatively painless resolution to a difficult situation. On the other hand, after the Foreclosure sale, you are forced out of the house by court eviction.  Then the home usually sits vacant as the grass turns brown, and newspapers collect in the driveway.  Then in about 4 to 6 months, a local Realtor is hired by the foreclosing bank and 'Foreclosure for Sale' signs are posted on the property. A humiliating ending to a painful process.

What are the hurdles or disadvantages of conducting a Short Sale, as compared to a Foreclosure?  One, the home owner must be essentially broke... that is to say, the property owner must prove to the bank that they are ill-liquid and essentially unable to make your mortgage payments.  If one has a good source of income and/or significant sums of money in the bank, the mortgage lender will most likely decline the Short Sale request and demand that the homeowner make up for the Short Pay with their own cash. Or may require the home owner to carrying a new note to be paid back to the bank with the homeowners strong income.

The other hurdle, is that the home owner may be liable for federal income tax based upon the income generated by the debt relieve.  This does not always happen, and congress is now considering a bill to remove this penalty from the Tax code. Actually, compared to a Foreclosure, this is not a disadvantage, for this same potential Tax consequence can happen as a result from a Foreclosure as well.

If you are a home owner and you find yourself behind in your payments and your value of your home has dropped, please give us a call.  Our team of experts will advise you as to the best approach to resolve the situation and the conversations will be held in the strictest confidence.  You can reach us at:  949-388-3396, or email us at:  Info@OCRealtyGroup.com  

REO's can be a good opportunity, but as with any other real estate purchase, it depends on the details of location, condition and comparable properties.  But first, for those of you not familiar with the term REO let me explain.   REO (short for Real Estate Owned) is when a Bank or other Financial Institution takes back a home via Foreclosure sale.  A Foreclosure occurs when the home owner gets too far behind in their monthly mortgage payments, and the Lender files what's called a Notice of Default.  In Orange County, the home owner then has 3 months to pay the Lender all of the back payments that are due (called Arrears), and keep the monthly loan payments current.  If the home owner fails to do this in the 3 month period, then the Lender files what's called a Trustee Sale notice.  The home owner then has just 3 weeks  to pay the lender off in full for all of the arrears and the loan balance due.  If this does not happen in the 3 week period, then the subject property is sold at the Orange County courthouse to the highest bidder for all cash on the spot (No loans, no investigation, no contingencies).  If there are no takers at this open bid auction, the the subject property is officially Deeded back to the lending institution, and the property becomes an REO. 

It may take the lending institution anywhere from 1 to 4 months to place this REO property back on the market for sale, usually with a local Realtor who is experienced with REO sales.  This REO property is then listed in the local Orange County MLS just like any other property for sale. 

Now to answer to original question... Are REO's a good deal for a Buyer ?  Sometimes they are and here is why.  Banks are not in the business of owning homes, but to lend money.  REO properties hurt their financial balance sheets for they are a non-performing asset (no mortgage income nor rent income).  Therefore they are usually motivated to sell these properties in a reasonably short period of time.  The second reason the Banks are motivated to sell sooner rather then later, is that in some neighborhoods, vacant homes are sometimes subject to vandalism, or just simple detrimental acts of nature (ie: freezing temperatures), thus potentially costing the Banks even more money.   The third reason why REO's can sometimes be a good buying opportunity is that many of them are in need of some repairs... from minor tender loving care, on up to a Major Fixer Uppers.  And Fixers can sometimes be a good buying opportunity assuming that the Buyer is fully aware of the needed repairs and can cost effectively have repairs done.

How does one then determine if an REO property listed for sale is a good deal ?  Well, just like any other potential purchase, the Buyer, or the Buyers agent should conduct a comparable analysis of similar homes that have recently sold in the neighborhood.  If the property can be purchased for less then those comparables, minus the cost of repairs plus a little bit extra for any unknowns, then that property may qualify as a good deal.

We have many years of experience in finding, negotiating, repairing and selling REO, foreclosure and Fixer-upper homes.  Feel free to call us anytime at:  949-388-3396 or email us at:  Info@OCRealtyGroup.com     Feel free to visit our website to receive a free list of distressed properties (bank REO, foreclosure, Shot Sale) for sale in Orange County.  If you are a Bank or financial institution looking for a local Realtor in Orange County with REO experience, please visit our website at:  Orange County REO Sales.

There is now doubt about it... the south Orange County real estate market is going through a market correction... But some market segments are being hit harder then others.  This correction is effecting the entry level market much harder then the older and staid move up markets.  To illustrate this point, we conducted market analysis of distressed properties for sale in the cities of Laguna Beach, Irvine, Dana Point, San Clemente, Laguna Niguel, Mission Viejo, Aliso Viejo, Rancho Santa Margarita, Ladera Ranch and Lake Forest.  This analysis comprised of counting the number of properties currently listed for sale that are either Bank Owned (REO), in Foreclosure, or  Short Sales, for each city.  We then took these numbers and divided by the Cities population (and then multiplied by 1,000).   This gives us a simple ratio of distressed properties for sale per 1,000 population for each city. 

This analysis illustrates that the entry level market is being hit much harder then the move up market.  The result of our analysis is shown in the chart below:   

CITY	Distressed Rate
Laguna Beach	0.10
Irvine	0.23
Dana Point	0.31
San Clemente	0.57
Laguna Niguel	0.65
Mission Viejo	0.80
Aliso Viejo	1.01
Rancho Santa Margarita	1.28
Ladera Ranch	1.55
Lake Forest	1.67

The coastal communities consisting of more expensive and older properties, have a much smaller percentage of distressed properties for sale compared to the more affordable and newer inland communities.  For example, Lake Forest has a 16 times higher rate of distressed properties  (bank REO, foreclosure, shore sale) for sale then Laguna Beach.    The reasons for this are several.  A higher percentage of the homes in Ladera Ranch, Rancho Santa Margarita, Aliso Viejo and Lake Forest (including Portola Hills, Foothill Ranch) are newly built in the past 15 years and geared towards entry level or first time move-up home buyers.  Compared to Laguna Beach, Dana Point, and Laguna Niguel which have a higher percentage of older properties that were targeted for move-up and estate buyers. A higher percentage of the newer entry level buyers who bought in the inland communities used lower down payment financing, some with adjustable rate mortgages, and some of these home owners have no equity or negative equity (short sale) due to the recent pull back in property values.  Whereas many of the home owners in these coastal communities bought long ago, or recently purchase with large down payments which shelters them from market corrections such as this one, in case they have to sell and move. 

Another angle to this analysis is the following.  We have been tracking the months of inventory for the south orange County real estate since July of 2002'.  The entry level price range of "Less Then $450K" has always been the hottest market segment until recently.  Now this price range  is the softest market segment at 10 months of inventory. 

It is hard to know how long this correction will last, but I guesstimate that the recovery will occur sometime in mid 2008', which actually makes this a good time to be thinking seriously about buying a home.  For more information about the orange County real estate market please feel free to contact us at:  949-388-3396 or email us at:  Info@SearchOCHomes.com    To view any home for sale, please visit:  south Orange County Real Estate

The last time Orange County CA. experienced the current level of Short Sale properties for sale was in the mid 1990's.  Back then, Short Sale and Foreclosure activity was due primarily to massive job losses and a glut of new and existing homes for sale.  Today, the main culprit is a correction in local home prices coupled with many highly leveraged, adjustable rate mortgage loans that were made in the past 4 years.

Using a Short Sale to sell you Orange County home is a difficult transaction, but is a much better alternative then out-right Foreclosure or Bankruptcy.  A Short Sale occurs when a homes sales value is less then the outstanding mortgage debt plus sales costs (sometimes called an "upside down Mortgage"), and the mortgage bank(s) has agreed to write off a portion of the outstanding loan debt in order to consummate the sale.  For example, if a home sells for $600,000 with $20,000 in total sales costs, and the total outstanding loan balance is currently $620,000, then the lender(s) would have to agree to reduce the mortgage loan debt by $40,000 in order to close the deal.  Lenders often entertain such an option for in the long run, they will usually receive a higher percentage of their principal back as compared to forcing the property into Foreclosure and run the risk of property neglect or damage, and additional delays and costs, and the possibility of property owner bankruptcy. 

Today, the "upside down Mortgages" in Orange County are due mostly to the risky, highly leveraged loans in which the home buyer purchased the home with little or nothing down, with an interest-only or worse yet, negative amortization loan in which the loan balance gets higher every month.  Combined with the softening of Orange County home prices that have now decreased by as much as 12% in some areas. 

These factors are causing many home owners to consider a Short Sale to solve their financial crisis, but this is a  difficult real estate transactions that requires additional paperwork and intricate negotiations between the real estate agent and the mortgage banker(s).  Basically, the real estate professional must prove to the mortgage bank(s) that the homeowner has a financial hardship.  In other words the home owner is unable to keep up with the current mortgage payments, and has minimal bank account savings, or other investments.  This financial duress can be due to job layoffs, illnesses, divorce, or even the unexpected large increase in mortgage payments due to interest rate resets. 

Many lenders today in Orange County, won't commit to a Short Sale until their is a valid and firm purchase offer in hand from a qualified new buyer, and a knowledgeable broker/agent who can negotiate the deal. It's imperative to work with an experienced real estate agent for they will need to prepare a professional and complete Short Sale package.  This package includes the purchase offer contract, buyers detailed loan qualifications, a realistic and detailed analysis of the fair market value of the home, current local real estate market conditions, and financial information and hardship letter from the homeowner.

In addition, there may be income Tax consequences if the home was refinanced.  Technically, the difference between your home's value and the balance on the mortgage is considered a forgiveness of debt and this amount may be considered taxable income if the loan(s) were not purchase money, but were refinanced. If one can prove financial insolvency, then this tax consequence may be forgiven.  It is imperative that one consult with a Tax accountant regarding these matters.  This potential Tax issue is the same regardless of whether the property was sold via a Short Sale or taken back in Foreclosure, so a Short Sale is still a much better choice then Foreclosure. As a side note, Congress recently passed a bill (Mortgage Cancellation Relief Act of 2007 ) that essentially eliminates this tax issue for purchase money mortgages, and is awaiting Senate approval.. 

If you are a home owner that is falling behind in your payments, or potentially facing foreclosure, or a prospective home buyer who is entertaining the purchase of a home that is in Foreclosure or a Short Sale, please feel free to contact us with any questions or concerns that you may have at:  949-388-3396 or email us at:  Info@SearchOCHomes.com , or visit our website at:  www.OCShortSaleTeam.com 

Now is a good time to be looking for a bargain home to buy in Aliso Viejo, CA.  Interest rates at historic lows... current real estates prices have dropped about 8% from a year ago... and this is the slowest season of the year to try to sell a home.  A home shopper can find good bargain if one knows where and how to look.  One of the better opportunities for finding a great value for a home is searching for Foreclosures, Bank owned REO's or Short Sales.   

A Short Sale is a home listed for sale by the current home owner, but the home is now priced at a point where the homeowner no longer has any equity.  The eventual sales price is then basically negotiated with the Bank, for the homeowner will not receive a dime when it sells, but is simpling selling it to avoid Foreclosure.  An astute Buyer can sometimes pick up a bargain this way if one knows how to negotiate with the Bank.

A Foreclosure is a home for sale by the current homeowner in which the Bank or Savings and Loan has filed Foreclosure Proceedings against the homeowner.  The homeowner only has a total of 3 months plus 3 weeks in order to get the home sold, or else the home gets repossessed by the Bank.  Homeowners in this situation are obviously very motivated to sell, and some of these homes are Short Sales as well. 

A Bank REO (Real Estate Owned) is a home that is listed for sale by the Bank and is owned by the Bank as a result of a Foreclosure Proceeding described above.  Again, this a very good buying opportunity for the Bank is very motivated to sell.  Banks do not want to own homes, they want to loan money, and the Bank is at risk of vandalism due to the vacant home, plus they are losing money each month that the home sits vacant and unsold.

Unless you have experience in purchasing homes under financial distress, it is a good idea to work with a licensed real estate agent who has experience in such acquisitions.  If you would like more information or assistance in purchasing Foreclosures, Bank REO's or Short Sale properties in Aliso Viejo or elsewhere in Orange County, please fell free to contact us at:  949-388-3396.  If you would like to freely view all homes for sale in south Orange County visit our new web-page at:  Quick View of all Orange County CA Homes for Sale  If you would like to be added to our Bargain Home Finder Service, please visit:  www.OCBargainHomes.com