Foreclosure filings posted a 33 percent drop in 2011, falling to their lowest levels since 2007, RealtyTrac reports. 

During 2011, one in every 69 homes received a foreclosure filing and 804,000 homes were repossessed — compared to 1.05 million homes that were repossessed during the foreclosure crisis peak in 2010, according to RealtyTrac. 

Foreclosures have plagued many communities, putting downward pressure on overall home prices. In the past five years, more than 4 million homes have been lost to foreclosure. 

So is the worst finally over for the housing market? 

Not yet, analysts say. Banks took more time to process foreclosures last year, which explains some of the declines, housing analysts note. In fact, the average process time for a foreclosure rose to 348 days in the fourth quarter, up from 305 days one year prior. 

RealtyTrac CEO Brandon Moore says that while he expects foreclosures to increase in 2012, he also expects foreclosures to  stay well below the 2010 peak. Refinancing programs, such as the government’s Home Affordable Modification Program, are helping more borrowers lower their payments and avoid foreclosure, Moore says.

Still, the biggest problems with foreclosures remains centered in certain areas, particularly where investors helped drive up home prices during the housing boom. For example, Nevada remains the No. 1 foreclosure hot-spot, in which one out of every 16 households received some kind of default notice during 2011. Arizona and California also are continuing to face some of the highest foreclosure rates in the country too, according to RealtyTrac data.

Source: “Foreclosures Fall to Lowest Level Since 2007,” CNNMoney (Jan. 12, 2012)

^[1]I know. Short sales are not easy. Short sales can be problematic. Short sales are not always worth the time and effort. And it’s always the bank’s fault.

This is the classic short-sale lament of our time and for good reason—short sales have been a difficult and frustrating process for all involved: sellers, buyers, agents and banks. But the pendulum is swinging and short sales are moving—now is the time to reinvest in your short-sale strategy.

There are several key reasons why things are starting to change in the short sale arena. First, the facts still speak for themselves. Distressed properties account for approximately 30 percent of the U.S. residential real estate market. While the percentage of homes actually underwater is 15.8 percent, 49 percent of today’s homeowners believe their home is underwater. And an estimated two million homes are currently in the foreclosure pipeline.

Second, and extremely important to note, is the fact that lenders are finally realizing that short sales are really the lesser evil. Loan modifications are few and far between—not because the lender doesn’t want to accommodate them, but because most of these loans have been packaged and sold three or four times over. The rate of return is so small that it’s just not worth it. And, of course, foreclosure is the ultimate fail for the lender.

Third, there is increased pressure on lenders to start moving short sales through the pipeline coming directly from Washington.

The bottom line is that we’re finally reaching some important consensus on short sales. The major lenders/servicers, as well as the investors, Fannie Mae, Freddie Mac, HUD, etc., now agree that keeping homeowners in their homes by facilitating a short sale is a much better alternative than a foreclosure for the homeowner, servicers, investors and neighborhoods involved.

The timing couldn’t be better for this turning of the tide. There is still a huge supply of short sales on the market, no matter what market you’re talking about.

The “road map” or foundation to a successful short sale outcome starts with understanding the four qualifications for a short sale and then determining whether the client is a good candidate or not. Those four qualifications are:

1. The homeowner must need to sell, not want to sell.

2. The homeowners must be experiencing a genuine hardship that has made a significant change in their life since they took out the loan, which now prevents them from paying the mortgage, such as:

• Loss of job or employment
• Business failure
• Severe illness
• Major health expense
• Divorce
• Legal separation
• Damage to the property
• Job relocation
• Military service
• Death of spouse or wage earner
• Death of non-wage earner
• Property insurance or tax increase
• Payment increase or mortgage adjustment
• Inheritance
• Incarceration

3. It must be clear that the homeowner does not have assets to pay off the mortgage.

4. It must be evident that the homeowner is having or will soon have a financial short fall.

Once you have established that a client meets the above criteria for a short sale, the next steps are all about details, from securing the right information from the seller to successfully translating that information to the lender. We’ll explore this in detail next month. When done correctly, you’ll be surprised at how lucrative this segment has become.

George “Gee” Dunsten, president of Gee Dunsten Seminars, Inc., has been a real estate agent and broker/owner for almost 40 years.