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1031 Exchange : Buy 3 Get 2 Rented

Real Estate Blog : Investment Property : Los Angeles : Manhattan Beach : Hermosa Beach : Redondo Beach : Palos Verdes : Torrance

Real Estate Blog : Residential Commercial Income Investment Property

1031 Exchange : Buy 3 Get 2 Rented - Living in 1 Unit, Renting out 2 Units

Internal Revenue Code Section 1031 exchanges allow real estate investors to defer capital gains taxes by exchanging their investment property for like-kind investment property. Internal Revenue Code Section 121 allows taxpayers a capital gain exemption on owner occupied property provided the property is the taxpayer’s primary residence and the owner has lived in the property for at least two out of the past 5 years.

What constitutes an investment property and what constitutes a personal residence becomes an important issue when a taxpayer owns multiple units at the same address. One such example is a triplex when the owner lives in one of the units as a personal residence and rents out the other units for investment.

Let’s examine a case study in which a recent client sold a triplex and was able to use the Homeowners exemption and the 1031 Exchange together on the sale.


  • A married taxpayer filing jointly owns a triplex.
  • Two of the units are 1,200 square feet and have been rented out for 5 years.
  • The taxpayer lives in the third unit, which is 1,500 square feet.
  • The taxpayer is contemplating selling the property for $1,000,000, which would generate a realized gain of $300,000.


Given the facts of this example, it appears as though the property qualifies as a partial personal residence and a partial qualifying 1031 Exchange property. Assuming this is true, how would the taxpayer allocate the sales price and gain between the investment and personal residence portions of the property? Authority on the issue requires the taxpayer to use the same method for allocating tax basis and amount realized on the sale. In addition, the taxpayer is required to use the same allocation method used when determining the depreciation deductions on the investment portion of the property.

In our case, let’s assume the taxpayer allocated for depreciation using the percentage of square footage the investment represented in proportion to the total square footage of the property. The investment portion of the property represents 2,400 square feet. The total square footage of the property is 3,900 square feet. Therefore the investment represents approximately 62% of the total square footage. The taxpayer uses the same method for determining the allocated sales price and gain on the sale. In our case, $620,000 of the sales price will be allocated to the investment (1,000,000 x 62%). The remainder of the sales price, $380,000, will be allocated to the personal residence unit. The amount of the gain is similarly allocated after taking into account depreciation recapture.

Assume that the taxpayer had taken 100,000 in depreciation on the investment over the 5 years of ownership. The $200,000 in gain not attributable to depreciation would be allocated 62% to the investment and 38% to the residence. The end result would be $224,000 allocated to the investment ($100,000 + $124,000) and the remaining $76,000 to the residence.

If the taxpayer has not taken depreciation on the investment portion of the property, they may allocate between the units in any reasonable manner. The most common methods of allocation include by unit, by square footage, by the quality of the interior improvements or by appraisal. For purposes of determining the adjusted basis of the investment, the taxpayer must impute depreciation and reduce the investment tax basis as if they had taken the deduction.

After the taxpayer determines how much of the sales price is allocable to the personal residence and the investment, they may use Section 121 and 1031 together to avoid paying taxes on their capital gains. Section 121 is a tax exemption so the capital gain is eliminated up to the maximum of $500,000 in our example. Section 1031 allows investors to defer paying tax on their capital gains provided certain requirements are met.

Shared By Leonard, Your 1031 Guy

Are you eligible to make your loan disappeared?

Bank of America Notifies Eligible Mortgage Customers of Second Lien Mortgage Debt Extinguishment

Friday, September 28, 2012 4:20 pm EDT
from Bank of America website

As part of Bank of America’s ongoing efforts to help customers in need of mortgage assistance, this company is in the process of mailing approximately 150,000 letters to pre-qualified homeowners offering automatic extinguishment of their second lien mortgages. The intention of the program is to place homeowners in an improved financial situation by reducing their monthly debt obligations and, potentially, help them create equity in their property.

The full forgiveness of second lien balances on eligible loans is being extended under Bank of America’s participation in the 2012 national mortgage settlement among the five largest mortgage servicers, 49 state attorneys general and the federal government.

Letters that began mailing in July 2012 and continue through the end of this year inform predetermined eligible homeowners that the full balance of their Bank of America-owned and -serviced second lien mortgage will be forgiven and the bank’s lien on the collateral property will be released free and clear, unless the customer opts out of this relief offer within 30 days of receiving the letter.

Amada's Comments[Amada's Comment]
Hummm… really?!? Are they the good guys now?? Let’s read on…

Questions and Answers

1. What is the second lien mortgage elimination offer?

We are offering eligible customers who are behind on their home loan payments the opportunity to have their remaining second lien mortgage debt eliminated. With this offer, the full unpaid principal balance on the second lien mortgage will be eliminated.

Amada's Comments[Amada's Comment]
So what BOA saying is if you have a second mortgage with them, they will make that loan disappeared and you don’t have to pay!!!!??? OK, the key words here are “eligible customers” and “behind”. Who is eligible? Are you eligible? On Question 3, BOA explained who is eligible without telling how (is one of those official only information). And the other key word is “behind”, if you are not behind on your mortgage, now you go behind that disqualified line. In the other word, you have to qualified at BOA’s provision and go through their loops and hoops.

2. Why is Bank of America doing this?

These offers are part of Bank of America’s ongoing efforts to help customers in need of mortgage assistance and are among the customer relief programs we have launched under the national settlement agreement between the five largest mortgage servicers, state attorneys general and the federal government. The goal is to help customers remain in their homes and avoid foreclosure whenever possible. By eliminating this debt for eligible customers, we are trying to help them get back on track financially with their first mortgage payments and return to sustainable homeownership.

Amada's Comments[Amada's Comment]
WHY?? That’s a good question. It’s part of a $25 billion court settlement due to the big 5 banks’ “questionable” practices on many troubled homeowners that are facing foreclosure. Basically the Federal court slapped their hands and said you cannot steal the whole thing coz people are starting to notice. Though them a bone back and next time do it while nobody is watching.

3. Who is eligible for the offer?

To qualify, customers must currently have a second lien mortgage owned and serviced by Bank of America that meets certain threshold delinquency or property value criteria, or a second lien mortgage associated with a first lien mortgage that is severely delinquent. Only second lien mortgages owned and serviced by Bank of America are eligible for this extinguishment program. It does not matter who owns and services the first lien mortgage. The vast majority of the second lien mortgages eligible for this program are in default in their subordinate lien position. A small number of second lien mortgages that are paid current will be extinguished if they are associated with a first lien mortgage that meets the program criteria.

Amada's Comments [Amada's Comment]
The New York Times reported on an article How to Erase Debt that Isn’t there explained those who “Eligible” don’t even have the debt anymore. And it said “a small number of second lien mortgages are paid current will be extinguished …. meets the program criteria.” Part of this criteria is the borrowers had begged and begged the banks to work out something for them but the bank didn’t.

4. How are you contacting eligible customers?

Eligible customers will receive letters from Bank of America via Federal Express or certified mail, explaining the offer to have their second lien mortgage debt eliminated. Mailings began in late July. At this time, only customers receiving letters will be eligible for the program.

Amada's Comments[Amada's Comment]
Sorry for those eligible customers now may be obligated to deal with the IRS due to the debt forgiveness program.

5. Do customers have to accept the offer?

We will eliminate the remaining second lien mortgage debt for eligible customers, unless they contact the bank to decline the offer within 30 days of receiving the offer letter. Customers are asked to contact a Bank of America Home Loans representative at 1.800.496.7831 if they have questions or wish to decline the offer.

Amada's Comments[Amada's Comment]
For those who may still have choice – make the best choice for yourself. But some of these people might have moved away and this letter would never reach them, yup, they are now stuck with the IRS issue.

6. Are customers who are not contacted by the bank eligible for this program?

We will be contacting customers who are eligible to have their second lien mortgage debt eliminated. Customers cannot request to be part of the program.

7. How will second lien mortgage elimination impact the first mortgage?

The elimination of the second lien mortgage is completely separate from any actions being taken regarding the first mortgage. If the first mortgage is in foreclosure, those foreclosure activities may continue.

8. What happens if the customer is in foreclosure?

Although the second lien mortgage balance is being forgiven and the lien on this second mortgage is being extinguished, this action does not extinguish the customer’s first mortgage. If a customer’s first lien mortgage is impacted and in foreclosure, this will not stop the foreclosure proceedings; foreclosure activities are likely to continue. Customers should continue to answer and reply to all foreclosure communications from their first lien lender. If customers do not understand the legal consequences of the foreclosure, we encourage them to contact an attorney or housing counselor for assistance.

9. What are the tax implications of the forgiveness?

Bank of America may be required to report the amount of the eliminated second lien mortgage debt to the Internal Revenue Service. Current federal law provides for certain exceptions to tax liability when debt is forgiven in connection with a foreclosure prevention transaction for some customers; however, debt elimination may trigger state and federal income tax liabilities for customers. To understand whether they qualify for one of these exceptions and what other tax implications this transaction may have, we urge customers to contact a tax professional. Additional information on mortgage debt forgiveness can be found at

Amada's Comments[Amada's Comment]
Circle back to earlier issue of the IRS.

10. How does this affect Bank of America’s implementation of the terms of the agreement?

The program is consistent with the provisions of the agreement for second lien mortgage debt forgiveness.

11. Are there other ways that customers can have their second lien mortgage debt eliminated?

Additional government-sponsored and proprietary Bank of America programs are available which may involve the partial or full elimination of second lien loans. Interested customers should call 1.800.669.6607 or visit

12. For a home mortgage loan, what is the difference between principal reduction or forgiveness and lien elimination?

If a lender forgives a portion of a home loan’s principal balance, the borrower is responsible for the remaining balance due and the lender retains its lien on the borrower’s property as collateral for the loan. In a lien elimination, the entire balance of a mortgage loan is reduced to zero, the lien securing the loan is released and the mortgage note is cancelled. The lender has no further claim to the borrower’s property as collateral, and no further monetary claims against the customer.

13. Will a customer benefit if their second lien mortgage debt has been discharged in a bankruptcy filing?

Yes. While customers who have filed for bankruptcy and receive a discharge of their second lien mortgage debt obligations are no longer personally liable for the debt, the bank still remains a lien holder to the extent of the remaining balance on the second lien. This means the bank still has a legal claim to the customer’s property as collateral to satisfy the second lien mortgage debt still owed through a court-approved foreclosure, or if the property is sold for a gain. Once the debt is cancelled and the lien extinguished or released (subject to court approval, if required), the bank relinquishes any further monetary or collateral claim to the property. This reduces the debt attached to the property and may provide the opportunity for the borrower to build equity in their home. Because the underlying personal obligation for the debt was discharged in bankruptcy, the bank will not report debt forgiveness to the IRS as a result of this transaction.

14. Will this affect the customer’s credit rating?

Through the extinguishment program, we will report to the major credit bureaus that the customer’s second lien mortgage is now “paid and closed” and has a zero balance, which could affect a customer’s credit rating. A credit score is determined by the customer’s credit history and is not controlled by Bank of America. Customers should review information on credit scores at

15. If the lien is extinguished in a bankruptcy filing, what are the credit reporting implications?

In the event debt is discharged through bankruptcy, the credit bureaus normally reflect that event as a loan or a debt discharge in a bankruptcy filing. Through the extinguishment program, we will report to the credit bureaus that the customer’s second lien mortgage is now “paid and closed” and has a zero balance.

16. How will Bank of America help customers who are still in need of assistance following the elimination of their second lien mortgage with the bank?

We want to work with customers to address their financial needs, especially if they are in need of assistance. Customers can always visit one of the 50 Customer Assistance centers in cities around the country or call 1.800.669.6607 or visit to find out about available programs.

Bank of America
Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 56 million consumer and small business relationships with approximately 5,600 retail banking offices and approximately 16,200 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world’s leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

FHA Waives 3 Years Wait Time for Short Sellers..

This may help a few of ‘Short Sale Sellers’ who  have already “short sold”  their homes…or it can  make a big difference to future Short Sellers who are considering a “short sale”.

FHA has financing for homeowners who are short selling their home and wants to repurchase another home after the short sale is approved and completed thru their current lender.

There are a number of home owners who  will qualify for this program by meeting the “extenuating circumstances” criteria.

In other words…there  will be “life (home ownership) after foreclosure” following their short sale”.

The caveats are:

1) They must be current on their mortgage and all other credit obligations for the 12 months prior to the actual short sale completion date.

Editor Note: Contrary to popular belief ..a “short sale” in and by itself  is a not a credit score killer! The damage to a borrower’s credit score by the  number of lates incurred during the “ramp up” to the short sale.

Also note…there is absolutely no discernible difference between a “short sale” and a “foreclosure action” (or loan mod for that matter) in the eyes ofan underwriter.


FHA/Fannie/ Freddie see all 3 events listed below as equally negative to each other ….thus triggering the  3 year “wait time”:


a) Loan modifications

b) Short sales and deed -in-lieu

c) Foreclosures

2)  Home owners must document “hardship” as defined by:

a) Job loss and subsequent job transfer/ relocation… (a new stream of income will be needed to qualify for the new loan).


b) Catastrophic medical bills (and/ or possible death) incurred by a member of the borrower’s “nuclear family” (i.e. co signer of the current mortgage..child…spouse..or other dependent as listed on the borrower’s tax returns).


3) They must be downsizing  and relocating. Buying a bigger home across the home will not fly.

4) Their current lender(s)  must be willing to approve the short sale of their current residence.

5) Their credit scores need to be above 620 and any outstanding collections (usually medical bills) need to be paid THRU ESCROW (ONLY)  at COE.

Lenders Tighten Rules on Self Employed Borrowers

Real Estate Blog : Investment Property : Los Angeles : Manhattan Beach : Hermosa Beach : Redondo Beach : Palos Verdes : Torrance

Real Estate Blog : Residential Commercial Income Investment Property

The ever changing lending rules is different by the hours (OK, I am kidding) but by the weeks is pretty close.

One of the latest is Fannie Mae will tighten the guidelines for self employed borrowers on October 27 2012. How Tight?? We don’t know yet.

But the current guideline is pretty favorable since only 1 year Tax Return is required with 20% down.

  • Only 1 year Tax Return Required
  • for Self Employed Borrowers…
  • 20% Down …Conventional Financing
  • Refi or Purchase OK!
  • Loans up to $625,000
  • 620+ FICO scores

If you are a Self-Employed person looking into buying or refinancing your home, contact your loan agent for the latest before more changes are coming.

Bidding Wars are BACK in some areas.

California Home Price is stabilizing….

Interest rate is all time low….

Buyers’ Confidences are back….

Home Inventory is low….

That Means = Bidding Wars are BACK in some areas.

If you are planning or thinking of selling, it’s not a bad time to do so.

Bidding War is Back

Latest Home Price By County in California

Latest Home Price by county in California

The Ranking of Median Home Price of California Counties:

  1. San Mateo – $825,000
  2. Marin – $823,980
  3. San Francisco – $741,850
  4. Contra Costa – $698,810
  5. Orange – $567,910
  6. Santa Cruz – $495,000
  7. Alameda – $493,240
  8. Santa Barbara – $477,780
  9. Ventura – $429,520
  10. San Diego – $388,100
  11. San Luis Obispo – $387,500
  12. Sonoma – $359,570
  13. Los Angeles – $315,390
  14. Monterey – $289,000
  15. Placer – $287,630
  16. San Benito – $261,900
  17. Mendocino – $257,140
  18. Humboldt – $251,140
  19. Butte – $221,050
  20. Riverside – $219,850
  21. Solano – $208,020
  22. Shasta – $177,500
  23. Sacramento – $172,520
  24. Tuolumne – $157,780
  25. Fresno – $150,000
  26. Amador – $146,670/li>
  27. Kern – $145,000/li>
  28. Tehama – $140,000/li>
  29. San Bernardino – $138,110
  30. Kings – $136,250
  31. Madera – $128,890
  32. Tulare – $122,320
  33. Siskiyou – $120,000
  34. Merced – $107,730

Top 20 metros for rising home prices

Median single-family existing-home prices rose on a yearly basis in just over half of 146 markets tracked by the National Association of REALTORS® in the first quarter, indicating prices are stabilizing, the trade group said today.


Nationally, the U.S. median single-family existing-home price dipped 0.4 percent from a year ago in the first quarter, to $158,100. Real estate owned (REO) and short-sale properties, typically sold at a discount, accounted for 32 percent of sales in the first quarter, down from 38 percent a year ago.

“Home prices lag sales activity because the transactions were negotiated mostly in the previous quarter,” said Lawrence Yun, NAR’s chief economist, in a statement. “Given the steadily dwindling supply of inventory and notably higher listing prices that are being negotiated today, prices are expected to show further improvements in the near future.”

At the end of the first quarter, for-sale inventory stood at 2.37 million existing homes, down 21.8 percent year over year. Inventories have been declining since a record 4.04 million in the summer of 2007, NAR said.

“We now have broad shortages of lower-priced homes in much of the country, with very tight supply in Western states for homes through the middle price ranges. This is good news for many sellers who wish to list now, or for those waiting for prices to improve,” Yun said.

Total sales of existing single-family homes and condominiums in the U.S. rose 5.3 percent on an annual basis in the first quarter to a seasonally adjusted annual rate of 4.57 million.

“This is the highest first-quarter sales pace since 2007. With strong market fundamentals, total home sales this year should rise 7 to 10 percent,” Yun said.

Regionally, sales rose the most in the Midwest, 11.7 percent year over year, to 1.02 million. The region posted a slight annual increase in median sale price, 0.8 percent, to $125,300.

In the Northeast, sales increased 6.6 percent to 590,000. The region’s median sales price dropped 3.2 percent from a year ago to $226,300.

The South saw a 4.1 percent jump in sales, to 1.76 million, and 1.2 percent rise in median price, to $143,600.

The West saw the smallest sales increase, 1.4 percent, to 1.2 million. Median price in the region fell slightly, 0.9 percent, to $196,200.

First-time buyers accounted for a third of sales nationwide in the first quarter, a slight year-over-year increase. Cash buyers, mostly investors, made up 32 percent of sales last quarter, while investors made up 22 percent.

Of 146 metro areas, 74 saw median sales prices increase year over year in the first quarter, compared to only 29 in the fourth quarter. Of the 20 metro areas to see the highest year-over-year jumps in sales prices in the first quarter, five were in Florida. Cape Coral-Fort Myers, Fla., saw the biggest price jump, 28.1 percent, to $117,600.

Nonetheless, half of the 20 metros were in the Midwest, with Grand Rapids, Mich., posting the biggest increase in that region, 19 percent, to $96,500.

Metropolitan Area Q1 2012 Pct. Chg.
Cape Coral-Fort Myers, Fla. $117,600 28.1%
Grand Rapids, Mich. $96,500 19.0%
Palm Bay-Melbourne-Titusville, Fla. $104,600 16.9%
Erie, Pa. $110,200 16.6%
Tampa-St. Petersburg-Clearwater, Fla. $131,900 16.1%
Ft. Wayne, Ind. $94,600 14.8%
Peoria, Ill. $122,100 13.6%
Bismarck, N.D. $179,300 12.4%
Elmira, N.Y. $98,900 12.0%
Sarasota-Bradenton-Venice, Fla. $163,400 11.1%
Dayton, Ohio $86,600 11.0%
Miami-Fort Lauderdale-Miami Beach, Fla.. $182,000 9.6%
Akron, Ohio $81,600 8.9%
Oklahoma City $140,500 8.7%
Charleston, W.Va. $131,500 7.6%
Florence, S.C. $115,700 7.5%
Honolulu $616,700 6.5%
Decatur, Ill. $86,100 6.4%
Lansing-E.Lansing, Mich. $65,500 6.2%
Gary-Hammond, Ind. $107,300 5.9%
Source: National Association of Realtors.

Among the top 20 metros with the sharpest annual price decreases, eight were in the Northeast, five were in the South, four were in the Midwest, and three were in the West.

Kingston, N.Y., saw the biggest decline, 22 percent, to $156,800, followed by Bridgeport-Stamford-Norwalk, Conn., down 18 percent to $334,000. While only four of the 20 metros that saw the biggest price increases had median sales prices above the national median in the first quarter, eight among those with the sharpest declines had medians above the national level.

Metropolitan Area Q1 2012 Pct. Chg.
Kingston, N.Y. $156,800 -22.0%
Bridgeport-Stamford-Norwalk, Conn. $334,000 -18.0%
Mobile, Ala. $91,200 -14.7%
Atlanta-Sandy Springs-Marietta, Ga. $87,800 -12.0%
Rockford, Ill. $79,500 -11.7%
Reno-Sparks, Nev. $147,800 -11.1%
Jacksonville, Fla. $113,800 -10.7%
Deltona-Daytona Beach-Ormond Beach, Fla. $98,400 -10.6%
Salem, Ore. $137,200 -10.6%
Newark-Union, N.J.-Pa. $326,000 -9.6%
Burlington-South Burlington, Vt. $246,200 -9.2%
Seattle-Tacoma-Bellevue, Wash. $265,400 -7.6%
Hartford-West Hartford-East Hartford, Conn. $202,000 -7.6%
Appleton, Wis. $107,700 -6.8%
New York-Wayne-White Plains, N.Y.-N.J. $411,700 -6.3%
Trenton-Ewing, N.J. $205,500 -6.0%
Milwaukee-Waukesha-West Allis, Wis. $170,600 -6.0%
Gulfport-Biloxi, Miss. $93,500 -5.9%
Buffalo-Niagara Falls, N.Y. $111,300 -5.8%
Wichita, Kan. $99,900 -5.5%
Source: National Association of Realtors.

With today’s report, NAR also released a new metro-by-metro analysis on the qualifying incomes to purchase a median-priced existing single-family home, assuming 5, 10 or 20 percent down payments and a mortgage interest rate of 4 percent with 25 percent of gross income devoted to mortgage principal and interest.

Nationally, median family income was $61,000 in the first quarter, NAR reported. At the national median home price, a buyer making a 5 percent down payment would need a $34,700 income; that drops to $32,900 and $29,300, respectively, for those making 10 or 20 percent down payments, the association said.

“Qualifying incomes are well below median incomes in most of the country, which means homebuyers generally can stay well within their means,” Yun said.

“For example, a buyer in Indianapolis making a 10 percent down payment would need an annual income of $24,004 to purchase a median-priced home, while in Seattle it would be $55,300. For now, buyers are facing an extraordinarily advantageous situation if they can obtain a mortgage.”


Most markets tracked by NAR post annual gains

By Inman News

2012 be the Record Year for Short Sales

2012 is on track to become a record year for short sales, according to a report from foreclosure data aggregator RealtyTrac.

Homes for sale short sale

2012 will be the record year for short sale foreclosures

Sales of U.S. homes in the foreclosure process, typically short sales, rose 33 percent year over year, to 35,000, in January. A total of 32 states saw annual increases in short sales, and 12 states saw more short sales than REO (real estate owned) sales.

The short-sale increase comes after three years of declines following the inauguration of “a new presidential administration with a new approach to the foreclosure problem,” wrote Daren Blomquist, RealtyTrac’s vice president and author of the report.

“Short sales have long held great promise as a market-based solution to the nation’s foreclosure problem, but short sales transactions over the past three years have actually declined after peaking in the first quarter of 2009,” Blomquist said in a statement.

“January foreclosure sales numbers, along with first-quarter foreclosure activity, strongly indicate that downward trend is ending, and we believe 2012 could be a record year for short sales.”

Several states saw triple- or double-digit yearly jumps in short sales in January, including:
Georgia (up 113 percent)
Michigan (90 percent)
California (52 percent)
Texas (48 percent)
Arizona (44 percent)
Nevada (36 percent)
Florida (20 percent).

Although REOs continue to outnumber short sales nationwide, there were only 2,600 more REO sales than short sales in January. Nearly a quarter of states had more short sales than REO sales, including Utah, California, Arizona, Florida, Indiana, Colorado, New York and New Jersey, according to the report.

Six out of the 10 states with the highest share of short sales in January were in the West.

Of the 50 largest U.S. metro areas, nine out of the 10 metros with the highest share of short sales in January were in the West, six of them in California.

Even as short sales increase, the prices buyers pay for them have decreased. In fourth-quarter 2011, a pre-foreclosure property sold for an average $184,221, down 11.3 percent from fourth-quarter 2010. In January, such a property sold for $174,120, down 10 percent year over year.

Short sales are also selling for bigger discounts when compared to the average sales prices of nondistressed homes. Short-sale buyers received an average 21 percent discount in January, up from an average discount of 17 percent the year before. RealtyTrac does not take into account property condition or size when calculating discounts for distressed properties.

Short sales in Massachusetts, Missouri and California saw the biggest discounts in January.

Short-sale timelines appear to be getting shorter. After peaking at 318 days in third-quarter 2011, the average number of days it took for a property to go from the start of the foreclosure process to its sale as a pre-foreclosure was 306 days in the first quarter, slightly down from 308 days in the fourth quarter.’

Although foreclosure starts — either default notices or scheduled foreclosure auctions, depending on the state — were down 11 percent from the previous year in March, last month also saw the third straight monthly rise in foreclosure starts.

There are nearly 3.5 million delinquent borrowers nationwide; 41 percent of those borrowers are seriously delinquent and therefore at high risk for entering the foreclosure process and becoming short sales, RealtyTrac said.

Another, bigger potential pool of short-sellers are borrowers with underwater mortgages. More than 12.5 million borrowers owe at least 25 percent more on their mortgage than their home is worth.

“Even if these homeowners aren’t struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it’s likely they’ll need to sell via short sale,” the report said.

Among lenders and loan servicers, Bank of America had the highest short-sale volume in January, followed by Chase and Wells Fargo.

PNC Financial saw the biggest annual jump in short sales, followed by the Federal Housing Administration, Fannie Mae and Freddie Mac combined.

Those three government-backed entities also had the lowest average short-sale prices in January, the biggest declines in average sales price for short sales, the lowest number of average days to sale, and the biggest decrease in time to sell.

Real Estate’s Bidding Wars Are Back

Pending-home sales in March hit their highest level since April 2010, spurring the return of real-estate bidding wars. Nick Timiraos reports on The News Hub. Photo: Peter Earl McCollough for The Wall Street Journal.

What is HAFA?

HAFA Explained in video!
How HAFA (Home Affordable Foreclosure Alternative) program can help home owners on a tough foreclosure situation.

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