This story is going to bring out the skeptics – the FBI has indited 5 men on a bid-rigging scheme on foreclosed homes in nearby San Juaquin county. Included in this inditement is an auctioneer. They have been accused of making a private deal amonst themselves not to bid against each other and then splitting the profits.

It has not been easy at the entry level for first time homebuyers to compete against investors with cash – but stories like this also indicate that there is fraud going on – or at least alleged fraud until they go to trial. The story also indicates that 8 people have already pled guilty in this case and that more than 100 foreclosed homes were bought and resold in this scam.

One of the hardest hit areas of the housing downturn has been new home builders. In the past 5 years many large corparate builders have gone out of business, declared bankruptcy or have been forced to scale back operations. The bee recently reported Sacramento area new home sales were the lowest reported since the 1950′s. In 2010 there were 2,363 down from close to 16,000 a year during the last real estatee boom of 2004-2006.

In the market we have experienced in the past few years it has often cost less to buy a distressed property – with plenty of newer homes to chose from than the builder’s cost of construction. Builders have not been able to compete in many sub markets. With an unknown number of future foreclosures still looming and with over 40% of all mortgage holders in the region underwater on their homes it is likely to be a while before the remaining builders see some relief. Some of the higher priced areas such as Granite Bay are seeing some increase as buyers from the Bay Area have shown some interest.

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The Sacramento Bee reports that underwater mortgages still make up approximately 40% of all outstanding mortgages in the region. This means that 40% of all homeowners owe more money on their home than what it currently worth. What does this mean? If you are a buyer – it means that home prices are not likely to increase dramatically while there are plenty of sellers who need to do a short sale. What this means if you are one of the 40% – plan on it taking a while before you start seeing any equity and know that if you do need to sell you would likely be looking at seeing if you qualify for a short sale.

While some of this information is a little out of date – the article was written February 2010 – it still has some good pointers and some reminders like the first time homebuyer’s federal tax credit is still available for current military personnel for several more months.

It’s always best to speak with your tax consultant for specific tax savings but doesn’t hurt to have this information as a way to ask questions.

I often recommend that short sales be avoided when looking for a home.  One problem has been little standardization of the process.  Banks have had no consistency in dealing with sellers and short sale offers and even finding two listing agents who process offers in the same way has also been a challenge.

Two government programs are attempting to streamline this process – HAMP (Home Affordable Modification Program) and HAFA (Home Affordable Foreclosure Alternative).  The primary objective of both of these programs is to help qualified homeowners avoid foreclosure and modify their loans when possible to keep current homeowners in their homes.  Get more information on both of these programs at the official government site:  MakingHomeAffodable.gov

Guidelines that went into place in early April is starting to put some structure into the short sale process.  Structure though does not mean simplicity as there are 45+ pages of documentation.  While now there are some specific time frames for lenders who chose to participate in this program, many of the details are still left up to each individual company in how to implement the program.  This means that there will still be no real consistency when working with short sales.  Bank of America does not have to have the same requirements as Wells Fargo or the local credit union down the street.

While there will be some structure in the new program, it is likely that some uncertainty will remain in terms of a resolution of offers.  Many buyers have voiced frustration in the amount of time that often passes before they have a resolution on their offer.  Until the processing time of short sale matches other distressed properties, most buyers will still be better off  avoiding short sales.

Next time – What should you look for when considering putting in an offer if your only choice is a short sale listing?