With a foreclosure rate of one residential unit out of every 117 units in default or in foreclosure, Orlando ranked ninth in a listing of the 203 biggest metro areas in the U.S. based on rates of foreclosure activity.

More than 7,500 housing units in Orlando received delinquency or foreclosure notices, seven-percent up from just above 7,000 notices filed in October last year. When compared to the previous month however, filings dropped slightly as Orlando posted more than 7,600 notices in September.

One of the reasons for the continued rise in foreclosures in the Orlando metro area compared to last year is the failure of short sales. Short sales can help distressed homeowners avoid foreclosure and keep their credit scores from getting worse. But the difficulty of real estate agents and homeowners in completing short sales have been contributing to the increase in foreclosed homes in Orlando.

According to members of the Orlando Regional Realtor Association, advising distressed homeowners to sell their homes in a short sale to avoid foreclosure and finding buyers to acquire these homes are not very difficult. What is difficult is the process of convincing banks to accept the purchase offers, and when they do accept the offers, they do not have the staff to process the papers.

According to experienced realtors, foreclosure sales take about 5 weeks to complete and conventional house sales take about 7 weeks. Short sales take the longest time – more than 10 weeks. In January, short sales can be completed in 7 weeks, but now, as more troubled families turn to short sales to avoid foreclosure, banks now do not have the personnel to look into the short sale offers.

Short sales take too long some realtors have even declared them as not profitable in terms of the time and effort they invest into short sale negotiations. The same level of effort and time they invest in selling foreclosures, new homes or existing homes could net more, but they still are willing negotiate short sales if the sellers or buyers are also committed.

According to lawyer Justin Clark, who has negotiated hundreds of short sales over the past few years, the short sale process is easier for homeowners who have no second mortgages.

Industry experts said that short selling with lease option is becoming a trend among distressed homeowners in Arizona. But they cautioned homeowners to approach the option with caution.

As an example, one homeowner purchased a house in 2004 for $300,000 which is valued today at about $200,000. Loan modification proved to be unsuccessful so the homeowner opted to go the route of foreclosure short sales with lease option.

Under the agreement, the troubled homeowner will sell his distressed property to an investor. But he will remain at his house as a tenant and pay rent to the buyer for 36 months. After three years, he has an option to buy back his house for $234,000, an increase of 130 percent compared to the sale price he was paid when he sold the property on short sale.

The lease-buyback option started to emerge in the area last year. Industry experts said that the option is a way for distressed homeowners to avoid foreclosure and at the same time remain in their properties. However, they said that the option is not for everybody.

Experts explained how a typical lease-buyback works. The financial situation and properties of troubled homeowners will be evaluated to determine if they qualify for the program. A home that will be entered on the program needs to meet the price and condition criteria of the investors.

Mortgage brokers will then meet with sellers to counsel them and evaluate further if they are eligible candidates for the home repurchasing program in three years. The investor will then make an offer for the property and to the bank.

If the negotiation proves to be successful, the seller needs only to sign a lease for three years, with an option agreement to purchase the house after 36 months.

Foreclosure short sales with lease-buyback option are illegal if sellers and investors are blood related.

According to industry experts, condominiums as low as $20,000 and single-family homes at less than $60,000 are generating multiple offers and overbidding. They said that despite market data showing a slow rise in home prices, it appears that foreclosure houses will prevent further improvement in the pricing trend.

Experts said that many cheap properties are located in neighborhoods severely affected by the foreclosure crisis, including Antioch, Oakland, Richmond, Pittsburg and Vallejo. These cheap properties are mostly short sales or bank foreclosed homes.

As an example, experts pointed out that a one-bedroom condominium at Lakeview complex in Pittsburg is short selling for $48,000. The owner purchased the property in 2007 for $228,000.

Meanwhile, many homeowners’ properties are worth less than the total mortgage they owed to their lenders. This is one factor that is a cause of concern to industry experts. They said that homeowners whose mortgages are higher than the values of their properties are candidates for foreclosures.

They added that these homeowners would lose interest to continue paying their mortgages and instead would walk away from their distressed properties and leave them for lenders to be foreclosed.

Meanwhile, the popularity of bargain-priced properties has helped entice more buyers, who are just waiting for the right time, to get on the bidding frenzy. Industry experts said that banks, burdened with repossessed homes on their inventory, have started to offer properties at very low prices to attract cash-rich buyers, especially first-time homebuyers who are laden with federal tax credit of $8,000.

Furthermore, banks are in a hurry to dispose of properties clogging their inventory because the longer bank repo homes remained unsold, the higher the costs they would incur.

According to industry experts, banks prefer homebuyers with cash for quick closing of sales deals and because many foreclosed homes are uninhabitable which means they could not qualify for a loan.

On the other hand, experts said that condominiums are cheap buys because of some financing issues. They said that government-supported loans which accounted for about 90 percent of loans in the current market, are not made available to owners of these complexes.

They pointed out that many condominium residents are delinquent on their homeowners’ association dues plus the fact that most of these units are not occupied by their owners.

According to the market data, closed sales for condominiums and townhomes in Fort Lauderdale dropped by 4 percent in July compared with the previous month. But the volume of closed sales in July was higher by 35 percent compared with the same month a year ago. And out of the total condominium closed sales, 39 percent were foreclosures, an increase of 34 percent from June.

Meanwhile, condominiums and townhomes posted an increase of 3 percent in average sales price last month compared with June and a drop of 39 percent from July last year.

July’s median sales price increased by 4 percent compared with the previous month and declined by 46 percent from July a year ago.

Pending sales of condominiums dropped by 2 percent in July compared with June sales but up by 147 percent from July last year.

The inventory for condominiums and townhomes last month dropped by 3 percent from the previous month and 29 percent below from July 2008. Meanwhile, available inventory of homes in Fort Lauderdale in July was about 14 months. And out of the total available inventory, 27 percent consisted of condominium foreclosures and short sales.

On the other hand, closed sales of single-family homes dropped by only 1 percent in July compared with the previous month and 22 percent higher from July the previous year. Also last month, 37 percent of closed sales deals involving single-family homes were bank foreclosures compared with 29 percent in June.

The average single-family home sales price dropped by 4 percent in July compared with June and 30 percent below from July a year earlier.

According to industry analysts, short sales and Fort Lauderdale foreclosure homes sales continue to pull down the average sales price in the area. The median sales price jumped by 4 percent in July but was 27 percent below from the same month the previous year.

Additionally, pending home sales in July dropped by 11 percent compared with the previous month. However, the July figures represented a 128 percent increase from the same month last year.

Despite the declines in closed and pending sales last month, industry analysts are hopeful that the housing market in Fort Lauderdale will soon show modest indications of a recovery.

The foreclosed homes prevention plan has offered additional incentives to lenders who work with distressed homeowners who have difficulty refinancing or qualifying for loan modifications.

The housing rescue plan aims to simplify the short sales process. Short sale involves selling a property for less than the total mortgage owed by the homeowner and the transfer of property ownership to lenders without foreclosing. The effects of short sale is said to be less devastating and damaging than foreclosure. However, homeowners who opt for the short sale method to avoid foreclosure should expect to have a ruined credit score.

Troubled homeowners in South Florida would be happy to note that the Obama Administration intended to shell out funds to motivate lenders to alter loan terms.

Housing counselors have complained that lenders are having difficulty implementing the new guidelines on loan modification. In South Florida, foreclosures continue to rise despite efforts to alter loans.

RealtyTrac’s April data showed that the number of forclosed homes in both Broward and Miami-Dade counties increased by over 90 percent compared with figures for the same month a year ago. In Miami-Dade, about 11,299 homeowners received foreclosure notices and were scheduled for repossession or auctions by lenders.

In Broward, the total number of homeowners who received foreclosure notices in April reached 10,305.

According to Esslinger Wooten Maxwell Realtors President Ron Shuffield, short sales accounted for nearly 35 percent of foreclosed homes listed in the Multiple Listing Service for sale on the open market.

On the other hand, Neighborhood Housing Services director of homeownership Michael van Zalingen noted that employees at lending institutions are either driving away distressed homeowners from the Obama Administration’s Making Home Affordable program or are clueless or unaware of the foreclosure prevention plan.

Foreclosure defense lawyer Dennis Donet pointed out that South Florida homeowners are facing unique challenges when trying to modify their loans.

He explained that lenders are requiring South Florida borrowers to provide a full documentation of their income, which is a difficult requirement to comply with especially by distressed self-employed homeowners who want to avoid foreclosed homes.

In many states, mortgage lenders have the right to sue former owners of properties sold in short sales and previous owners of foreclosed homes to collect balances.

As the gaps between sale prices of foreclosed homes and loan amounts get bigger, more and more servicers of mortgage loans, home equity loans and other second mortgage loans have been requiring homeowners negotiating short-sale contracts to sign promissory notes to pay the balances if the selling prices are not adequate to cover all the mortgage debts.

The case of Jodie Byrd of Los Angeles is one of former homeowners who thought they have solved their financial problems after overcoming the rigors of a short sale. Byrd worked out a short sale after her husband got laid off, selling their house for $685,000 that fully paid their mortgage loan. To the couple’s shock, their former bank Washington Mutual Co. pursued them for their second mortgage loan balance of $21,600. Byrd claimed her real estate broker told her the loan balance would be extinguished. The Byrds later paid $4,000 to settle the bank claim.

A spokesperson for JPMorgan Chase, which took over Washington Mutual in 2008, said generally all mortgage lenders or servicers treat a second mortgage separately from the first mortgage.

David Knight, a top executive at Wells Fargo, said lenders and servicers typically go after borrowers to collect balances after a foreclosure or short sale if the unpaid debt is relatively large, the borrower has other significant assets, the house was acquired as an investment or there is no evidence of financial hardship.

A spokesperson for PMI Group Inc. said mortgage insurance firms pursue balances in cases where borrowers simply walk away from their foreclosed homes to preserve their other investments and assets.

According to real estate brokers and lawyers, they are seeing more and more short-sale contracts with promissory notes to pay balances. Florida real estate consultant Regina Rivard said half of the 22 short sales she worked out included promissory notes to pay balances to holders of first or second mortgages.

In Lee County, Florida, the number of cases filed to collect balances from short sales or sales of foreclosed homes has been rising in the past several months. Lee County Clerk of Court Charlie Green said most of the cases filed involved second mortgages linked to short-sale properties or foreclosed homes sold at bargain prices.

A short sale does take care of the debt that the home owner is involved in. Many people though are in for a shock in the coming tax season, for they will be assessed the tax on the amount that the lender forgave.

Before the Mortgage Forgiveness Debt Relief Act was signed by President Bush, all the home-owners who were involved in short sales had to pay the tax for the amount that was written off from the loan by the lender. According to the new law, home-owners do not have to pay that tax, up-to the original amount on the mortgage. This though, is only applicable if the home in question is the primary residence.

It seems that the legislators and the president have shown no sympathy towards investors who bought more than one property during the housing boom in Florida, and are having problems keeping up with their payments. If these buyers are fortunate and can get their lenders to approve a short sale, they will still have to pay the ensuing income tax.

An example in case is, if 200,000 is owed on the mortgage and the lender agrees for the home to sell for 160,000, 40,000 would be forgiven. However, if the home is not the residence of the home-owner, then the forgiven 40,000 would have to be claimed as income by the home-owner.

A lot of borrowers among foreclosure homes in Tampa who get the approval to conduct a short sale are unaware of this tax requirement. For investors who have bought many properties, this does spell trouble.

A short sale is a property sale in which the owner or a third party offers to pay the lender an amount that is actually less than the amount of the mortgage debt to stop lender from completing foreclosure procedure. Foreclosure proceedings could last from 3-12 months and costs can be quite high. Because of this, lenders can not be blamed for accepting offers of short sales.

Aside from not spending money to complete foreclosure proceedings, lenders do not also have to maintain these foreclosures Florida and spend a fortune in holding costs that include taxes, insurances, etc. Considered to be non-performing assets, foreclosures Florida will be better off being sold to buyers or investors at great discounts.

Since 2007 is expected to be the year when adjustable rate mortgages are set to adjust to a higher rate, lenders are expected to agree to more short sales. This is one of the quickest ways to limit the number of foreclosures Florida in their inventory and somehow recover the amount of mortgage owed to them.

If you are an investor, buyer or real estate broker, this is the perfect time to buy foreclosures Florida. You will only need to have really good negotiation skills. Having a real estate broker like Foreclosure Deals who can help negotiate and provide you with insider tips and sound advices will surely be convenient.