There is evidence, though, that short sales are losing their appeal to first-time homebuyers looking to capture properties at significant discounts.

According to the latest data, first-time homebuyers now make up only 39.7% of all short sale buyers, down from a November, 2009 peak of 54.1%. Over the past three months, this number has fallen, and short of a new government initiative – like another first-time homebuyers’ tax credit – that number will likely stay low.

Before we discuss what implications this has for the market, we’ll talk about why this trend is happening to begin with.

For starters, short sales are noticeably more difficult to pull off for homebuyers than foreclosures and other distressed property deals. The buyer not only has to solicit an agreement from the seller, but also has to deal with the lender – many of whom choose to wait it out for hopes of a better return on their investment.

Short sales also require more knowledge about the real estate business as a whole, which is why savvy, seasoned investors flock to them. Furthermore, short sales often take significantly longer than other distressed property sales to complete. In short, first-time homebuyers usually do not have the experience or knowledge for successful short sales – and arguably would prefer the relatively-simpler process of buying at auction or purchasing REO homes from banks.

What implications does this trend have? The fact that fewer first-time buyers are buying short sales doesn’t mean that short sale transactions are declining. The opposite is true, actually. What the numbers reveal is that the market is not terribly kind right now to first-time homebuyers who want to take advantage of the same deals that are offered to experienced investors and real estate companies.

Of course, the incredible price discounts still outweigh the inconvenience. That, in the end, continues to be the deciding factor and will drive home purchases of distressed properties – foreclosures, short sales, and REOs – through the next year at the least.

And if the government steps in with a new tax credit, you can expect first-time homebuyers to jump right into short sales and buy in mass like they did in 2009.

With current market conditions, homeowners are becoming incredibly stressed by the prospect of having their homes lost to foreclosure and an ugly stain placed on their credit report for years. This dilemma has further expanded a buying opportunity for investors and homebuyers interested in getting great deals: short sales.

A short sale is a process by which a homeowner, instead of having his or her home foreclosed, sells the property for less than its worth to a buyer. This eliminates the nasty problem with the homeowners’ credit – which can last for seven years after a foreclosure – and saves the bank the cost and hassle of a foreclosure.

But, many homeowners have reported problems with the short sale process, indicating frustration at a process that in some cases lasts for months, with plenty of stress and irritation to go around. As a result, many are simply choosing to go through foreclosure to avoid the pain.

Naturally, some problems will always persist with any process, especially one involving real estate transactions. But, short sales still remain a viable and profitable alternative to foreclosure – if the parties involved are knowledgeable and diligent.

Navigating the world of short sales for a buyer is not impossible; in fact, it can make the process flow smoothly from start to finish, resulting in a nice discount on a property without having to go battle it out at auction.

For starters, it is imperative that the owner of the home and the buyer are on the same page from the onset. The buyer should discuss the ramifications of foreclosure with the owner – acting in part as a consultant, rather than a mere purchaser – and demonstrate how a short sale can help.

It also helps immensely if the buyer maintains a steady contact with the lender, working with the bank to arrange a deal while accommodating the needs of the lender and the owner. For example, some processes are held up because of a lack of communication between the bank and the owner and the purchaser. Remember: A short sale is a mutual benefit for the bank, owner, and buyer; all three must be satisfied and on the same page before it can proceed.

Merely keeping up conversation with a bank can reduce the response time from one’s initial offer from one month to a matter of days.

A buyer can spare themselves some headache by also looking for properties that do not have private mortgage insurance – often required if the owner did not put down a 20% payment at purchase. Private mortgage insurance often is on a second mortgage and can put a serious kink in the negotiations. Researching properties and finding ones without this obstacle is a way to avoid the stress that comes with a complicated and drawn-out short sale process.

Short sales are very viable alternatives to foreclosure and can provide numerous benefits for all parties involved. It is on the buyer to act more as a consultant and facilitator and less as some person with a check in hand to make the short sale process smooth sailing.

According to housing market observers, short sales contribute to the decline in home foreclosures in Dayton and in other key housing markets of the state. The process involves the sale of houses for less than the amount owed by homeowners to mortgage holders. In the northeastern part of Ohio, 6% of total housing sales were accounted for by short sales in September 2010.

Majority of local realtors have stated that they would rather have a long list of short sales rather than foreclosure listings in Ohio. They asserted that this method of selling houses helps cut down the number of abandoned and vacant homes and also prevent property owners from falling into foreclosures which can affect their credit history and the neighborhood's health. In majority of cases, short sales are also more beneficial to lenders and mortgage holders.

Realtors have also reported that the number of properties under list of cheap houses is also diminished when short sales are conducted. Although properties sold at short sales are still below their real market values, they are not as cheap as those sold in foreclosures. As an example, the average price of a property sold through a short sale in Cleveland during the month of September was estimated to be around 90% of the price of an existing residential property.

On the other hand, a similar property sold as one of the homes foreclosure for sale will have an average price of $54,000 which is considered way below the actual listing price of an ordinary existing dwelling. However, realtors remind homeowners that short sales do have some risks.

For one, majority of short sales fail to reach closing stages since buyers are often turned off by the amount of time needed to process an application. And although they can help cut down the number of properties under list of cheap houses, such transactions are said to be more prone to fraudulent practices than other home selling methods.

The number of Mobile foreclosure homes plus other properties under some kind of foreclosure all around the state totaled 2,754 for November 2010. The ratio for the month was one household out of 784, with the total number representing a 39% increase compared with October 2010. When compared with November 2009, the increase was pegged at 28%. The increase is particularly bad for the state since the national foreclosure rate has declined for the same month.

While foreclosed homes in Alabama surged in November, the national foreclosure rate dipped by 21% compared with October and recorded a 14% decline when compared with November 2009. The national decline was the biggest since the first month of 2005. According to analysts, the decline in the national foreclosure rate was partly due to seasonal trends.

According to them, almost all types of activities within the housing market, including buying, selling and short sale investing, usually decline during November. They stated that most people are more interested in spending money on Christmas shopping than buying homes, while sellers are usually too busy with other things to continue marketing dwellings that are unlikely to get purchased in the first place.

In addition, industry experts believe that the robo-signing issue led to increased number of potential buyers who find foreclosure houses for sale a relatively unsafe investment right now. For the part of lenders and mortgage servicers, the controversy surrounding foreclosure processing caused them to halt foreclosures in many areas or made them more cautious in foreclosing on properties, hence the slowdown in the entry of foreclosed homes into the market.

Although short sale investing and loan modifications were heavily promoted all around the U.S., particularly in hardest hit areas like Nevada and California, these two states still made it to the top three areas with the highest rates of foreclosures for November. Nevada remains on top, followed by Utah with California ranked third. Ten states reportedly accounted for around 70% of total foreclosures nationwide for November.

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According to state housing industry figures, residential properties sold in the state jumped during the month of August, with Birmingham foreclosure homes and distressed properties in other key areas of the state getting snatched by buyers in higher numbers than at any time since the housing market crisis started more than two years ago.

Housing data showed that almost 3,000 regular houses and foreclosures in Alabama were sold during the month of August, representing an almost 4% increase when compared with July, wherein a total of 2,885 homes were purchased by buyers. The rise in sales numbers was largely due to the decline in prices, with homes having an average selling price of $145,579 during the month of August.

According to housing market analysts, short sale foreclosures and low-priced residences account for a big percentage of the homes-for-sale market. The average price of homes for August is considerably lower than the July average price of $150,678, which resulted in more home buyers willing to let go of more cash to take advantage of the cheaper prices of dwellings.

Buyers who have the money to make a purchase are taking advantage of the fact that more owners are losing houses to foreclosure. Some buyers have reported that this gives them a chance to look for a better house than what they currently own for a much lower price. They added that they were encouraged to buy because houses for sale are newer and interest rates are lower.

Housing industry observers have stated that although the huge supplies of low-priced dwellings are creating an ideal market for buyers, the trend is not good for the residential property industry in general. They claimed that the huge supplies of cheap homes are dragging property values down.

Most realtors believe that the residential property industry will not get better until short sale foreclosures and distressed property numbers are cut down. They added that improvements in the job market are also needed for the state's residential industry to recover.

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It is not only Arlington, but also foreclosed homes in Tarrant, TX and in other areas of the state that are recording high numbers. As more homeowners fell into trouble, a lot of them also look at short sales as a way to save their credit scores and their finances. However, analysts have reported that some real estate agents are taking advantage of this trend and trying to come away with more than they deserve from the transactions.

Some industry experts have reported that a number of Texas foreclosed homes have become tools for agents and brokers to earn more money through fraudulent means. One of the more common method used is brokering a short sale and then selling it for a higher price to another buyer who might not be aware that he could have gotten the property at a much lower price.

In some cases, Arlington foreclosed homes for sale are being sold to individuals who are guilty of identity theft, with some people not aware that their financial data is being used to purchase a property. In other cases, the borrower is actually involved and will deliberately default on a mortgage to have it transferred to someone he knows using the short sale method and who will allow him to stay in the house.

Still another way is for these properties under listings of foreclosed houses to be given back by the buyer to the original resident using a quit claim deed. Analysts have estimated that fraudulent transactions account for around 2% of total short sales all around the country. Although the number is quite low, such transactions are believed to be on the upsurge.

Latest short sale data showed that California, Arizona, Florida and Texas, including Arlington foreclosed homes for sale, have some of the most suspicious short sale transactions. New York and New Jersey are also up there among the top ranked states, with Connecticut considered as having the lowest number of suspicious short sale transactions.

Recently, seven more individuals were sentenced for conspiring to defraud mortgage lenders. Their actions reportedly affected Lees Summit foreclosure investing and are focused on upscale residences in Lee's Summit and Raymore. The conspiracy was allegedly worth around $12.6 million and involved 25 upscale homes.

With Missouri foreclosure homes for sale being some of the highest in the whole U.S., fraudulent activities by certain individuals and companies have become quite common in the state. The seven individuals allegedly chose upscale properties in Raymore and Lee's Summit as their targets.

The defendants were involved in selling and buying new real estate houses for sale from several subdivisions, including Eagle Glen and Belmont. They reportedly bought the upscale residences at inflated prices and obtained mortgage loans by feeding false information to lenders and keeping part of the proceeds. Shell companies were established by the defendants so that they can receive kickbacks.

The sentencing of the conspirators is good news for the state which has been suffering from huge number of home short sales and high foreclosure rates. The seven individuals who were sentenced were among the 18 who pleaded guilty to conspiring and involvement in a scheme aimed at defrauding mortgage lenders during the period June 2005-May 2007.

The seven people sentenced were Stefan Guerra, Jerome Shade Howard, Michael Conrad Smith, Gerald D. Williams and wife Judith, Cheryl Ann Romero and James F. Simpson. According to reports, the defendants were receiving kickbacks ranging between $60,000 and $125,000 per residence. Lenders who were victimized by the defendants allegedly sustained losses amounting to over $6 million.

The news that the fraudulent brokers have been sentenced is a positive development for the housing market of Missouri which has been hit hard by high foreclosure rates and thousands of home short sales. Authorities have stated that more people will be sentenced for similar actions in the coming weeks.

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Greensboro foreclosure investing has been enjoying reasonable success prior to the housing market crisis, hence the interest of a lot of real estate investors, including Richard Rhyne. However, as the recession hit and the housing crisis results in stricter lending rules, Rhyne, like most real estate investors, finds himself having difficulties keeping his loans current.

Recently, the businessman has filed for Chapter 11 bankruptcy protection in relation to several of his buildings in Greensboro. This development shows that the housing market crisis is not only resulting in North Carolina foreclosed homes but also loss of commercial properties and businesses.

According to Rhyne, his situation is not unique, a lot of investors who purchase foreclosed homes for sale and other real estate items have also suffered from the economic downturn and the housing crisis. The businessman has filed for protection on several downtown properties, including the one at S. Elm Street where his antiques dealership business is located.

Despite the bankruptcy filings for the properties, Rhyne reveals that his antique dealership will not be affected since it is run by a different entity. With more properties being sold to investors who buy short sales, the whole area's property market has declined in value, the impact of which is also felt by businesses in the area, including Rhyne's.

According to Rhyne's lawyers, although loans on some of the properties are current, they are still included in the filing since bankruptcy cases require all assets to be included, regardless of whether loans are delayed or current. The lawyer adds that such cases are filed to control properties with considerable equity.

The move is a significant one for Rhyne since he has owned real estate in Greensboro for decades. However, as the economy declines, he found it difficult to keep up with loan payments and his real estate business suffered. The high rates of foreclosure activities and big number of homes being sold to those who buy short sales have also not helped.

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Short sales accounted for 75 percent of all distressed sales in the city in the first three months. Also, the percentage of preforeclosure sales in many areas in Brooklyn, Staten Island, Queens and the Bronx, has risen to about 20 to 40 percent of total home sales in the city, surpassing the 12-percent nationwide average and preventing a substantial number of units from entering foreclosure home auctions in New York.

Real estate professionals said that the inability of homeowners to obtain permanent modifications and the cash incentives given to both lenders and homeowners by the Home Affordable Foreclosure Alternatives program have been pushing a lot of distressed borrowers to avoid foreclosure through short sales.

They figured that if they have to lose their homes, they might as well take advantage of the cash incentives. Short sales would also put a lesser dent on their credit scores compared to the effects of lender foreclosures.

Another significant factor helping short sale completions in New York City is the longer foreclosure cycle in the state, giving more time for lenders and homeowners to negotiate a short sale contract agreeable to all parties. While some states have foreclosure cycles as short as 21 days, the foreclosure process in the state of New York can take 15 months or more.

Based on sales records, more Bronx foreclosure auctions were prevented through short sales, as the Baychester and Morrisania neighborhoods in the Bronx posted the biggest percentage of short sales in the first quarter.

As short sales increased in the Bronx in the first quarter, lender foreclosures also increased in the area in May, giving people looking to purchase foreclosed homes in New York City more buying opportunities in the Bronx.

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In May, there were nearly 8,500 homes in pre-foreclosure, almost 62 percent of all foreclosure filings in the state during the month. In the first quarter, there were 26,304 pre foreclosure homes, accounting for 66 percent of all filings. From January to May, there were 43,975 residential units in pre foreclosure, making up 65 percent of total filings in the five-month period.

With these relatively high numbers of housing units at risk of entering foreclosure auctions in Georgia, it is expected that many homeowners are trying to avoid foreclosure by doing short sales.

One indication that more distressed homeowners have been turning to pre foreclosure sales is the high percentage of people buying short sales and foreclosure sales in the first quarter this year, as studied by a major real estate research firm.

The research firm said that 35 percent of all house sales in Georgia from January to March this year or a total of 8,382 units were short sales or foreclosure sales. The percentage was higher than the nationwide foreclosure sale percentage, which was 31 percent, or 232,959 units sold while in default, trustee sale, foreclosure sale or real estate owned listing.

Prospective buyers can find foreclosed homes for sale across Georgia at affordable prices as there were 5,299 homes added to bank foreclosure listings in May, increasing the number of REO homes for sale.

The pace of Atlanta foreclosure auctions also rose in May, as homeowners continue to struggle from job losses. More than 9,500 homes were hit with default and foreclosure notices during the month, a ten-percent jump from the May 2009 total.

Buying short sales in Georgia also mean taking advantage of lower prices. In the first three months this year, the more than 8,300 distressed housing units sold were purchased by buyers at an average of 33 percent below the average sales price of non-foreclosures.

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