Not likely, says University of Chicago economics professor Casey Mulligan a recent New York Time article. First off, housing prices have yet to decrease from 2009 levels, at least that’s what the May 2010 Housing price index released by the Federal Housing Finance Agency, as well as Standard & Poor’s/Case-Shiller index. The tax credit seems to be the culprit and once this expires, the housing market will continue to fail.

Next, by examining data from the IRS, Mulligan concludes that not many tax credits were claimed in the first place. In total, there are apparently $14 trillion in owner-occupied houses in the US, plus $3 trillion in rental houses. Since the program began, only $19 billion has been claimed so far (with an average of about $6,000-$7,000 per credit claimed) and in the bigger picture, this means that only 1/10 of 1% of the total worth of housing in the US has been claimed by credits. The article supposes that many homeowners were simply not qualified or were not informed that they could claim such credits.

Mulligan puts forth another interesting point, “The credit was not designed to last more than year or two, whereas houses last decades or even centuries. Most of the value of a house accrues in the decades after the first year or two of its existence.” This means that even when the credit runs out, it has no effect on the over-all health of the market.

Location, location, location

Chances are, the property location is the first thing you considered when choosing homes. Don’t rely on just descriptions on the neighborhood – believe only what you see. Drive around the neighborhood and look for red flags – abandoned buildings, unkempt lawns, no children playing outside, increased police presence – these are things you’ll find out for yourself.

Property Condition

The caveat of buying REO properties is, of course, the condition of the home. Most of these properties have been abandoned, so you can’t expect much. However, what you’re looking for is structural versus cosmetic damage.Cosmetic damage is easy to spot and easy to solve. You can get carpets cleaned or replaced, clean up grime in the bathroom and kitchen or add a fresh coat of paint to weather damaged walls.

You should also check the plumbing, gas and electricity. Faulty wiring and blocked or leaky pipes is something any knowledgeable handyman can fix (bonus points if you can do it yourself.) Mold is difficult to detect with just your own senses, but you can buy testing kits at home improvement stores and take appropriate action.

Unless you’re willing to shell out cash on a home you must absolutely have, then avoid any home with structural damage. Crumbling foundation and walls, sever roof damage and wood rot are types of damages that are costly to fix and you may be better off starting from scratch.

History

Aside from the age of the property, try to find out the house’s history – who owned it previously and reasons for foreclosure, if you can. Knowing the history can possibly warn you in the future, in case there may be property disputes or if you run into previous tenants and owners.

Ask a professional

Of course, it is always good (and in some cases, required) to have a professional home inspector come by and give the house a look. They should be certified and insured. Usually they will have a set amount of time per home (depending on how large it is) and so make sure you have some questions ready before they arrive.

Now matter how good a deal may look, never pass up the chance to fully inspect an REO home before buying. You may find that taking a few hours and going over the property with a fine tooth comb will help save you from headaches (and a lot of money) in the long run.

The report cites Laurie Goodman at Amherst Securities, who reports that 51% of mortgages also have a second one associated with them. There are bbout $1.053trn in second liens which are still unpaid to this day. Second mortgages make it difficult to achieve a short sale on most properties. Also, there have been reports that many lenders of second liens have been extorting money from sellers and their agents, in order to approve short sales. While bribes may make it easier to complete a short sale, it also remains illegal.

Jackson also determines that HAFA is basically the same as the Home Affordable Modification Program (HAMP), which has yet to see marginal successes. Since it is an extension of the same program, a homeowner must be qualified for HAMP to be eligible for HAFA and the terms still remain the same. Out of the 1 million homeowners who have applied for HAMP, only 168,000 have successfully joined the program. Jackson alleges some of these homeowners may have defaulted again. More often than not, for the other 800,000 or so people who have yet to be approved, the problem lies with incomplete requirements and paperwork. It seems that the homeowners themselves cannot submit the proper requirementts themselves, despite the amount of manpower the agency is dedicating to the program. JP Morgan says they try everything to get the homeowners to respond to their inquiries, averaging “36 calls, 15 letters, and 2 door-knocks” before they cancel an application.

Despite the best intentions of the program, Jackson says HAFA won’t “kick short sales into high gear.” Citing JP Morgan, it is likely that REO volumes will likely increase again this year, returning to 2008 levels. With inventory so high, it is expected that REO will make up a bulk of home sales, up until at least 2012, thus, as the author concludes, “recovery in housing is spelled R-E-O. Anything else is wasting time until we get there.”

Allowing Habitat to have the “first look” could help stop the trend of the almost domino effect foreclosures have on a neighborhood. Stephen Seidel, senior director global programs for Habitat for Humanity International, recognizes that the organization will have a wider impact on communities, “The ability to purchase foreclosed houses before they hit the open market positions Habitat to make a bigger impact in communities hardest hit by the foreclosure crisis.”

Bank of America, Chase, Citi, Fannie Mae, Freddie Mac, GMAC, and Wells Fargo are just some of the lenders whose REO listings are being made available to NSP grantees. Says Seidel, “We are excited for the opportunity to help rebuild communities which have been negatively impacted by the foreclosure crisis, while assisting people in need of affordable housing.”

Of course, flipping houses is not that simple, though it does follow a  pattern: purchase a home for low-cost, renovate it and sell it at a profit, then buy the next home, renovate and sell that, and so on. There are some caveats of course, and it’s not just about buying and repainting a house. There’s so much more to flipping houses, and you should think carefully before you jump in.

Funding

As the old saying goes, you have to spend money, to make money. If you have enough money to buy a property outright, then good for you. Otherwise, you’ll either have to find investors or take on a loan from the bank. Either has its pros and cons – other investors mean having to share the profit, while taking on a loan will mean needing to cough up the downpayment (and monthly mortgage) on your own. There are government grants out there available to homeowners, but they greatly discourage these to be used for flipping or investing.

Research

Do you know which neighborhoods are up-and-coming, that is, those with home values which a low enough so you can afford it, yet soon to rise by the time you’re ready to sell? It’s possible you can get a property that’s inexpensive, but might be located in a bad neighborhood – no one will want to buy it, no matter how beautiful it is. Do research on the neighborhood, as well as the house itself. Often, bank-owned properties (REO homes) are a good investment – these can be found in all types of neighborhoods and the owners are often eager to get rid of them. You can check out auctions or real estate agents specializing in foreclosed homes.

When choosing a property, inspect the home and make sure the repairs to be made are cosmetic only, not structural. Sometimes, paying a good surveyor to inspect the home is a good investment, especially if you want to avoid money pits.

DIY As Much As Possible

If you have some skill in making more than basic repairs or painting, such as fixing plumbing fixtures or electrical wiring, then you can save on the costs of hiring someone to do it for you. It’s easy to learn painting and hammering a nail, so try doing everything yourself. Sometimes, all you need is a new carpet, new lighting fixtures and scrubbing off the dirt to increase the vale of a home. If you must hire someone else, make sure your subcontractor is licensed, bonded and insured. Try to get a recommendation from someone you know, and once you’ve built a relationship with a subcontractor, you’ll find that the process becomes much easier.

Once you have your property ready and fixed up, you’ll then have to start selling the house (or perhaps you’ve already started to.) In Part 2, we’ll tackle how you can best sell your home, and how to close the deal on your property.

The study was conducted by looking at over 1.8 million homes which were sold in Massachusetts in the last 22 years. By studying the data, they were able to deduce that foreclosure (as opposed to a homeowner dying or declaring bankruptcy) could reduce a surrounding home’s value (even if the owners are far from facing foreclosure.) “It’s not surprising that there is a discount due to foreclosure,” says Pathak. “But it is surprising that it’s so large.” Death and bankruptcy can lower the value by less than 7%. Because foreclosures often mean deteriorating and dilapidated conditions, the surrounding homes are affected as well. They make the neighborhood look bad and unkempt.

Also, because foreclosed homes are sold quickly and at a steep discount, this affects the home’s values as well. The home prices of the surrounding homes are taken into consideration when determining its value.

This study has many impacts, including finding a solution to solution to foreclosure “contagion” – a phenomena which causes foreclosures to cause other foreclosures.

Back in May, NSP grants were given out to non-profits and governments, to purchase and renovate properties in hopes of creating jobs and stimulating the local economies. For private citizens receiving the grant, they could put the money towards purchase of a home. The grants could also be used to create land banks and buy home from the HUD.

Fannie Mae also had a similar “first look” program last November. Those who received public grants would have priority for the first 15 days. The period was extended to 30 days in Nevada, because it had such high foreclosure rates.

HUD Secretary, Shawn Donovan was quoted as saying, “By essentially giving our Neighborhood Stabilization Program (NSP) grantees a first bite at the apple, we hope to accelerate the sale of FHA’s foreclosed properties while supporting the Obama Administration’s neighborhood stabilization efforts.”

Those using public grants to purchase a home will have the first chance to view and inspect homes listed by the FHA for the first 2 weeks. For properties unsold, it will revert to regular selling practices in accordance with the guidelines. According to Realty Times, “Being able to purchase these properties will help communities to create jobs and rehabilitate vacant homes.”

Is it worth it?

First, consider if your home is worth keeping or fighting for. Perhaps you’re only behind by a payment or two, and it seems like you’ll be able to may payments soon. Then you can delay proceedings by talking to your bank. If it’s not worth it – like if the value is worth less than the mortgage, or perhaps you’ve lost your job or facing illness – then you may consider a short sale or perhaps letting the home go into foreclosure.

Refinancing

You can opt for refinancing with your lender if you have more than 20% equity. This means that you’ll be borrowing against the current equity you have, which will help you keep your payments current.

Modifications on the original loan

If you’ve been delinquent for a few months, but can now make the payments, then you can ask your bank or lender to change your loan terms. You can opt to make a few larger payments to make up for the months you were behind.

Bankruptcy

If you have other debts which you cannot repay, consider filing for Chapter 13 Bankruptcy. This will ruin your credit for a good decade, but foreclosure will be delayed. You’ll have to pay off your debts via a repayment plan, but don’t fall behind again; this can be grounds for foreclosure.

Deed in Lieu of Foreclosure

Assuming you have 20% or more equity on your home, you can voluntarily give up your home, so as not to have the foreclosure on your credit report. Instead of being forcibly evicted, you give up the property to the bank and leave on your own.

Refinancing, bankruptcy and modifications are options to slow down the foreclosure process, if you just need some time to make your payments current. Further action should be taken to stop foreclosure, otherwise, a shortsale or giving up your home voluntarily can help save your credit rating.

Fotuno Enterprises apparently told the investors that they will find inexpensive properties for them, help them make repairs and find third party buyers. The plaintiffs alleged that they overpaid for dilapidated houses, most of which originally could have cost them $5,000  to $7,000 dollars. They were also hit with unforeseen fees and high property taxes. Also, most of the properties were in such a state of disrepair that it cost too much to renovate and make them sell-able. They were heavily damaged, and some were even under the threat of condemnation.

If Fortuno did happen to find buyers, they were often unqualified for loans or defaulted on their payments, which meant additional legal costs for eviction and foreclosure procedures.

The suit names the company and four other defendants – CEO William Yotty, CFO Harry Martin, Senior Vice President of Operations Barbara Thomas and President of Customer Service and Sales Bruce Grogg. None of the defendants were available for comment. Additionally, other defendants were included, because of their participation in the alleged scam. Sognari International and CEO, Steve Francisco, the Real Estate Club of Los Angeles and its president Phyllis Rockower provided misleading information and even promoted Fortuno, while taking referral fees.