The reality of the foreclosure tsunami is slowly hitting home even with lenders and sellers. The constant pounding of the media is doing its thing. Eroding confidence in home prices is the first step to letting the market drop to where buyers might be willing to step up to the plate (if they can still get a loan…)

In the meantime, banks and lenders continue to take properties back at trustee sale auctions in huge numbers. What does that tell you about effective “foreclosure solutions"?

Answer: They’re “few and far between". A trustee sale is the “preferred solution" for the vast majority of foreclosure homes.

Of course, this has a lot to do with perceived “equity". When the market was hot, few properties ran the full course of foreclosure all the way to the trustee sale, and the few that did were bought by investors. Hardly any went back to the lender.

That’s different now. And because of internal reasons, lenders are rarely willing to take enough of a discount PRIOR to the trustee sale to make ait worthwhile for an investor. Remember: A short sale is a “solution" to a foreclosure that avoids a trustee sale and a foreclosure on the borrower’s credit record. That means successful short sales don’t show up in the trustee sale statistics (even though the lender might take a steep loss…).

That leads to two questions:

What difference does it make for the bank and home owner?

How do you pick the right property to buy “pre-foreclosure"?

Regarding the banks: I don’t think there is a “reasonable" explanation on the part of the bank. Asset managers have to realize that they will get fired for not moving properties, and not for not getting enough for them.

Regarding the home owner: The main difference is the foreclosure on credit records. I think that with so many foreclosures going through, and so many credit files getting tainted, the lending industry will change its perception of foreclosure in future lending criteria. If everyone with a foreclosure on their record would be banned from the housing market for seven years that might make the entire situation even worse.

Picking the right property to attempt a purchase in pre-foreclosure or a short sale can be tricky. The investor has to take into account the real equity, market tendency, and the amount of time it will take to negotiate and close a sale.

If the home owner is in control (i.e. no short sale needed), the deal is usually much easier to complete. The good things about short sales: It’s super-easy to get the home owner on board with this solution, and, yes, lenders will give you large discounts off the amount owed.

For more up-to-date information on foreclosures, please visit my blog site at http://GotForeclosure.com/blog