It was just last summer that Charlotte Perkins made the hardest decision of her life as she and her husband Jim were caught in the vise of the housing bust.

Wanting to downsize their lives as they headed toward retirement, they bought a new house in Mesa, Arizona, before they sold the old one, also in Mesa. Their previous home had been appraised at nearly $400,000 at the height of the market, but as the housing crisis ravaged Arizona, they were told they'd be lucky to get $200,000 for it.

They were carrying a loan of $260,000 on their original home alone, meaning they were well 'underwater,' owing much more than it was worth. Combined with the mortgage on the new house, their housing payments had become an "anchor around our necks," she says, threatening to gobble up all their retirement savings and leave them with nothing.

The couple made a difficult call: They would do a 'strategic default,' and simply stop paying the old mortgage. "We really had to wrestle with it," said Perkins, 60. "We had worked all of our lives to build good strong credit, and we're proud people. But it came down to, 'Can we keep doing this?' We had to say 'No.'"

As the housing bust drags on, many homeowners are thinking like Perkins. Almost 11 million homes are now underwater, says financial information provider CoreLogic. Around 3.5 million homeowners are behind in their payments and another 1.5 million homes are already in the foreclosure process, according to online marketplace RealtyTrac.

As banks start to work through their backlog of distressed properties, the New York Federal Reserve estimates that 3.6 million foreclosures will take place during the next couple of years.

So, the question is: Does it make sense to keep paying a massive mortgage, knowing that it might be decades before a home regains its prior value? Or is that akin to - as columnist James Surowiecki recently wrote in the New Yorker - "setting a pile of money on fire every month"?

"I constantly get the saddest e-mails from people saying, 'I've exhausted all my life savings, my retirement is gone, and now I have to default,'" said Jon Maddux, CEO of YouWalkAway.com,

a foreclosure agency that helps clients with strategic default (and charges a fee for it). "But if they had seen the writing on the wall a couple of years earlier, stopped paying the mortgage and stayed in the home throughout the whole process, they would be in a much better financial position."

Moral Quandary

There's a moral component to that decision, of course. People naturally feel embarrassed about breaking a contract and not paying their bills; no one wants to be branded a deadbeat. But remember that companies default on their obligations when it makes financial sense for them to do so, via the bankruptcy process. Even the Mortgage Bankers Association itself, in a flourish of irony, arranged for a short sale of its Washington headquarters.

It's not personal; it's business. So think of strategic default as a business decision, and do a cold-eyed cost-benefit analysis of whether it makes sense for you, advises Carl Archer, an attorney with Maselli Warren in Princeton, New Jersey.

[Also see: Small Money Missteps That Can Cost You Big]

"People think it reflects on their integrity, and say 'I wasn't raised this way,'" said Archer. "But the more businesslike attitude is to say that there's a contract, there are penalties for violating that contract, and sometimes it just makes financial sense to break it."

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on you again, you'll have to pay for the privilege, with stiff interest rates due to your default history.

What Happens to Scores

Charlotte Perkins watched her credit score go from a pristine 800 to 685, dropping every time she missed a payment. Credit-scoring firm FICO estimates that someone with a 680 score would see that number sink between 85-100 points after a strategic default, and someone with 780 could crater 140-160 points.

Not desirable, of course, but not the end of the world either. For Perkins, for instance, she already had a loan on her Ford Escape, and the mortgage on her new house, before she even started the default process. She hasn't seen any changes on her credit cards since, in terms of limits or interest rates.

Now that the previous home was auctioned off in December, she can start slowly rebuilding her credit, a process that should take about seven years.

Strategic default isn't a decision to be taken lightly, of course. If everyone did it, the housing market -- and the banks -- would be in much worse shape than they already are.

The following are some of the issues to keep in mind:

1. Look to it as a last resort, not a first option. Your financial troubles could be alleviated with a simple refinancing, especially since 30-year mortgage rates are near record lows of below 4 percent. If the banks are hesitant to rework your loan, look into the number of government programs designed to keep you in your home, which can be researched at MakingHomeAffordable.gov.

2. Location, location, location. Each state has its own rules and regulations regarding foreclosures, which affect both the length of the process and what you could be liable for in the end. In so-called 'non-recourse' states like Arizona, California and Texas, a lender cannot come after you for any deficiency (for instance, if your mortgage was $300,000 and they're only able to sell the property for $200,000). In other states they can pursue the difference, in theory - which is why some homeowners opt to file for bankruptcy, to free themselves from those potential obligations as well.

3. Use the interim to save like a demon. If you're in a state like New York or Florida, which require a judicial review of every foreclosure, it might be a couple of years before you actually have to pack up. In the meantime, be extremely disciplined about stockpiling cash. That will help you with a down payment for a rental, to pay for a car in cash if you need to, or to clear up other debts you might have. "Save money as if you were still paying the mortgage," says Archer. "If you don't, then you'll run out of both time and money, and then you'll be in a real tough spot."

4. Know the tax implications. Historically, if you have a debt that's forgiven, the canceled amount is considered taxable by the IRS. In the wake of the housing bust, though, the Mortgage Forgiveness Debt Relief Act was drafted to spare you those taxes. That legislation expires at the end of 2012, though - so if it's not extended, you could potentially face a tax bill for the difference.

5. Talk to a professional. A bankruptcy or real-estate attorney can help you through a very tricky process. The National Association of Consumer Bankruptcy Attorneys, for instance, has a searchable database of lawyers at www.nacba.org.

"Strategic default is not an easy decision, and there's a cost either way," said Gerri Detweiler, director of consumer education for Credit.com. "Would you rather be $200,000 underwater, or would you rather have seven years of damage to your credit report? It depends whether you're finally at the point where enough is enough."

If your home will be for sale this winter, it is important to master certain seasonal issues that are less significant or even non-existent at other times of the year. Here are 10 bits of sage advice that can help put a “Sold” sticker on that yard sign.

Let Those Lights Shine: The best way to combat winter’s short and frequently cloudy days is to turn on your house lights. For a showing, every single light in the house must be on, even in the closets and utility/mechanical rooms.

“Make sure all the bulbs are working, and stock up on all the right bulbs for lamps and fixtures so burned out bulbs can be replaced immediately.”  “Also, it’s a great idea to keep the lights on in the front of the house even if no showings are scheduled. People are always driving past the house, and keeping it lighted makes it look happy and welcoming.”

We also advise opening the drapes and blinds during the day to let in light and let visitors enjoy the view.

Provide Convenient Parking: It’s vital that buyers have a convenient place to park. They won’t want to walk very far in cold weather or be forced to climb over a snow bank to exit their vehicle. Because parking is often more restricted around condominiums, sellers should make sure their agent can pass along parking details to buyers.

Make It Easy to Enter: Winter showings can get off to an awkward start if prospective buyers arrive with snow or salt on their shoes.

Make it easy for buyers to deal with their shoes when they arrive.  “Put a festive area rug at the front door for a great first impression and so visitors can wipe their feet. Have slippers or disposable booties available, along with a bench or chair, if there is room for one, where a visitor can sit and easily remove or put on their boots.”

Keep Odors Under Control: Any home tends to be stuffy in winter when windows are opened rarely. That can allow odors to build up, which can be a turn-off to buyers.

“Pet odors can be especially worrisome in winter,” says many of our buyer clients. “Use a room fragrance if needed, but nothing too strong, and I recommend that in winter sellers clean more often.” For example, change the cat litter daily, rather than every third or fourth day, or even consider using an air purifier.

If pets are in the house, consider setting the thermostat control so that the furnace fan runs constantly during the day to keep air moving through the house and dissipate odors. Also try to avoid strong cooking odors, especially if a showing is scheduled that day.

Cultivate a Festive Look: Appropriate decorations for Christmas and even St. Valentine’s Day help give a home a cheerful look during the winter months.

“I really believe that holiday decorations can help homes sell, but don’t go to excess,” suggests Linda Head, staging coordinator for George's Team. “Keeping small, decorative white lights on trees and bushes pretty much through the winter season is fine, but other decorations should be taken down quickly once the holiday passes.”

Don’t Ignore the Outdoors: Make a good first impression on buyers with a neatly maintained yard. Walks and steps should be kept clear, especially of snow and ice.

Look after Condo Common Areas: If the home you are selling is a condominium, your job as a seller may be relatively easy in winter, with no snow to shovel or yard work to worry about. However, that is only the case if your condominium association does its job well.

If the association isn’t doing it, the homeowner may have to take responsibility for keeping the entrance area and hallways clean. If the association isn’t getting snow shoveled promptly, consider buying some de-icing salt and sprinkling it judiciously around the building entry.

Don’t Roast Buyers: We all tend to prefer a specific temperature for our homes during the winter, but don’t blast buyers with hot air. Keep the temperature at a comfortable 65 degrees for all showings. Remember, buyers are likely to be wearing their coats even as they walk through the house.

Keep Seasonal Clothing under Control: “One major challenge of selling a home during the winter months is the overabundance of cold weather gear that must be stored,” says George. “A buyer doesn’t want to find the mudroom filled with boots or the hall closet overflowing with heavy coats. Shift some winter coats to another closet and put anything not needed in the closet into storage.”

To keep gloves and scarves from piling up in the front hall or mudroom, put a special container for them, such as a decorative chest, where the family typically enters the home.

Encourage Day Time Showings: A home shows to its best advantage during daylight hours, which are relatively scarce in winter.

“Encourage your agent to show your home before 3 p.m. and have it ready to show by 9 a.m. if you want the best results,” George recommends.

Despite the special challenges of marketing a home during winter, there also are benefits, notes Brian Graves, President of Bentley Properties.

“Buyers out looking at homes in December or January are, as a group, quite serious about buying. Therefore, sellers tend to benefit because each showing is more productive, and fewer showings are needed to sell the property,” he says.

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.

Lawrence Yun, NAR chief economist, says the market has been stable although at low levels, and there is plenty of room for improvement.

“Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he says. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable—this speaks to an unfulfilled demand.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010.

Contract failures were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

NAR President Ron Phipps says access to credit is unbalanced. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” he says. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery—not place more obstacles in the way of financially qualified buyers.”

All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases.

Investors purchased 19 percent of homes in September, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010.

The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes—foreclosures and short sales typically sold at deep discounts—accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010.

Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August.

Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.

Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 in September, which is 1.0 percent below September 2010.

Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of 790,000 in September and are 6.8 percent above a year ago.

The median price in the Northeast was $229,400, down 3.3 percent from September 2010.

Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but are 17.2 percent higher than September 2010. The median price in the Midwest was $137,400, which is 1.4 percent below a year ago.

In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in September but are 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010.

Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in September but are 10.7 percent higher than September 2010. The median price in the West was $207,400, which is 4.5 percent below a year ago.

“The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the higher loan limits expired at the end of the September,” Yun says. “Given the concentration of higher cost housing in the West, particularly in California, many buyers were motivated to close in the months leading up to the changeover while they could still get low interest rates on conventional mortgages. Unless Congress reinstates the higher limits, the overall housing market recovery will be slower than it otherwise could be, and will hold back the broader economic recovery.”

Information and comment by RISMedia

RISMEDIA, June 24, 2011—The so-called “shadow inventory” of foreclosures—properties in the foreclosure pipeline but not yet listed on multiple listings services—slowly sank over the past year but still amount to five months’ worth of home sales.

The inventory fell from 1.9 million homes a year ago to 1.7 million in April, according to the latest report from CoreLogic, who attributed the decline to fewer new delinquencies over 90 days and a high level of distressed sales, which helped reduce the number of outstanding distressed loans.

The shadow inventory nationally peaked in January 2010 at 2 million units, 8.5 months’ supply, and stands 18 percent lower today than it was in April 2011. The total shadow and visible inventory was 5.7 million units in April 2011, down from 6.2 million units a year ago. The decline occurred in both the visible and shadow inventories.

Of the 1.7 million current shadow inventory supply, 790,000 units are seriously delinquent (2.6 months’ supply), 440,000 are in some stage of foreclosure (1.4 months’ supply) and 440,000 are already in REO (1.4 months’ supply).

In addition to the current shadow inventory, there are 2 million current negative equity mortgages that are “upside down” by more than 50 percent or $150,000. These current but underwater loans have increased the risk of entering the shadow inventory if the owners’ ability to pay is impaired while significantly underwater.

Mark Fleming, chief economist for CoreLogic, commented, “The shadow inventory has declined by nearly one-fifth since it peaked in early 2010, in large part due to a reduced flow of newly delinquent loans in recent months. However, it will probably take several years for the shadow inventory to be absorbed given the long timelines in processing and completing foreclosures.”

Currently the shadow inventory accounts for 29 percent of the combined shadow and visible inventories.

RISMEDIA, 2011—The economy is improving overall and, as a result, some bright spots are showing up in the real-estate market. However, the foreclosure spike, which began around the same time the recession did, isn’t a distant memory just yet. In many areas, foreclosures are still happening; in some areas, those numbers have increased. Surprisingly, foreclosures have even encroached into some key cities that were formerly thought to be unshakable real-estate markets — like San Francisco, where foreclosures actually rose in 2010 (including in luxury neighborhoods like Pacific Heights, where a condo that sold in 2007 for $2.3 million recently sold for $1.44 million as a foreclosure).

This “second wave” of foreclosures – combined with the fact that many people’s 401(k)s have bounced back with the stock market, and most economists agree that the bottom of the recession has hit – means that competition for these foreclosed homes is, in many cases, fierce. There’s a renewed, final dash to get in on what some perceive as the best real-estate deals they’ll get in awhile. But how do you know which foreclosure is a good buy, and which to walk by? Here are some tips to help guide your clients:

Get it checked out by a pro. Perhaps the most essential point: Never go by looks alone as an indicator of whether a foreclosure is a good buy. A $2 million mansion may look gorgeous on the surface but might have toxic mold hiding beneath, which will require extremely pricey, lengthy repairs. On the other hand, a Mission fixer may look dilapidated but may have excellent bones and can be repaired at reasonable cost. Stipulate to your client that a certified professional home inspector must be contracted to check out a property before making a deal on it, to determine what repairs need to be done — so they can truly assess whether it’s worth it for them. Don’t rely solely on previous inspections, even if relatively recent – a vacant home can deteriorate quite a bit in a short time, especially in an area with climate extremes.

Don’t abandon common real-estate logic. Too many people, when shopping for a foreclosure, abandon their real-estate sense and focus on price alone. Remember, things like a sub-par location, poor light, terrible view, below-average school district, high local crime rate and other negatives might be part of the reason why a home went into foreclosure in the first place. Don’t assume that financial problems of the previous owner are the main reason for every foreclosure. The last owner may have bought the home ignoring some of the aforementioned problems, and seen value sink because of them. Don’t ignore those problems, especially if your client is considering selling in the next 5 to 10 years. Let your client know how long the home has been empty; the longer it has, the more of a chance this isn’t a good deal. Also, if there are plenty of other foreclosures nearby, that’s also a bad sign.

Skip – or, at least, very strongly rethink – the flip. “House-flipping,” i.e., buying at bargain-basement pricing, updating, then selling for much higher – is very 2006… and hasn’t exactly been hot since. Even if a house looks like an incredible flipping opportunity, beware of this temptation unless your client is a pro, with incredible contractor connections. Tell them to automatically triple the amount they think they’ll be spending to fix up the home. Clients should avoid the temptation to make fast money unless they think it through and talk to their real-estate professional, a home inspector, contractors – and possibly even a therapist!

Go over the budget. A fixer-upper means nothing if you can’t afford to fix it up – and that’s especially true for foreclosures, where those fixes can cost a pretty penny. Before buying, make sure your client has an ample budget to do all the repairs needed, after truly taking stock (with the help of a home inspector) of what those needs are. Make sure they have at least half of that money in cash, and preferably all of it. They don’t want to take more loans than needed, especially private loans, which shouldn’t be taking at all – the interest on them will, little by little, chip away at the initial foreclosure bargain.

Do your homework on lenders. Fewer people are getting financing for home-buying than they did before the recession, but good financing is luckily still available to many qualified buyers. Just make sure, as with regular home buying, that you enlist a reputable lender. A good lender will take the time to do a review of your client’s financial life and long- and short-term goals, to truly pick the best solution for them, rather than just spitting out options. Also ask about hidden costs, rate locks, prepayment penalties, origination fees and whether underwriting is done in-house. Make sure everything is explained to them clearly, and recommend that they review all of the answers with a real-estate attorney, who will also be able to check out the lender’s overall reputation. These are things that many people do during the standard home-buying process, but might gloss over when lured by a low foreclosure price tag.

See it in person. Finally, advise buyers never to buy a house without going in person to see it. Ever. Foreclosure or otherwise.

The mean cap rate for office properties slightly increased in the fourth quarter by roughly 40 basis points. This marks a break from the trend after office cap rates experienced significant declines during the prior two quarters. However, though directionally reversed, the magnitude of the change was less than either of those prior two quarters, making this quarter's observation look like an outlier and not a reversal of the trend. The improvement in office fundamentals should signal to investors that the office market is in recovery mode and spur increased demand (and pricing) for office properties. Also, this improvement in the market is likely to further arouse interest from lenders as well. More plentiful debt capital will increase the pool of investors and competition for assets which should also be a tailwind for office cap rates.

RISMEDIA, March 25, 2011—According to the latest Spending and Saving Tracker from American Express, more than two in five (41 percent) of Americans said that it’s a buyer’s market for real estate. However, over 61 percent agree that a seller’s market is at least a year away.

Other findings:
• Homeowner confidence on whether they would receive the asking price for their home is nearly evenly split—43 percent said they are confident they would; 47 percent are not very or not at all confident.

• However, many homeowners—39 percent—are not willing to settle for less than the asking price, even considering the tough real estate market, in contrast to 23 percent who are willing and 38 percent who are not sure.

• To sell their home in the current market, 44 percent of homeowners note that they would be interested in including appliances, while 28 percent would consider offering to make requested repairs or allowing an allotment for repairs.

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury released the February 2011 edition of the Obama Administration’s Housing Scorecard. The latest housing figures show increased existing home sales as home affordability remains high, but officials caution that the market remains fragile, as prices are unsettled.

“In the face of the deepest economic recession and housing crisis in decades, the Obama Administration has taken unprecedented action to promote stability in the market—keeping millions of families in their homes and helping millions more to save money by refinancing. But the data clearly show that the market remains extremely fragile,” said HUD Assistant Secretary Raphael Bostic. “While we cannot stop every foreclosure, we know that many responsible homeowners are still fighting to make ends meet. Through the broad range of programs this Administration has put in place, we can put help in reach to those homeowners as early as possible.”

“Our housing market remains fragile. We know this from the data, but homeowners across the country can feel it too. That’s why this Administration remains committed to helping eligible homeowners avoid foreclosure where it makes economic sense to do so,” said acting Assistant Secretary for Financial Stability Tim Massad. “Every month, HAMP continues to help tens of thousands of additional families in a cost-effective manner. And by setting affordability standards and developing a framework for how mortgage servicers provide assistance to struggling families, HAMP has established critical protections for homeowners and has catalyzed improvements in modifications industry-wide.”

The February Housing Scorecard features key data on the health of the housing market including:

-The housing market remains fragile as data through January 2011 paint a mixed picture of recovery. Existing home sales ticked upward in January, but remained below levels seen in the first half of 2010. Mortgage delinquencies continued a downward trend compared to early 2010 and foreclosure starts and completions remain below peak. However, as lenders review internal procedures related to foreclosure processing, many foreclosure actions have been delayed. The decline is likely to be temporary as lenders eventually revise and resubmit foreclosure paperwork in the coming months.

-Administration efforts have been effective in blunting the effects of the deepest economic crisis since the Great Depression. Since April 2009, record low mortgage rates have helped more than 9.5 million homeowners to refinance, resulting in $18.1 billion in total borrower savings. However, home prices remain unsettled at this fragile stage of the recovery. More than 4.2 million modification arrangements were started between April 2009 and the end of January 2011—including nearly 1.5 million HAMP trial modification starts, more than 730,000 FHA loss mitigation and early delinquency interventions and more than two million proprietary modifications under HOPE Now. While some homeowners may have received help from more than one program, the number of agreements offered was more than double the number of foreclosure completions for the same period (1.8 million).

Given the current fragility and recognizing that recovery will take place over time, the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.