Distress sales now define Orlando's still-slumping home market: Two-thirds of all resale closings in the metro area's core market these days are either bank-owned foreclosures or lender-approved short sales.

But the proportion of foreclosures to short sales varies drastically between affluent and low-income neighborhoods.

In desirable areas, such as Windermere and Baldwin Park, homeowners are much more likely to salvage their credit record by getting their bank to approve a short sale, which allows them to sell their house for less than they owe on the mortgage. In high-poverty areas that attract fewer buyers, most financially strapped owners have no such option, so when banks foreclose on them, their credit is damaged for years.

"When you fill out an application for credit, you have to answer if you have had a foreclosure in the last seven years," said Orlando real-estate agent Shaina Markulin, who has completed more than 200 short sales. "There are no questions on the applications, at least at this time, about whether you have had a short sale. … A short sale is absolutely a better option than a foreclosure, 100 percent."

Landlords and creditors are more willing to work with people who have made an effort to pay their debts instead of those who appear to have walked away from their biggest financial obligation, she added.

An analysis by the Orlando Sentinel of fourth-quarter distress sales throughout Orange County found that about 80 percent of them were foreclosures in ZIP codes with disproportionately high numbers of renters and large numbers of families living below the poverty level — mostly black or Hispanic neighborhoods such as Pine Hills, Washington Shores and the Oak Ridge Road area.

In communities such as Windermere, Baldwin Park and Waterford Lakes, which are mostly white areas with little poverty and few renters, homeowners were more likely to avoid foreclosure. Only about 50 percent of the distress sales there were foreclosures. The other half qualified for short sales by showing evidence of hardship, such as a job loss, illness or death in the family.

Not only can those homeowners emerge from short sales with their credit relatively intact, their neighborhoods stand to recover more quickly because short-sale prices are typically higher than those of foreclosed properties.

A foreclosed homeowner, meanwhile, often faces seven years of credit challenges and even more difficulty finding a place to rent, purchasing a car or qualifying for a credit card.

"It also hurts the neighborhood more because there's usually a vacancy period, where there might not be for the short sales," said Claudia Colton, co-director for the Center on Urban Poverty and Community Redevelopment in Cleveland. Short sales take time for the owners, real-estate agents and bank representatives to negotiate, but the house is usually occupied during the process, she said.

Reasons vary for the sharp differences in foreclosures vs. short sales from rich to poor neighborhoods. Real-estate professionals and others say cash-wielding investors are the only buyers purchasing properties in low-income areas, and they typically wait until a house goes into foreclosure before making an offer on it.

Along Pine Hills Road in west Orange County, for instance, hand-lettered yard signs advertising "Investor Homes" dot the roadside. Some offer three-bedroom, two-bath block homes for less than $40,000.

"The price is not going to get low enough on the short-sale market to buy a house in Pine Hills," said Fred Allen, past president of Central Florida Realty Investors. "Prices there got to $150,000 at the height of the bubble. … Now, investors will just wait till it goes to the bank and then buy it for $50,000 or $60,000."

In contrast, said Allen, Winter Park and Windermere are much more desirable to buyers and therefore much more likely to generate short sales.

"Those are not rental properties. An owner occupant is going to want to buy there. Banks will get more for the short sale than for" a foreclosure, he added.

Neighborhoods with a disproportionately high number of rentals are particularly susceptible to foreclosures, said Debra Wilkinson, an Orlando real-estate lawyer. Though homeowners may have an emotional attachment to their home and try to save it from foreclosure, landlords are more likely to see the house as a business expense and stop making payments once it no longer makes financial sense. Also, landlords have become notorious, she said, for leasing their properties, collecting the rents but then failing to pay the mortgage companies.

Low-income areas have also suffered more because the pool of potential buyers there has dried up since the meltdown of the subprime-mortgage market. Four or five years ago, Colton said, renters who lived in those neighborhoods were able to purchase houses because lenders eager to benefit from the homebuying frenzy did not always verify incomes for their high-risk, high-interest subprime loans. Now those residents face increased unemployment and have no financing available to buy a house, she said.

It remains to be seen, Colton said, but the country may reach a point where a foreclosure on someone's credit history no longer carries the stigma it once did. Already, rental experts report that some apartments are easing standards that used to preclude leasing units to prospective tenants with a foreclosure on their record.

Five years ago, foreclosures may have carried more weight, Colton said, but now they're increasingly common.

by Mary Shanklin Orlando Sentinel