1 in 3 Home Purchases a Short Sale


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Short sales of homes in foreclosure outnumbered sales of bank-repossessed properties in the third quarter of the year, as lenders show increasingly willingness to work with distressed homeowners short of foreclosure.

In fact, distressed home sales, included short sales of homes outside the foreclosure process, made up 41 percent of all U.S. home sales during the third quarter of the year, according to the real estate data firm RealtyTrac. Short sales alone made up one-third of all sales.

Short sales of homes outside the foreclosure process made up 22 percent of all home sales in the third quarter, according to RealtyTrac's third quarter foreclosure report, released today. The majority of these were homes on which payments were either delinquent or in default, but for which foreclosure proceedings had not been initiated, according to Daren Blomquist, RealtyTrac vice president.

"We don't know if they're in default or not," Blomquist said. "All we know is that they haven't received their first foreclosure notice."

New rules allow hardship sales

Blomquist said one factor is that Fannie Mae and Freddie Mac now allow short sales in certain types of hardship cases without the home going into foreclosure, including when the homeowner is required to relocate for employment purposes. That rule officially took effect Nov. 1, but he said many lenders had begun approving such sales prior to that, following the rule's announcement last summer.

In total numbers, non-foreclosure short sales are up 17 percent from the same period one year ago.

Foreclosure-related sales made up 19 percent of all home sales during the third quarter of the year, down slightly from 20 percent in the second quarter. Pre-foreclosure short sales outnumbered sales of bank-repossessed properties, with 98,125 short sales of homes in the foreclosure process, compared to 94,934 real-estate owned (REO, the industry term for bank-repossessed properties) sales during the same period.

Overall, the 193,059 distressed properties sold during the third quarter represented a 21 percent increase over the second quarter of the year, but was down 3 percent from the third quarter of 2011. That represented 19 percent of all residential home sales, down slightly from a 20 percent share in the second quarter of 2012.

Expiration of tax relief looms

"The shift toward earlier disposition of distressed properties continued in the third quarter as both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure," Blomquist said. "However, the scheduled expiration of the Mortgage Forgiveness Debt Relief Act at the end of this year could stifle this trend toward short sales."

The Foreclosure Debt Relief Act allows homeowners who have part of their mortgage debt waived by a lender as part of a short sale to avoid having to declare the forgiven debt as income for tax purposes. Congress may still decide to extend the Act or retroactively renew it after the first of the year if it lapses.

Homes in the foreclosure process or bank-owned sold at an average discount of 32 percent compared to nondistressed properties, according to the report.

First published on MortgageLoan.com at: http://www.mortgageloan.com/1-3-home-purchases-short-sale-9310

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Real Estate

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