Data released by RealtyTrac revealed that total number of
foreclosed properties sold in the third quarter of 2012 grew 21%
sequentially but fell 3% from the prior-year quarter to 193,059
properties. Of the total foreclosed properties sold, 98,125
properties were at some stage of foreclosure (up 22% both from
the prior quarter and the year-ago quarter), while 94,934 were
bank-owned (increasing 19% sequentially but declining 20% year
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The sale of pre-foreclosed (in default or scheduled for auction)
and bank-owned residential properties (REO) was 19% of the total
residential sale, inching down from 20% in the prior quarter but
in line with the year-ago quarter. Moreover, these residential
properties were sold at an average price that was 32% below the
average price of a home not in foreclosure.
In addition, properties that were in the early stage of
foreclosure were sold within 359 days on an average, after
passing through the foreclosure process. Properties owned by
banks that were sold had been repossessed about 186 days before
Further, non-foreclosure short sales of properties (accounting
for 22% of all residential sales) jumped 15% from the previous
quarter and 17% from the year-ago quarter. Short sale is a
process where the sales price is below the estimated amount of
all outstanding loans of a property.
Moreover, Georgia recorded the highest foreclosed property sales
as it accounted for 38% of all residential home sales, followed
by California (36%), Arizona (34%), Nevada (31%) and Florida
The surge in foreclosed property sales primarily resulted from
resolution of a large number of pending foreclosure cases that
were on hold as the mortgage servicers sorted out the foreclosure
mess. Post the announcement of the $25 billion settlement deal
between five mortgage servicers -
JPMorgan Chase & Co.
Bank of America Corporation
), Ally Financial Inc. and
Wells Fargo & Company
), 49 states' attorneys general and the regulators, the number of
properties entering foreclosure process is expected to remain
Further, the lenders are in support of short-sales, which is a
quicker way of retrieving some amount from their mortgages than
waiting for foreclosures (a more expensive and time-consuming
process), as evident from the third quarter data. Also, the
progress report (for the period from March 1 to September 30)
released under the settlement deal shows that the maximum relief
was provided via short sale.
However, the scheduled expiration of the Mortgage Forgiveness
Debt Relief Act at the end of this year is expected to reverse
this trend. The termination of the law would lead to significant
increase in income tax for the property owners who agree for
short sale, as the part of the unpaid loan not covered by short
sale will be considered as taxable income.
Hence, this will lead to higher foreclosed properties in the
market, as the homeowners will allow the property to foreclose,
rather than taking short sale option. Thus, we believe overcoming
the foreclosure crisis is expected to take some time.
Also, home prices across the nation will be pressurized as many
properties are expected to come to the market due to increased
foreclosure activities. Though the huge surge in foreclosures may
dampen the housing prices in the near term, this will enable the
housing market to revive over the longer term.