Short Sales On Track To Exceed Foreclosures?

Author: Jeff

A report released from RealtyTrac last week projects that by the end of the next quarter, homes sold via short sale could outnumber those sold post-foreclosure.
Per the report, it shows over 109,000 homes in the pre-foreclosure stage were sold in the past quarter, compared to over 123,000 sold post-foreclosure. It's projected that the former will outpace the latter by the end of this month.
While there is no question the real estate market is still a long way from returning to what it was, the report highlights what could be a very promising trend that could help speed up the recovery.
Foreclosures cost everyone significantly – from homeowners to lenders to the communities the homes are located in. While a short sale isn't a miracle fix, it does reduce the costs to all involved and keeps homes from becoming vacant, which would then bring down the value of the surrounding neighborhood.
Until recently, many lenders seemed content to ignore the pleas for loss mitigation assistance and foreclose as they always had – assuming they'd make their money back on the sale of the home, pursuing the homeowner for the difference, or as is the case in some states, both.
Since a short sale automatically guarantees less than what's owed to the bank, they looked to short sales as a last resort.
Perhaps lenders are finally coming to the realization that people aren't sitting on wads of cash and the foreclosure route isn't bringing in the money they anticipated. After all, between record unemployment rates and the fact that most of the average American's wealth was tied to their home, there wasn't much left to pursue for.
While the article didn't provide specific stats on the average short sale price (only post-foreclosure sales), I'd be willing to bet that the average short sale price is significantly higher than the average post-foreclosure sale – for a couple reasons:

• The bank accepts short sales based on how close the offer is to fair market value (FMV). If an offer is less than 5-10% below FMV, it's likely going to be rejected. With a foreclosure, they'll typically accept whatever they can for the property (within reason), to avoid the carrying costs of a lengthy stay for the home in their inventory.
• Once a home is foreclosed on and finds its way into the lenders inventory, it often stays there for some time and falls into disrepair. Tens of thousands of dollars are needed to bring it back up to where it was pre-foreclosure when it was still lived in and cared for, so it ends up selling for much less – banks typically won't spend the money needed. Granted, it's still might sell at FMV, but for comparable properties in equally deteriorated condition.
• Often, lenders pay their listing agents a flat fee per house, instead of a commission. With less incentive to get the lender top dollar, Realtors don't always bring the best offer – but they can usually find comps to support the offer they were able to get and the lender rarely knows the difference.

In the end, banks are likely learning that it's not about whether they're going to take a loss or not, but how much of a loss. Limiting those losses is becoming the name of the game and a short sale is the best way for them to reduce the bleeding, when a modification can't be done.
I'll be curious to see the reports that come out after this quarter – if the short sale numbers do surpass the sale of foreclosed homes, here's hoping that trend remains in place until the markets level off.
To read the complete articles, please visit NPR and Bloomberg Business Week.

Article Source: http://www.articlesbase.com/mortgage-articles/short-sales-on-track-to-exceed-foreclosures-5969880.html

About the Author
I'm a Real Estate agent, currently serving as the Director of Short Sale Legal Services, a division of The Law Offices of Mark M. Bello, Esq. We assist clients with the short sale of their home(s), with our main objectives being: 1) Acceptance of the short sale by our clients lender(s), and; 2) Either a release from any liability for the deficiency, or a significant reduction.