Use of short sales to avoid foreclosure continues throughout the U.S.
Lenders and financially struggling homeowners continue to turn to short sales as a way to avoid foreclosure, according to a report released today by a national online marketer of foreclosure properties.
In a short sale, the lender agrees to accept a sales price that is lower than the balance a homeowner owes on a mortgage.
Pre-foreclosure sales increased by 22 percent in the third quarter of 2012 and were also up 22 percent from the third quarter of 2011, according to statistics compiled by the firm RealtyTrac. Pre-foreclosure sales in the third quarter outnumbered the sales of foreclosed, bank-owned properties 98,125 to 94,934.
Nationally, the average sales price of a home in pre-foreclosure was $191,025, which is about 27 percent below the average sales price of a residential property not in foreclosure, according to the report. That price was down 3 percent from the second quarter of this year and down 5 percent from a year ago.
Daren Blomquist, a vice president of RealtyTrac, noted in the report that the shift toward earlier disposition of distressed properties has continued because lenders and at-risk homeowners have recognized that short sales are often a better alternative than foreclosure.
But Blomquist warned that the allure of short sales could dissipate if the Mortgage Forgiveness Debt Relief Act is allowed to expire at the end of this year. The law spares homeowners from being taxed on the difference between the short sale price and the unpaid loan balance, which would otherwise be considered income.
"The prospect of being taxed on potentially tens or hundreds of thousands of dollars in additional income may motivate more distressed homeowners to forgo a short sale and allow the home to be foreclosed,” Blomquist said. "Additionally, if the mortgage interest deduction is eliminated due to the fiscal cliff quagmire, it would give many underwater and otherwise distressed homeowners one less reason to hang on to their homes.”
Missouri had a total of 2,645 foreclosure-related sales in the third quarter, up 39 percent from the second quarter, but about the same as the third quarter of 2011. Foreclosure-related sales accounted for about 17 percent of all sales in the state. The average sales price was $101,894, about 38 percent lower than non-foreclosures.
In Illinois, 9,563 foreclosure-related sales accounted for 24 percent of all sales in the third quarter. Foreclosure-related sales were up 39 percent from the second quarter and 46 percent from a year ago. The average sales price was $135,785, about 43 percent lower than non-foreclosures.
The full report can be found on the RealtyTrac website.
