Short Sales to Overtake Foreclosures in 2013

Short sales are expected to overtake foreclosure in 2013 as the dominant workout solution for distressed homeowners.

Credit-rating agency DBRS attributed the change to “the record number of servicers that are using short sales as their primary loss-mitigation tool to prevent delinquent loans from entering foreclosure.”

HOPE NOW, an alliance of mortgage servicers, investors and non-profit counselors, reported this week that nearly 40,000 short sales were completed in August, bringing the total to more than 1 million since December 2009, when it began tracking statistics. Another 36,260 were completed in July.

“The increase of short sales has been significant and, for the first month since reporting on short sales, we estimate a high of 39,559,”

Short sales in recent years have lost their stigma as hundreds of thousands of homeowners have used it as the best solution to avoid foreclosure. Banks responded by creating massive departments and streamlinin g the process.

Why?

Because they net 12% to 25% more money in a short sale than a foreclosure. Is it any wonder why banks prefer a short sale over foreclosure? HOPE NOW Executive Director Faith Schwartz said in a release. “Short sales provide another tool to avoid the high cost of foreclosure for families, communities and investors.”

The Office of the Comptroller of the Currency reported earlier this year that 138,000 short sales were completed in the first half of 2012, and anecdotal evidence from the industry suggested that number would continue to increase in the second half of the year. HOPE NOW also reported foreclosure sales nationwide in August increased 12% to 71,149, up from 63,527 in July.

 And foreclosure starts increased 14% to 187,941, compared with 164,593 in July. In the West, foreclosure starts have been on the decline. California saw a 20.7% decrease in September from August, according to ForeclosureRadar, an online industry tracker. The number of starts dropped by as much as 40% in Nevada and Oregon. Regional foreclosure filings were down even more from the previous year. California dropped 48.1% from September 2011, while Nevada and Washington saw decreases of more than 70%.

Still, more than 14,000 foreclosure actions were filed last month in California. The recent foreclosure activity, along with the approximately 5 million homes in shadow inventory (homes 60-plus days behind or already owned by banks but not on the market), indicates the housing market has a long recovery ahead.

Short sales and loan modifications will play an integral role in putting the economy back on its feet.

Smart Real Estate Investing.com (800) 452-7627