Sales of foreclosed homes by lenders are so 2012. Short sales are the hot 2013 real estate trend.
Regulations and reprisals from the real estate bust are making earlier short sales — selling a property for less than the amount owed — more attractive to lenders than repossessing homes through foreclosure, and then selling them.
This may represent an opportunity for investors and homebuyers who can bring cash to the table, while promised lender streamlining of short sales could make the purchase process easier.
"We'll see more pre-foreclosure sales completed than REO (bank-owned home) sales in 2013," said Daren Blomquist, vice president at foreclosure tracker RealtyTrac.
He says pre-foreclosure sales, the sale of homes in default or set for auction, rose 12% from a year ago in the fourth quarter and 6% in 2012.
Troubled properties are increasingly going to short sale before they end up deep in the foreclosure process. Nonforeclosure short sales — sales of properties not in the foreclosure process — have accelerated. They rose 17% in the fourth quarter from the year before, though just 4% in all of 2012. But sales of REO homes fell 15% in 2012.
Banks seemed unable or unwilling to do short sales a couple of years ago. But new laws and government settlements have helped change their minds. Blomquist says lenders are even contacting some underwater homeowners pre-emptively, before beginning the foreclosure process, to suggest a short sale.
With home values still off substantially from the housing bubble and many Americans strapped for cash, plenty of homes could end up being eligible for short sale.
RealtyTrac says 10.5 million U.S. mortgages, a quarter of all mortgages nationwide, are seriously underwater but not yet in foreclosure. In its report on 2012 distress sales, RealtyTrac notes that nonforeclosure short sales in Nevada grew 86% year-over-year, and 23 states posted annual increases in nonforeclosure short sales. Also, in 14 states, short sales comprised more than a quarter of all home sales for 2012.
Shorter Short Sales?
Time and money are two things to watch carefully in short sales.
Mario Gonzalez, a Las Vegas real estate investor, says the best-case scenario for closing a short sale is "five to six months." While several lenders say they're making short sales shorter, Gonzalez says he hasn't seen "that process work yet.
"I have a short-sale property that I put in escrow last February and still don't have an approval," he said.
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